Most of Datatec’s R7-billion payout was taken in shares, not cash

Datatec expects underlying earnings per share for the six months to 31 August to rise by between 53% and 61%, a day after issuing 94.3 million new shares to investors who chose stock instead of cash from its R7.05-billion special dividend.

The JSE-listed ICT group said in a trading statement on Tuesday that underlying earnings per share would come in at between 29.5 and 31 US cents, up from 19.3 US cents a year earlier.

Both of its main international divisions, distributor Westcon and IT services group Logicalis International, had a record first half at the level of adjusted earnings before interest, tax, depreciation and amortisation (Ebitda), Datatec said. Logicalis was helped by “an exceptional performance in the US”. Logicalis Latin America had “another weak operating performance” as it reduces its dependence on telecoms customers, but recoverable tax credits “boosted its bottom line”.

On the measures required by the JSE, the improvement is far smaller. Headline earnings per share will rise by between 0.5% and 7.3%, to 22.1-23.6 US cents, and basic earnings per share by between 5.1% and 12%. Underlying earnings exclude a long list of items, including share-based payments, amortisation of acquired intangible assets, one-off tax items and “acquisition, integration and corporate action costs”. The period included Datatec’s recapitalisation of Westcon with General Atlantic. Interim results are due on or about 29 October.

That deal valued Westcon at US$950-million and freed about $434-million for Datatec, which it returned to shareholders as a special dividend of R29/share. The transaction closed on 4 August.

Scrip issue is huge

Shareholders could take cash or new Datatec shares, and holders of about two-thirds of the shares chose the latter. Holders of 78.6 million shares did not elect the scrip alternative and received cash, so only R2.28-billion of the R7.05-billion, before dividend withholding tax, was paid out in cash on Monday, Datatec said. The remaining R4.78-billion was converted into 94.3 million new shares, issued at about R50.63 each: the 30-day average share price to 5 October, less the dividend.

The scrip issue is huge: based on the roughly 243 million shares that qualified for the dividend, it increases the number of Datatec shares by almost 40%. Future earnings will be spread across many more shares, although Datatec also keeps the R4.78-billion it did not pay out.