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Love it!
DTL - Data#3 Limited
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Love it!
I think the price for DTL is now becoming very interesting.
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Yeah, good company and technically it has reversed out of this area pretty savagely since Nov 2010.
Yet with management not wanting to give a forecast due to uncertainty, this time may not be so positive if markets start slipping on the oil being spilled all over the slopes at present!!
Report was reasonable.
Profitability is on long term trend – but that is a decrease over PCP which was well above trend.
In comparison to the industry, DTL was being priced according to the above trend earnings and that seem to be now coming off. The whole sector is pretty cheap but the near term outlook is of headwinds.
Top line growth was 15% - well above sector growth but expenses grew by an even greater amount.
Management were basically caught out investing(additional people) for growth in higher margin infrastructure project services. Customers have withheld decisions on these projects leaving DTL with an overweight structure for the current market. From here on of a couple of things could happen. The market picks up and DTL’s structure gets utilised or the market does not come back and DTL has to reallocate or reduce resources. Whilst the first outcome is preferable the second is O.K so long as they can get their internal cost ratio back down. DTL’s big advantage is that when the high margin business dries up they have their product sales division to fall back onto. They just have to keep their structure tuned to the market.
A couple of major federal and QLD government contracts come to market shortly. DTL is well placed to retain these contracts as they have the lowest cost structure – though if you think of business as a game of risk you can imagine competition attacking here at any cost because DTL is not that far away from unassailable domination in this area, retaining the contracts could just about cement things for a very long period. Will be interesting.
DTL is pretty much at across road now. Either it has exhausted its niche and is going to see its margins squeezed under competitive pressures or it is going to dominate the industry and enjoy another growth phase until it runs into market saturation problems.
To a small degree I was more confident of the latter until this report – Contract renewal outcomes and internal cost ratio trend is what I’m looking at to indicate the future direction. The fact that top line growth has continued is a positive as is the strength of the balance sheet.
My concern with DTL (and some of the other IT companies which perform well) is the whole sector is priced relatively cheap...........but this could continue for some time irrespective of the business performance. Prices actually need to drop even further to provide a realistic chance of a decent return in the current environment or the "market" needs to reprice some of the IT companies. Once bitten, twice shy (DWS!).
Cheers
Oddson
Federal government Microsoft software contract renewed for "at least three years" today. I do not follow the announcement 100% but did they get an extension of the scope of the contract of some sorts?
Yeah DWS is a bugger, I hate putting up with a 10% + dividend yield while the sp fluctuates.
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Was tanking on the back of worst performing sector on global markets until Team invest guy talked it up on sky, it reversed and finished on it's highs. Not an overly liquid one!
I'd expect that to reverse fairly shortly on global sentiment as governments all over the world still try to reign in spending and for that they love hacking into IT.
Won't be going in hard for quite some time I imagine.
I'd expect that to reverse fairly shortly on global sentiment as governments all over the world still try to reign in spending and for that they love hacking into IT.
Won't be going in hard for quite some time I imagine.
I guess it could depend on your investment time horizon. The immediate outlook for this sector is not very positive but that is why the prices are attractive IMO from a long term perspective.
Not that I spend a lot of time looking at macro factors but with Mr Swans apparent need for a surplus I can understand softer prices.
In the long term however I see a couple of possible scenarios;
1 The economy goes to recession, the government adds stimulus.
2 The economy grows around trend and we remain the lucky country.
Either way I think demand for IT will grow, given enough time.
Would be nice to know how low prices will fall in the meantime however, my damn crystal ball is broken.
Not that I spend a lot of time looking at macro factors but with Mr Swans apparent need for a surplus I can understand softer prices.
In the long term however I see a couple of possible scenarios;
1 The economy goes to recession, the government adds stimulus.
2 The economy grows around trend and we remain the lucky country.
Either way I think demand for IT will grow, given enough time.
Would be nice to know how low prices will fall in the meantime however, my damn crystal ball is broken.
Just on the issue of DTL's operating margin, does anyone know why it's so narrow compared to other providers? It's only 3% or 4% if memory serves.
TrendGAIN
TrendGAIN
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Looks like DTL is at a decision point - going lower will be very negative as it is right in the middle of major support , but downward momentum is slowing. Hard to read the volume picture due to the big movement in early Feb, but money doesn't seem to be streaming out of the stock.
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Software reselling (which I understand is still their primary business) would be high volume low margin.
2011 Product revenues were $586 Million with a gross margin of 10.2%, Services revenue was $110 Million with a gross margin of 47.1%.
Overall Gross margin was 16.1% and Net Profit margin was just 2.15%.
The secret to understanding DTL and its investment case is the competitive advantage it has as the low cost supplier of product, the robustness of this revenue stream and how the turn-over converts a 2.15% net margin into a 50% ROE with no debt.
The service revenue segment whilst having the higher margin is also where all the competition is. To the competitors this segment is core – to DTL it is cream, enabling them to weather downturns so much better.
Looking at recent announcements (contract renewals, supplier awards) there is a lot pointing towards DTL having cemented its low cost advantage for a long time to come.
Short term I think people should sell sell sell, the chart is down and short term IT spend is uncertain at best. Did I mention the sky is falling! (Disclaimer – I could be buying)
Craft,
You picked the key issue for me.
ROE average for the last 10 years is 39% and lowest ROE during that period is 28%. By any standards it's an amazing achievement. AND NO DEBT with current divi about 7% ff and stable management.
From an investors viewpoint it is hard to imagine a better formula than that.
So do I think it's a good investment opportunity for me now?. Yes I do.
Will it be a better/worse opportunity for me shortly?. Who knows. No-one is the answer. But I don't see that as the critical question for an investor to answer.
Do I like buying stocks like DTL when wobbly nerves or panic is in the air?. Yes I do.
I have no view about its technical trading performance. I don't understand that style of investing so I leave it entirely to those that do.
My guess (adding to some of the recent comments made about its performance but not ignoring them) is the recent 10 v 1 split brought a new type of holder to DTL's registry. Under the old format I doubt there were any (or at best very few) short term holders / technical investors. Since the 'split' the stocks sp is in the range of shorter term investors. I think this has created its own dynamics that will take a little time to resolve itself, and in that process it helps to create the current opportunity.
Not advice of course.
Good luck whatever you decide.
cheers
You picked the key issue for me.
ROE average for the last 10 years is 39% and lowest ROE during that period is 28%. By any standards it's an amazing achievement. AND NO DEBT with current divi about 7% ff and stable management.
From an investors viewpoint it is hard to imagine a better formula than that.
So do I think it's a good investment opportunity for me now?. Yes I do.
Will it be a better/worse opportunity for me shortly?. Who knows. No-one is the answer. But I don't see that as the critical question for an investor to answer.
Do I like buying stocks like DTL when wobbly nerves or panic is in the air?. Yes I do.
I have no view about its technical trading performance. I don't understand that style of investing so I leave it entirely to those that do.
My guess (adding to some of the recent comments made about its performance but not ignoring them) is the recent 10 v 1 split brought a new type of holder to DTL's registry. Under the old format I doubt there were any (or at best very few) short term holders / technical investors. Since the 'split' the stocks sp is in the range of shorter term investors. I think this has created its own dynamics that will take a little time to resolve itself, and in that process it helps to create the current opportunity.
Not advice of course.
Good luck whatever you decide.
cheers
Compare its performance against its peers through the 2008 slow down and see how they all came out the other side. What correlation there is between Margin and Profit is probably the reverse of what you might think.
Low-margin business doesn’t necessarily hold more earnings risk than high-margin businesses. You really need to delve a bit deeper and evaluate the nature of the earnings. Data 3’s product earnings are from a distribution type business with a very high variable cost component.
The thing I watch most closely because of the thin margins is bad debts.
CanOz - look at the bar on this chart today. Almost a "wash bar", just a bit of weakness at the close. Got back to 98c from 90c at one point. I guess it doesn't quite count.
Craft - I had a look at their Goldman Sachs presentation notes. The sellers obviously disagree with me (they've also been selling SMX and ASZ this week too, not sure about other ASX Info Tech stocks though). Page 14 which shows the Tender Flow fascinates me. There is less tenders this year and some of the undecided tenders may be withdrawn due to uncertainty (probably why people are selling as it shows the industry slowing) but DTL seem to have positioned themselves well as they are winning a higher percentage this year compared to the previous two.
edit: they also could be bidding on less tenders, and being more selective with those they choose to pursue too. Hard to say.
Also note that they "culled" or re-deployed staff after the last report, which you wanted to see.
Do you have any thoughts?
Craft - I had a look at their Goldman Sachs presentation notes. The sellers obviously disagree with me (they've also been selling SMX and ASZ this week too, not sure about other ASX Info Tech stocks though). Page 14 which shows the Tender Flow fascinates me. There is less tenders this year and some of the undecided tenders may be withdrawn due to uncertainty (probably why people are selling as it shows the industry slowing) but DTL seem to have positioned themselves well as they are winning a higher percentage this year compared to the previous two.
edit: they also could be bidding on less tenders, and being more selective with those they choose to pursue too. Hard to say.
Also note that they "culled" or re-deployed staff after the last report, which you wanted to see.
Do you have any thoughts?
CanOz
Home runs feel good, but base hits pay bills!
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Yeah Ves, not quite a wash out yet, but found a little support at a confluence of supporting elements on the weekly:
1.) an old high at a consolidation zone
2.) the 200 MA
3.) the FIBB
You might get a bounce, or even some consolidation if the broader market holds up...but if it were able to be shorted i would be looking for an opportunity to enter short, not a long. Just my view.
Cheers,
CanOz
