In its latest interim report, Datatec Limited (JSE: DTC) showcased a remarkable display of strength both at the top and bottom lines. Across the spectrum, every division within the company delivered impressive results. Revenues surged ahead by a remarkable 15%, soaring to an impressive $2.76 billion. Meanwhile, the gross profit witnessed an outstanding 24% surge, reaching an impressive $417.9 million.
This heightened performance directly results from the escalating demand for Datatec’s information and communication technology (ICT) products and services. However, intriguingly, the company chose to forgo distributing dividends for the current period as it focuses its energies on gearing up for a truly robust second half. Anticipation is building, as Datatec expects all its divisions to elevate their performance for the full year leading up to February 2024.
This optimism is underpinned by the enduring trends in networking and cybersecurity, promising further growth. The response from the market was nothing short of fascinating. After the earnings release, the share price exhibited heightened volatility, concluding the day on a relatively even note, only to surge by a remarkable 3% the very next day. The question now looms large: What’s the next step for this dynamic ITC company?
Technical
On the 1D chart, a previous ascending channel failed to prevent a breakdown, but a massive surge from the R34.36 bottom led to the company testing higher resistance at the R38.81 level. However, with the 100-SMA (orange line) trading above the 50-SMA (blue line), sellers remained present, sending the share price back toward the demand zone close to R35.23.
After having already lost 1% in the Thursday session, the share price is under heavy selling pressure, with the demand zone at R35.23 edging closer after a breakdown at the R36.06 support. Should the share price continue to move lower, it might find support at the psychological R35.23 level, but a breakdown could lead to a longer-term downtrend toward R34.75. Neckline support is established at R34.36, which could prevent additional downside in the longer term.
However, if the price remains above R35.23, the support-turned-resistance at R36.06 could be a crucial level, where a breakout could lead the price higher toward R36.52, where the 50-SMA provides a challenging resistance level. The Fibonacci midpoint at R37.05 could then become pivotal, with the 61.8% golden ratio at R37.46 providing potential resistance to the potential uptrend.
Summary
As Datatec geared up for a strong finish to its 2024 financial year, it opted to skip its dividend payout despite delivering a solid interim earnings report. While the share price initially turned up, a retracement is currently emphasizing the demand zone at R35.23, where the share price could either pivot toward a sustainable uptrend or break down, bringing neckline support at R34.75 into the picture.
Source: Koyfin, Tradingview, Datatec Limited
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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