IT services and networking technology supplier Datatec (DTC) sees its share price collapse by 18% to 255p after slashing its profits outlook for the second time in the past few months.


Problems continue to mount at its US-based Westcon business, where its implementation of a new enterprise resource planning system has upset volume licence sales. So while revenues this year to end February are likely to hit the $5.6 billion to $5.8 billion target range, profits face a $13 million hit, and some analysts are calculating a 20% knock to earnings. Coming just weeks after post-tax profit guidance was top sliced from $102 million to $88 million, it's not hard to see why investors are selling in their droves.

DATATEC (DI) (LON) - Comparison Line Chart (Rebased to first)

'Westcon has continued to be impacted by the ERP transition in North America and particularly in high volume transaction business as well as softer trading in some markets that have seen weaker currencies versus the dollar,' spells out the company.


Responding, Datatec has reshuffled management, pushing chief finance officer Rob Evans into a group operations role, recruiting Jurgens Myburgh from Standard Bank of South Africa to replace him in overseeing the books.


At least Europe is showing signs of growth via its Logicalis arm, with product focus on the private cloud and the associated requirements for higher-margin security services and products.


Where once this was a robust mini IT services bellwether, seemingly insulated to a degree from wider swings in technology sentiment, it now looks just another volume licence seller facing the squeeze, perhaps another victim of the general shift to the cloud.


While analysts at broker finnCap remain positive, saying they 'expect that this should be the last of the Westcon ERP implementation problems,' others are less optimistic.


'Datatec has made changes to the leadership team and is addressing issues in North America, which it hopes should improve the situation,' says Megabuyte's Mike Rogers, before gloomily concluding that 'the current concern is that the trading environment could mean that organic growth in Westcon may be difficult to come by for some time.'

Issue Date: 15 Jan 2014