Datatec (OTCQX:DTTLY) underlying earnings surge 43% on margin gains

Datatec reported adjusted EBITDA growth of 21.9% to US$129.2m for the six months to August 2025, with underlying earnings per share jumping 43% to 19.3 cents. The South African ICT group’s gross profit rose 11.7% to US$483.4m, with margins expanding across all three divisions as software and services reached 71% of gross invoiced income. Net debt halved from the prior year to US$54.4m and the company more than doubled its interim dividend to 175 ZAR cents. Edison forecasts FY26 revenue of US$3.78bn, PBT of US$164.7m and EPADR of 84 cents.

What’s going on here?

Westcon International delivered gross invoiced income growth of 9.8% to US$2.78bn, with gross profit up 13.8% to US$245.9m. The division’s gross profit included US$15.5m of indirect tax credits from litigation, but excluding these one-off items, gross profit still grew 6.6% and margins improved to 23.5%. Adjusted EBITDA increased 7.3% to US$76.4m. Logicalis International saw gross invoiced income rise 11.4% to US$1.04bn, with adjusted EBITDA surging 36.5% to US$52.4m and margins expanding to 8.5% from 6.7%. Logicalis Latin America turned around a weak prior period, with gross profit up 6.2% and adjusted EBITDA more than doubling to US$11.8m despite flat gross invoiced income.

What does this mean?

The shift towards software and services is driving both margin expansion and improved earnings quality. Conversion of gross profit to EBITDA improved from 24.5% to 26.7%, with Logicalis Latin America showing particularly strong progress from 11.6% to 23.0%. Net finance costs fell across all divisions due to better working capital management and lower interest rates. Earlier in the year the company changed its dividend policy to two-times cover from three-times previously, enabling the 133% dividend increase. Management expects all divisions to report better financial performance in FY26 than FY25, supporting Edison’s forecast for 24% EPADR growth to 84 cents.

Why should I care?

Datatec is capitalising on structural demand drivers including AI infrastructure requirements, hybrid cloud adoption and increasing cybersecurity needs. The company’s positioning as a specialist distributor and integrator for complex technology solutions is attracting vendors who need experienced channel partners. Edison’s FY26 forecasts imply continued momentum, with revenue growth of 3.8% to US$3.78bn and PBT advancing 20.6% to US$164.7m. The improving margin trajectory, strengthening balance sheet and enhanced dividend policy make the shares attractive at current valuations, particularly given management’s confidence in continued improvement across all divisions.