DATATEC, the South African computer networking firm whose stock is rising as the rand falls against the dollar, is considering acquisitions in the US.
"This year we do sense a recovery in the US," CEO Jens Montanana said from London on Tuesday.
"For the first time in five to six years, we are starting to have the conviction that the market is getting stronger. We may start to look at the US for acquisitions," Mr Montanana said.
Datatec, which installs Cisco Systems products, is benefiting from a decline in the rand to a four-year low against the dollar, with more than 98% of its earnings coming from outside its home market. The company, which trades its stock in Johannesburg and London, will also target growth through potential purchases in South America, Africa, the Middle East and Asia, Mr Montanana said last week.
"US margins are quite low for Datatec; however, when the market picks up, those businesses benefit from significant operating leverage," said Dirk Noeth, a Cape Town-based analyst at Avior, on Monday. "Datatec is unlikely to look at large, listed players. Smaller bolt-on distributors with exposure to networking and related software and services are likely to fit their target profile."
Datatec "rarely" makes acquisitions totalling more than 10% of its annual sales, Mr Montanana said. In the past five to 10 years, the Johannesburg-based firm on average did $100m-$150m in buyouts per year, he said.
The stock has gained almost in lock-step with the rand’s weakening against the dollar since May 16, a day after Datatec reported financial full-year underlying profit per share climbed 16%. The correlation between daily moves in the shares and the rand against the dollar was more than 0.85 through Tuesday’s closing price, close to the 1 figure that would mean they move in tandem.
"For South African investors we’re a pure rand hedge," Mr Montanana said.
The South African currency dropped 13% this year, the worst performer among 16 major currencies monitored by Bloomberg after the yen. Datatec has gained more than 16% this year.
The stock, the sixth-best performer on the 61-member FTSE/JSE Africa mid-cap index this month, reached R57.60 last Tuesday, its highest since September 2000, while the rand weakened almost 2%.