Datatec - Westcon is key to unlocking upside potential

Westcon is Datatec’s technology distribution business, representing 62% of H122 group revenues and 37% of EBITDA. With global demand currently outstripping the market’s ability to supply hardware and solutions, Westcon is transitioning from being a specialist value added distributor to becoming a higher-growth, higher-margin technology provider. This transition unlocks the potential for double-digit y-o-y revenue growth, with our estimated gross profit margins of c 11% and EBITDA margins expected to continue to rise towards 3.0% (H122: 2.2%) in the medium term. We value Westcon at c US$630m on a standalone basis (versus Datatec’s EV of US$685m). In August 2021, Datatec management initiated a strategic review to address this persistent undervaluation. In this note, we focus on Westcon to better explain the business and its market positioning.