Datatec to miss targets as Westcon sales suffer

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Asha Speckman

DATATEC would miss its forecast full-year 2013 trading targets as Westcon, its largest subsidiary, would deliver a weaker-than-expected performance, the listed global information and communications technology provider said yesterday.

A combination of factors, including weak conditions in Europe, business disruption in North America due to Hurricane Sandy and lower-than-expected federal business, had caused the company to revise its earlier guidance.

The firm said these factors had “negatively affected trading so far in the second half”.

Datatec chief executive Jens Montanana said in North America, as a result of Hurricance Sandy that hit the east coast of the US in late October, many people did not go to work for one or two weeks, which in turn had an impact on business processing.

In addition, demand for Westcon’s services from the US federal government was weak during the peak season months of September and October due to electoral uncertainty and nervousness around the so-called fiscal cliff.

Montanana said US federal contracts constituted about 5 percent, or between $200 million (R1.7 billion) and $250m, of Westcon’s total business.

He added: “We are waiting to see if some of the backlog resulting from Hurricane Sandy comes through and if there will be a recovery during December, which is a key month for Westcon.”

The Westcon unit accounted for 74 percent of Datatec’s revenue of $5.03bn for the financial year to February.

“The board now considers it unlikely that the group will reach its published forecasts.”

The stock fell 3 percent to R54 by midday on the JSE after the release. It fell further in late afternoon trade to close 4.13 percent down at R53.40.

Datatec said since it had published its half-year results on October 17, Westcon’s third-quarter trading was slower than expected and down from the same period last year.

36One Asset Management equity analyst Laurie Slatter said Westcon, a distributor of security, data storage, point of sale and card reading equipment, among other things, was not a cyclical business.

Slatter said over time the unit had made many acquisitions in an industry that was struggling slightly due to economic conditions. However, “generally the business from an organic point of view has slowed down”, he added.

Datatec’s failure to provide more detail in the trading update released yesterday could mean it had missed full-year targets by more than 10 percent, Slatter said.

At the half year to August, Datatec forecast revenues of between $5.5bn and $5.8bn and profit after tax of approximately $104m for the 12 months to the end of February next year. Earnings and headline earnings a share were estimated to be about 50c.

Slatter said the concerns for Westcon could be around product revenues. However, Cisco Systems, whose products Westcon resells, had recently reported positive results with no signs of margin pressures.

Network equipment producer Cisco is Westcon’s largest client.

Datatec said its consulting services division also reported weaker performance, while its Logicalis subsidiary continued to trade strongly and in line with expectations.


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