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Datatec stock falls on lower earnings

Johannesburg - Datatec [JSE:DTC] shares fall more than 1% as the group said earnings growth is slowing due to a weakening global economic environment.

Datatec was off 1.2% at R47.90 on Wednesday on the JSE.

The international information and communications technology group said its trading and underlying earnings are continuing to improve but growth is slowing in a weakening economic environment as the fallout of the eurozone economic problems has spread globally.

Releasing its interim management statement for the period March to end-June 2012‚ it said its forecast for the financial year was unchanged‚ based on current exchange rates and trading conditions.

On May 16‚ Datatec published forecasts for the financial year ending February 2013‚ for revenue of between $5.5bn and $5.8bn‚ profit after tax of approximately $104m‚ underlying earnings per share of approximately 55 US cents‚ and earnings and headline earnings per share of approximately 50 US cents.

It said on Wednesday that revenue had improved across all divisions in comparison with the four months ended June 2011.

However‚ gross margins had come under some pressure‚ particularly within Westcon in developed markets‚ although both the Logicalis and Consulting Services divisions had performed relatively robustly.

From a regional perspective‚ Asia and Latin America remained resilient‚ Europe was still weak and the US had slowed‚ Datatec said.

“Underlying earnings have increased year on year‚ but unrealised foreign exchange losses (versus unrealised gains in the comparative period) have impacted operating profit growth‚” the group said.

CEO Jens Montanana said: ”The diversity of our business streams and global footprint has once again enabled the group to improve revenues and underlying earnings in a difficult environment.

“Although the outlook has become more uncertain‚ the defensive nature of our business model continues to be a strong asset.”

Westcon has reported revenue growth across all regions‚ but has had a relatively challenging start to the year compared with the recent past.

Overall gross margins have fallen slightly‚ with margin pressures in Europe and North America outweighing margin expansion in developing market regions‚ particularly Latin America.

Operational profitability has not grown in line with revenue in the comparative period‚ as a result of slightly lower gross margins and the impact of unrealised foreign exchange losses.

On July 2 Datatec announced Westcon’s acquisition of Latin American and Iberian multinational security‚ virtualisation and data centre distributor Afina Group. The deal is expected to be earnings enhancing and expands Westcon’s presence in Latin America‚ the Caribbean‚ Europe and North Africa.

It also broadens and deepens Westcon’s product portfolio‚ adding and enhancing relationships with strategic vendors such as VMware‚ Riverbed‚ Symantec and Citrix.

The transaction was settled by the initial payment of €30m in cash and €10m worth of Datatec shares. Two additional contingent cash payments of up to €5m each will be payable in 2013 and 2014 subject to Afina meeting certain performance conditions based on earnings before interest‚ tax‚ depreciation and amortisation (EBITDA).

On July 16 Westcon acquired the Austrian value-added security distributor Triple AcceSSS‚ expanding its security business footprint in Europe and strengthening Westcon’s relationships with security vendors such as Trend Micro‚ F5‚ Blue Coat and BlueCat.

Logicalis has had a relatively strong start to the year‚ reporting overall revenue and operating profit growth over the comparative period.

The UK performance has been good despite weak economic conditions.

The US and Asia Pacific regions also reported improvements. Local market challenges in Argentina and the impact of a weaker Brazilian real have affected reported results in an otherwise still-resilient Latin America.

On June 1 Logicalis acquired Corpnet‚ a Brisbane-based provider of IT solutions including data centre‚ cloud and managed services solutions‚ to the Queensland‚ Australia mid-sized and enterprise markets.

The consideration consisted of $2.7m on completion with an additional potential earn-out payment of $0.6m.

The Consulting Services division has continued the improved performance of last year. Increased revenue and profitability at Analysys Mason have outweighed the effect of a more challenging sales environment at both Intact and Via Group.

Datatec expects to release its interim results for the six months to August 2012 on Wednesday‚ October 17.

 
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