Disway: Software

THE COMPANY: Disway is the result of the merger of Distrisoft with Matel PC Market in April 2010. The company is the market leader in the distribution of software solutions and computer equipment in Morocco. The firm has genuine activity in North Africa, and may be looking to expand its operations to some francophone African countries in the coming years. Disway is looking beyond the turmoil in the region. It expects to more than double its revenues before 2020. The successful merger of the two companies allowed the new management to achieve the scale needed to counter the arrival of new incomers, inhibit the development of the “black market” and better cope with the removal of trade barriers; present an expanded range of hardware, software and services to its customers; gain market shares in neighbouring markets, which have already been invested in by many Western multinationals; and increase the stock’s liquidity in Casablanca (Disway’s average daily volume reached Dh387,000 [€34,404] on December 14, 2012 versus an average of Dh110,000 [€9779] for the IT sector).

Disway is 42% owned by its co-founders, 17% owned by various local investors, 10% owned by insurance companies and 32% floats on the Casablanca Stock Exchange. The company was worth Dh315m (€28m) and dealt to a price-to-book ratio of 0.6, far below comparable companies, as of December 2012. Disway stock price plummeted by 50% from the beginning of 2012, due to unfavourable market conditions and a bearish global view of the IT sector, which is hampered by a lack of public spending and individual consumption.

DEVELOPMENT STRATEGY: Disway presents a single positioning for the Moroccan technology sector. The company benefits from the quality of its brand portfolio and its experience of more than 20 years as a hardware, software and service distributor. The company has been looking to diversify its business portfolio and expand its operations to the African continent recently. Technology hardware, software and services is a small sector in Morocco, but the move from data to the cloud, from hard disk to in-memory storage and from desktops to laptops should lead to a further increase in IT spending in 2013. Software services should also benefit from increased IT spending by the financial sector as well as strong growth in real-time data analysis.

Software services have a good track record of strong cash flow generation that can be key for Disway. Hence, in early 2012 the company signed a partnership agreement with EMC, a leading provider of cloud computing, big data and trusted IT solutions based in the US.

The move towards services and cloud computing is the result of the company’s new diversification strategy.

In 2012 Disway pursued the signing of new distribution contracts (including with Sony, Toshiba, Samsung and Apple) and changes to support revenue growth.

The company is also working on improving its working capital requirement and enhancing value creation for shareholders. Inventories have been elevated but it is expected that they will peak soon in the upcoming quarters. Meanwhile, the focus is expected to still be on cost-cutting, tight cash management and efficiency improvements. In terms of efficiency, the company recently launched a logistics facility in a free zone area close to the Casablanca airport, which will allow it to take advantage of tax reduction and exemption incentives, while regrouping all four previous warehouses under the same roof and enhancing synergies.

Even though Disway has embraced a multitude of incremental improvements over the past few years, gloomy market conditions should continue to put operations and profitability under pressure. In 2013 revenues are not expected to grow further, as volumes should not offset the fall in average selling prices (consumers are in search of cheaper products offering a certain level of technology). Disway should remain a low-margin business as we expect net margins of at least 3% in the coming years. Meanwhile, the company is expected to maintain its historical dividend policy. In 2011 the dividend pay-out reached 76%, a substantial 8% dividend yield superior to the market average yield of 4%.