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Datatec, the Johannesburg- and London-listed network integrator, has released an interim management statement this morning covering the period September to December 2011. It reiterates the expectation of growth in the second half of the company’s FY12 (which runs to end Feb), although it underlines once again that developing markets in Asia and Latin America are the key source of growth in the current macro-economic environment (see our H1 commentary: Emerging markets drive 20% organic growth at Logicalis).
There’s not much detail in the release (or on the analyst call with CEO Montanana this morning) about the bit of Datatec that most interests us, i.e. network services arm Logicalis. It confirms that while Latin America continues to grow healthily “business in the US and UK markets has been more challenging”. Montanana did point to some “firming up” in the US market across Datatec’s interests, but essentially it’s clear things remain tough outside of developing markets. Datatec is a major reseller of networking kit, especially Cisco, so the company’s performance gives a handy guide to how network vendors too are likely to be finding business right now.
Returning to Logicalis specifically, there is a positive indicator in today’s statement on profitability: “Profitability in the second half of the current financial year is expected to be better than both the first half of the current financial year and the second half of the prior financial year”. Talking to Logicalis’s UK MD Tom Kelly towards the end of last year, it was clear that improving EBIT was the overriding priority for his business. He’s clearly taking steps to achieve this, i.e. building data centre capacity and infrastructure services to drive annuity revenues, and thus decrease the reliance on reselling product. But we’ll no doubt have to wait til May to get more detail on both growth and profitability at Logicalis UK, as that’s when Datatec’s full-year results will be released.
