DTL - Data#3 Limited

[craft]

Surprisingly there doesn’t seem to be a thread already for this great little wealth creator.

From last year’s AGM presentation

Firstly liquidity – as an investor said to me recently, “If shareholders are concerned
about getting in because there’s insufficient liquidity to get out, they aren’t the sort
of shareholders you want.” Another said “there’s just not an opportunity to get set”.
Interesting perspectives! Unfortunately there isn’t much we can do about liquidity.
We have 15.4 million shares on issue and given we have focused primarily on
organic growth, this capital structure is not easily changed.

At this year’s AGM they will be putting forward a proposal to split the shares 10 for 1

If nothing else maybe the added liquidity will help raise this company’s profile.

Anybody have any thoughts for or against the split.

 

[robusta]

Yes we are a wierd mob, we are up to page: 34 on the TZL thread, 447 on Wellington Capital, 275 Storm Financial and yet this gem of a wealth creator has not rated a mention until now.

Great ROE, nice dividend yield, solid cash flows, damn so many good investments available at the moment, so little capital available.

As for the share split it may add liquidity and a bit of a boost to the sp IMO, but should make little difference to a business that I would love to buy and hold.

If I own 1 share at $11.50 or 10 shares at $1.15 after the split I would be very happy either way with the 7% plus and growing dividend yield. Sp appreciation is almost certain to folllow.

 

[robusta]

I have not done any detailed research on DTL but from comsec history since listing in Jan 1988 the sp has gone from $1.80 to $11.50 today with a low of $0.31 during the tech wrech, dividends have gone from $0.12 pa fully franked to $0.77 fully franked this year.

Not sure what the CAGR is but must be too booring, maybe I should research some guys drilling holes in the ground hoping to find something to dig up.

 

[Ves]

I purchased some DTL shares for $10.81 on Wednesday.

Phenomenal that a company with $30 mil equity has $54mil cash in the bank. Excellent cash flow and ROC / ROE.

DTL is in an excellent position, they have focused on organic growth through low operating margins. Top line growth has been very good since the GFC. When margins are allowed to expand their earnings power has the potential to take off.

 

[craft]

Not sure what the CAGR is but must be too booring

Yep turning 10K into half a million over the last 10 years is way boring. Yawwwn. Nothing to see here move on.

maybe I should research some guys drilling holes in the ground hoping to find something to dig up.

we are up to page: 34 on the TZL thread

Now this is way more exciting.

 

[craft]

If I own 1 share at $11.50 or 10 shares at $1.15 after the split I would be very happy either way with the 7% plus and growing dividend yield. Sp appreciation is almost certain to folllow.

Hi robusta

In theory the share split should make no difference. But in theory there is no difference between theory and practice. In practice there is.

I'm wondering if the increased liquidity will lead to some degree of PE expansion. In one way this would be a bit of a shame because despite DTL's historical performance it has always remained relatively cheap which is great for ploughing the dividends back in.

I’m wondering why they have chosen to increase liquidity now – Is it about keeping fund managers happy as it approaches possible inclusion in the ASX300 or is about something else – I noticed two directors selling in August, does that have any relevance?

 

[robusta]

Hi robusta

In theory the share split should make no difference. But in theory there is no difference between theory and practice. In practice there is.

I'm wondering if the increased liquidity will lead to some degree of PE expansion. In one way this would be a bit of a shame because despite DTL's historical performance it has always remained relatively cheap which is great for ploughing the dividends back in.

I’m wondering why they have chosen to increase liquidity now – Is it about keeping fund managers happy as it approaches possible inclusion in the ASX300 or is about something else – I noticed two directors selling in August, does that have any relevance?

Sorry Craft I do not have opinion on possible PE expansion after the split, as for the directors selling I normally like to see them buying but it is not the most reliable indicator either way.

This is a real gem of a company, do you think the growth can continue into the future at anywhere near the historical average?

 

[Ves]

Off-topic - but craft, what are you using to generate the company vs asx historical graphs?

 

[RandR]

I had a peek at this company as it came up on my scan, but i decided against it as I dont really understand how the company will fare in the changing tech environment (the cloud etc).

Would be very interested to hear from people more familiar with the workings (both positive and negative) of the company and the most likely future direction of it as technology moves away from 'physical' software.

 

[craft]

Off-topic - but craft, what are you using to generate the company vs asx historical graphs?

10 Year total return charts from Morningstar’s FinAnalysis.

do you think the growth can continue into the future at anywhere near the historical average?

That’s the million dollar question - perhaps literally. All I can safely say is that I’m comfortable holding and even topping up based on currently known information. Who knows what tomorrow will bring – certainly not me.

 

[craft]

I had a peek at this company as it came up on my scan, but i decided against it as I dont really understand how the company will fare in the changing tech environment (the cloud etc).

Would be very interested to hear from people more familiar with the workings (both positive and negative) of the company and the most likely future direction of it as technology moves away from 'physical' software.

Hi R&R Last years AGM presentation had a section which addressed concerns a prospective investor might have. Well worth a read to get the companies perspective, cloud computing is considered page 23-25.

http://www.asx.com.au/asxpdf/20101105/pdf/31tpybvtsylsds.pdf

 

[RandR]

Hi R&R Last years AGM presentation had a section which addressed concerns a prospective investor might have. Well worth a read to get the companies perspective, cloud computing is considered page 23-25.

http://www.asx.com.au/asxpdf/20101105/pdf/31tpybvtsylsds.pdf

It was food for thought. For me, regardless of what happens tech wise .. the key to Data#3 for the future is management. Obviously they have been very successfull. If the current management can stay together for a couple of years I have not alot of doubt that DTL will continue to be wildly profitable and grow.

That aside I still have reservations about the future of the space this company operates in. Technology wise.

 

[craft]

That aside I still have reservations about the future of the space this company operates in. Technology wise.

Good to have reservations - If you don't then you are probably missing something.

I actually see technological change as a driver for DTL’s revenue rather than a threat . If technology becomes less complex, fails to be an imperative for increasing efficiency or solves the issues around data integrity and security then I may become more wary of the impacts upon DTL. The new 'trusted cloud' delivery model has the potential to be beneficial through increasing difficulty of customers switching. Public cloud not a hugely suitable alternative for DTL's business customers because of data integrity issues.

Some potential short-term dampers in recent announcements. Increased investment by DTL in their business processes, some customers potentially holding back IT capital spend. Large Federal Government contract also out for renewal and Microsoft potentially changing re-seller terms.

Long term – If there is a better company in this niche then I haven’t found it. I hold.

 

[GG999]

I guess that there's something that I don't understand

ROA = 9%
ROE = 50%


Net Margin 2.2
Asset Turnover 4.2
Financial Leverage 5.5

Yet very little debt (?)
If so why is it called 'financial leverage'?

cheers
tk

 

[Ves]

I guess that there's something that I don't understand

ROA = 9%
ROE = 50%


Net Margin 2.2
Asset Turnover 4.2
Financial Leverage 5.5

Yet very little debt (?)
If so why is it called 'financial leverage'?

cheers
tk

DTL has a very low fixed capital requirement. It funds it growth through its working capital. Take out the working capital (current assets and liabilities) then do an ROA calculation. It doesn't require long-term debt or equity injection to fund its operations or growth due to this tremendous cashflow provided by working capital alone.

$56 million cash at last reporting date compared to $30 million in equity. Does this help?

Look at net profit or sales compared to fixed assets. Working capital is in a constant state of flux and can be recycled many times per period.

Operating margin is low because it is a low-cost base, high-variable cost service provider. DTL focuses on cost leadership & high volume of transactions.

 

[GG999]

DTL has a very low fixed capital requirement. It funds it growth through its working capital. Take out the working capital (current assets and liabilities) then do an ROA calculation. It doesn't require long-term debt or equity injection to fund its operations or growth due to this tremendous cashflow provided by working capital alone.

$56 million cash at last reporting date compared to $30 million in equity. Does this help?

Look at net profit or sales compared to fixed assets. Working capital is in a constant state of flux and can be recycled many times per period.

Operating margin is low because it is a low-cost base, high-variable cost service provider. DTL focuses on cost leadership & high volume of transactions.

Thanks Ves
So DTL is looking very good.

I'm still wondering why by the Du Pont analysis it appears that the 'Financial Leverage' is over 5 - is it right to think that they are highly leveraged?

How did they get so many assets without using leverage

 

[GG999]

I guess that using the Dupont equation, DTL comes out with high leverage simply because they have high current liabilities - so in a way they are borrowing from their suppliers. Is this right? Or should I be asking in a different forum where they discuss these things - any suggestions?

Is this considered a good type of leverage compared to long-term debt where the company would have to be paying interest? Is DTL particularly good compared to other companies in not paying suppliers straightaway?

 

[McLovin]

I guess that using the Dupont equation, DTL comes out with high leverage simply because they have high current liabilities - so in a way they are borrowing from their suppliers. Is this right? Or should I be asking in a different forum where they discuss these things - any suggestions?

Is this considered a good type of leverage compared to long-term debt where the company would have to be paying interest? Is DTL particularly good compared to other companies in not paying suppliers straightaway?

It's much better to use your suppliers to finance your operations than to use debt. You get ~30 days to pay and you're not charged interest. A lot of high turnover retailers (supermarkets, Reject Shop etc) will often have negative working capital because their suppliers are funding it.

A company's ability to use their suppliers to create float is really dependent on what they are selling and how long it takes to transform what their suppliers sell them into whatever they want to sell.

 

[GG999]

It's much better to use your suppliers to finance your operations than to use debt. You get ~30 days to pay and you're not charged interest. A lot of high turnover retailers (supermarkets, Reject Shop etc) will often have negative working capital because their suppliers are funding it.

A company's ability to use their suppliers to create float is really dependent on what they are selling and how long it takes to transform what their suppliers sell them into whatever they want to sell.

Thanks for that. So I think I'm understanding that a high ROE due to high leverage is good provided that that the high leverage isn't because of a lot of long-term borrowing which increases risk.

Should one look for other companies like DTL in this respect? I was thinking that one would easily screen for them by looking for

High ROE = similar high ROC, but lower ROA

 

[McLovin]

Thanks for that. So I think I'm understanding that a high ROE due to high leverage is good provided that that the high leverage isn't because of a lot of long-term borrowing which increases risk.

Within reason. It depends on the business. There are plenty of examples of businesses that have tried to increase their float by delaying payment of their accounts. Eventually, their suppliers might stop supplying them. Iirc, David's (which became Metcash) was almost blacklisted by Arnott's because they had stretched their days payable to ~120, which would have meant a lot of angry stoners at IGA unable to get their Tim Tams.

Should one look for other companies like DTL in this respect? I was thinking that one would easily screen for them by looking for

As above, you need to know the nature of the industry. Negative working capital can also be a sign a company is on its last legs.