AI has triggered a lasting step change in demand for computing, networking and cybersecurity, Datatec CEO Jens Montanana told investors on Thursday, as the JSE-listed group reported record first-half adjusted earnings at its two biggest divisions.
“There are many characteristics of a new technology supercycle,” Montanana said. “We do not think this is a one-off moment. Once AI infrastructure upgrades happen, there will be permanently greater demand for more compute and network resources and a much expanded cybersecurity surface. Our industry is set to become much larger.”
He said the build-out would not go on forever. “The AI cycle and data centre binge, or build-out, will at some point peak. I think this is clear,” he said in response to an investor’s question. “However, the install base of IT assets has gone up and will stay up.”
He compared the shift to the commercialisation of the internet 25 years ago, but said most technology companies, Datatec included, had “much better financial performance and working capital management” than they did then.
Gross invoiced income, Datatec’s measure of total sales, rose 18% to US$4.8-billion in the six months to 31 August, and adjusted earnings before interest, tax, depreciation and amortisation (Ebitda) rose 17% to $150.7-million. Montanana said the group’s first-half adjusted Ebitda was similar to its full-year figure just over four years ago.
Europe still accounts for about half of the group’s sales, but the AI effect is most visible in the US, where gross invoiced income at Logicalis International, the group’s IT services business, jumped 34%, or $135-million. Its adjusted Ebitda rose 36% to $71-million, close to the $74-million it made in the whole of its 2024 financial year. The AI-driven demand “is more apparent in the US right now, but will ripple to everywhere else later”, Montanana said.
At Westcon, the networking and cybersecurity distributor, order intake hit a record. Large telecoms operators, many of them building data centre infrastructure, delivered the most growth, he said.
Helping hand from Brazil
The 56.5% jump in underlying earnings per share, to 30.2 US cents, within the range Datatec flagged in a trading statement last week, owes a good deal to a court case in Brazil.
In March, a Brazilian subsidiary of Logicalis Latin America won a final ruling, after a lawsuit filed in 2018, that made about $38.4-million recoverable: $21.3-million in corporate income tax paid between 2013 and 2022, plus $17.1-million in interest. “Fortunately, this was boosted by an unexpected positive historical tax ruling in Brazil,” Montanana said of the division’s results.
Without the $17.1-million of tax-free interest alone, underlying earnings per share would have risen about 19%, not 56.5%, according to TechCentral’s calculations. Chief financial officer Ivan Dittrich said the first-half tax rate of 23.7% is Datatec’s estimate of the full-year rate applied to first-half profit, which suggests only part of the $21.3-million tax credit falls in this half.
The court award masks a deteriorating business. Logicalis Latin America made an operating loss of $6.7-million, and its adjusted Ebitda turned negative for the first time. Montanana called it a “structural decline” as the business tries to reduce its reliance on telecoms customers. There have been “multiple rounds of reorganisation”, the northern Latin America region, which includes Mexico, has a new CEO after internal problems, and “further actions are planned”, he said.
The surge in demand is also squeezing margins. Excluding last year’s $15.5-million tax credit, Westcon’s gross margin fell to 22.8% from about 25%, which Montanana attributed to “discounting, or providing sweeter pricing” on large deals in both cybersecurity and networking.
Component shortages are back, too, mainly for high-end Cisco routers and switches used in AI infrastructure. “It’s not acute to the extent we saw five years ago or so,” Montanana said, but hyperscalers’ heavy buying is “creating supply inflation, which you’re seeing everywhere in tech”. Some orders that should have shipped in the first half were delayed, building up a backlog.
Westcon is also carrying much more debt after its recapitalisation with General Atlantic, which funded Datatec’s R29/share special dividend. General Atlantic lent Westcon $375-million over six years at 9%. Westcon’s average net debt is now “just over 3.5x” its adjusted Ebitda for the past 12 months, a ratio Montanana expects to fall.
The first half carried only about a month of interest on that loan. “The second half will include this additional interest burden for the full period,” Dittrich said.
Datatec declared an interim dividend of R2.50/share, up 43% (15 US cents, up 50% in dollar terms). With 94.3 million new shares in issue after investors took scrip instead of cash from the special dividend, the total payout more than doubles to R844-million. – © 2026 NewsCentral Media
