Mergers, Acquisitions and Financial Results

Speculation is mounting that IT distributor and consultancy group Datatec may be preparing to sell some key assets following the release of a cautionary notice last week, which follows a March trading update. While Datatec is prohibited from commenting on the Stock Exchange News Service announcement, analysts have been quick to point out that the group needs to do something to shore up its balance sheet.

"This is a continuing hangover from the whole Internet and IT bubble," says Piet Viljoen, director of asset manager Regarding: Capital Management. "It is not inconceivable that Datatec, along with a lot of other IT companies, is still feeling the effects of the rash decisions made during the bubble." Datatec has seen its share price deflate substantially during the past two years, falling from more than R100. At 12.35pm today it was at R4.65, up 5c.

The group has blamed difficult trading conditions and being caught on the wrong side of the rand’s movements ­ twice. The first time was when the local currency weakened by 35% against the dollar and now more recently when the rand has strengthened against the dollar by about 60%.

A trading update issued by Datatec on 4 March warned that the group would experience a headline rand loss due to the currency’s strength during the five months to 28 February.The trading update said the foreign exchange losses in that period are expected to be substantially higher than those incurred in the six months to September 2002.

"Shareholders are also advised that the group’s effective tax rate for the full financial year is expected to be higher than that indicated in the first half, as a result of not raising deferred tax assets in certain operations where losses have been made."