Special divi R23.00 LDT 09/01/18
Is this divi already fully priced into the current share price of R57.00?
Is there an opportunity here to make a quick profit, or will the share drop by the full R23.00 ex-divi?
Is this company a good medium to long term investment post sale of it's biggest profit generator?
The short term investment case:
The company notified shareholders that the issue price applicable to the Scrip Distribution alternative is R34.23 per Share, which is the volume-weighted average traded price per Share on the JSE Ltd. ("JSE") over the 30 trading days up to and including Thursday, 21 December 2017, less the amount of the Cash Dividend (being R23.00 per Share).
So, the company is discounting the share by the full amount of the divi but one has to consider the effect of DWT of 20% if one selects the cash divi, resulting in a nett cash divi of R18.40.
The long term investment case:
On 1 September 2017, DTC received US$630 million for the sale of Westcon Americas and 10% of Westcon International with the potential for an earn-out of up to US$200 million in cash which will be finalised in April 2018. In addition DTC sold the non-core Logicalis SMC, Dutch business unit for US$42 million.
$350 million of the designated free cash is being distributed.The balance will be utilised to reduce the Group's residual interest bearing debt and working capital funding.
The maximum consideration of $830 million equates to an equity valuation of the total Westcon-Comstor division of $1.1 billion. Once Westcon International is able to show sustainable profitability, Synnex will make an offer for the 90% of the business they don’t currently own.
Datatec’s entire market capitalisation prior to the announcement of the sale was $850m (R11.97bn).
If you buy DTC shares you are getting three companies for free, plus the remaining debt. Datatec still owns IT services provider Logicalis, technology consultancy, Analysys Mason and the remaining 90% of Westcon for sale (worth $270 million based on the above valuation). It believes it will receive a better price from Synnex once earnings in this business, which had been hurt by a recent SAP software implementation, recovers.
Westcon International currently retains the US$63 million annual central costs of Westcon-Comstor and has a transitional services agreement with SYNNEX, which will run until August 2018. Subsequently, Westcon International will be able to implement fully its plans to reduce the central costs and right-size the business.
Logicalis has now become the strongest part of the Group in terms of profitability and cash generation and continues to provide the widest geographical exposure with its substantial Latin American and USA businesses. The Group intends to continue to develop and grow the Logicalis business.
While the Logicalis's trading in H1 FY18 has been disappointing, the Board expects a much better performance from Logicalis in H2 FY18.
Opportunities are made up easier than losses.