Bucking the trend
Though many analysts doubted the durability of Datakor when it listed in the late Eighties, the Sankorp subsidiary has emerged as the only major computer group on the JSE not to have reported a drop in earnings in the past five years. During that time, Datakor increased turnover more than fivefold, attributable income fourfold and EPS from 15,4c to 25,4c. Debt, R85m after the purchase of Unisys SA in 1988, has been wiped out and at the end of March the group held net cash of R100m.
In the year to March, Datakor improved earnings 27% to R35,6m on turnover up 11% at R555m, in spite of an increase in tax rate from 25% to 47%. Interest payments of R8,9m in financial 1991 were turned into a contribution of R5,1m. Executive chairman Nic Frangos is confident the group can sustain earnings growth despite the recession and the dramatic changes taking place in the computer industry. He says Datakor anticipated the shift away from large centralized mainframes towards smaller distributed machines.
Management has invested heavily in what it describes as emerging technologies, particularly in the networking and software arenas. Though margins will be under pressure as products and suppliers proliferate, Frangos expects Datakor to keep abreast of changing demands.
Much of the financial improvements, especially on the balance sheet, have come through emphasis on productivity and tight financial management. While financial management will remain strict, growth in the next few years will depend on the performance of the emerging businesses.
Though Unidata US, whose products last year accounted for three-quarters of turnover, has returned on profitability after staving off near-bankruptcy, it has yet to prove that it can remain competitive and deliver leading-edge products.
Though last year’s ambitious bid to acquire a major in international networking company Timeplex came unstuck, Frangos still believes it is important to become a player in the global information technology market. The group is well placed to make similar bids should opportunities arise.
Around R20m has been earmarked for the acquisition of local software company Computing Benefits, formerly-listed Cortech and networking firm the Centre Group.
On the results, the share climbed to a 12-month high of 180c – nearly twice the price last October – and reflects an earnings multiple of seven. Even so, it is rated behind rivals ISG and Persetech (formerly components of TSI), Siltek and Fintech. On recent performance, this disparity appears difficult to justify. Find more information on Nic Frangos here.