DTL - Data#3 Limited

[craft]

My question is more about how virtualisation will affect the software reselling business. My limited understanding of virtualisation is that it may create a situation where fewer licenses are needed in an organisation.

Their business is improving customer’s productivity and efficiency through Information Technology. Virtualisation has been part of the mix for a long while and product revenue has continued to grow. Their customer base isn’t exactly the inefficient users of technology that can suddenly drop their costs by adopting Virtualisation.

I should have been more specific. IT consultantcy and contracting companies.

DTL - The product revenue arm gives them a competitive advantage.

 

[McLovin]

Their business is improving customer’s productivity and efficiency through Information Technology. Virtualisation has been part of the mix for a long while and product revenue has continued to grow. Their customer base isn’t exactly the inefficient users of technology that can suddenly drop their costs by adopting Virtualisation.

Guess I need to do a bit more reading on this. Thanks.

 

[McCoy Pauley]

I should have been more specific. IT consultantcy and contracting companies.

Off the top of my head, you'd have SMX, OKN, DWS and DTL. I have a feeling that the likes of Dicker Data and UXL are also IT consultancies/contractors, but I haven't done any research into them.

 

[Nutmeg]

Off the top of my head, you'd have SMX, OKN, DWS and DTL. I have a feeling that the likes of Dicker Data and UXL are also IT consultancies/contractors, but I haven't done any research into them.

Dicker Data are computer resellers.

 

[skc]

Off the top of my head, you'd have SMX, OKN, DWS and DTL. I have a feeling that the likes of Dicker Data and UXL are also IT consultancies/contractors, but I haven't done any research into them.

UXC is in fact 2nd largest. This from their recent presentation.



Salmat has a fair bit of PMP type operations so not strickly in this space. DDR resells computers, much like the was CSV sells/fixes photocopiers - but both are listed under IT.

Other niche IT plays include IRE (market data/platform), TNE (ERP), MLB (domain registry) etc.

 

[robusta]

Well looks like business as usual for DTL.

http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=DTL#headlines

I still can't believe this business traded below $1.00 for so long.

The next thing to watch for is the renewal of the QLD govt contract, this will have a material impact either way.

 

[McLovin]

Guess I need to do a bit more reading on this. Thanks.

True to my word, I went away and did a lot more. My opinion of this company has changed, primarily because I understand it far better.

For anyone who is struggling I suggest this recent workshop with a few analysts.

http://www.brrmedia.com/event/98161/john-grant-laurence-baynham-and-pat-murphy

It's long (90) minutes, but well worth it. The overwhelming feeling I got was that management wasn't trying to sugarcoat things, they know it's slowing down at the moment but they've seen it all before.

 

[Noddy]

Well looks like business as usual for DTL.

http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=DTL#headlines

I still can't believe this business traded below $1.00 for so long.

The next thing to watch for is the renewal of the QLD govt contract, this will have a material impact either way.

Not trading below $1.00 today
Going gangbusters.

 

[craft]

It's long (90) minutes, but well worth it.

Hard work pays dividends

Are you on board, considering, watching?

 

[Ves]

Not trading below $1.00 today
Going gangbusters.

I'm sure it will again over the next few years. Still fairly cheap on most basic metrics.

 

[robusta]

Not trading below $1.00 today
Going gangbusters.

I'm sure it will again over the next few years. Still fairly cheap on most basic metrics.

I agree, still good value. I hope you are right and there are opportunities to buy more decent businesses like DTL at cheaper prices in the next few years.

 

[RottenValue]

A little bit of assistance on how to look at the various companies in this sector (disclosure - I have worked in the IT sector for 30 years and may have inside knowledge of a few of these companies)

SMX, DWS, OKN and UXC can all be classified together as peers - they make money by providing people to help organisations implement or upgrade IT business systems. They will argue otherwise but they are essentially large suppliers of contractor services, providing skilled resources at a rate that sits between freelancers and the large globals (IBM, Accenture, Logica, etc). Projects tend to have defined start and end dates and growth/survival is dependant on ability to constantly win new engagements. Subtle differences between the business models of these 4 which I can expand on if anyone is interested but in some ways thinking of them as the IT equivalents of Skilled Group is not far wrong.

ASZ is a little different in that they focus on providing managed services (multi-year support contracts), generally but not exclusively to government clients. Their advantage is that they have long term contracts and thus repeatable revenue, disadvantage is that have much larger fixed costs in terms of data centres and dependant on winning large competitive contracts for growth. Indian offshore companies are major threat to them - and dont fall for the "we are a cloud play" rhetoric being thrown around.

DTL are very different from the other 5 I have mentioned and really should not be looked at as the same type of company, other than they happen to play in the IT Sector. They focus on the infrastructure side of IT, things such as desktops, hardware, cables, printers, and servers. Backoffice essentials to keep things ticking over that the majority of normal people would rather never have to think about. As a result, Earnings are more stable as things constantly need to be fixed, upgraded or replaced. In addition, they have the benefit of a steady stream of licence and maintenance revenue to shore up earnings and maintain a high ROE.

Happy to add more if any interest.

Note, I dont and have never held any IT stocks confused

 

[craft]

A little bit of assistance on how to look at the various companies in this sector (disclosure - I have worked in the IT sector for 30 years and may have inside knowledge of a few of these companies)

SMX, DWS, OKN and UXC can all be classified together as peers - they make money by providing people to help organisations implement or upgrade IT business systems. They will argue otherwise but they are essentially large suppliers of contractor services, providing skilled resources at a rate that sits between freelancers and the large globals (IBM, Accenture, Logica, etc). Projects tend to have defined start and end dates and growth/survival is dependant on ability to constantly win new engagements. Subtle differences between the business models of these 4 which I can expand on if anyone is interested but in some ways thinking of them as the IT equivalents of Skilled Group is not far wrong.

ASZ is a little different in that they focus on providing managed services (multi-year support contracts), generally but not exclusively to government clients. Their advantage is that they have long term contracts and thus repeatable revenue, disadvantage is that have much larger fixed costs in terms of data centres and dependant on winning large competitive contracts for growth. Indian offshore companies are major threat to them - and dont fall for the "we are a cloud play" rhetoric being thrown around.

DTL are very different from the other 5 I have mentioned and really should not be looked at as the same type of company, other than they happen to play in the IT Sector. They focus on the infrastructure side of IT, things such as desktops, hardware, cables, printers, and servers. Backoffice essentials to keep things ticking over that the majority of normal people would rather never have to think about. As a result, Earnings are more stable as things constantly need to be fixed, upgraded or replaced. In addition, they have the benefit of a steady stream of licence and maintenance revenue to shore up earnings and maintain a high ROE.

Happy to add more if any interest.

Note, I dont and have never held any IT stocks confused

Agree that DTL is dominant in product solutions – Revenue 513 Million @10.2% Gross Margin

The services solution part of DTL's business- Revenue 109.8 Million @ 47.1% is in direct competition with the other consultant type companies.

The product solutions business is DTL’s competitive advantage and also a unique base to grow further into the services business. The underlying stable cash flow from product services allows DTL to aggressively chase market share every time the market tightens up.

Unless something changes the industry economics I see DTL growing to dominate services as well as product in another decade.

Happy to add more if any interest

very interested.

Note, I don't and have never held any IT stocks

Is that to diversify away from your employment income or an investment view about the industry?

 

[McLovin]

Hard work pays dividends

Are you on board, considering, watching?

On board and watching. I have in my mind now a map of where the various IT services companies sit. Data is the big thing and where they tend to overlap, but offering just data will not make money, IMO.

As an aside, I really think more companies should be forced to use media like BRR to upload presentations/earnings/analyst's briefings..

 

[RottenValue]

The services solution part of DTL's business- Revenue 109.8 Million @ 47.1% is in direct competition with the other consultant type companies.

Sad that it took me so long to figure out how to use the reply to quotes featuregiven comment that I have worked all my life in IT!

DTL not really in competion with the other listed companies even in the Services sector - they provide consulting services around the IT infrastructure components while the others are focused on Business Applications. Think of it as DTL provides services that are largely directed to the internal IT organisation of a business while SMX, OKN, DWS and UXC are more focussed on the business users (ie: Finance, HR, Marketing, etc). A small overlap with UXC but insignificant. Note that this is a good thing!

Is that to diversify away from your employment income or an investment view about the industry?

Probably a factor of knowing too much about the industry and the management teams running these organisations. Funny really, have no problem investing in mining/engineering service companies which are really no different.

Having said that, DTL is the only one that I am interested in taking a deeper look at as it is the one I know the least about personally. But I know who I can have a coffee with to find out how the story stands up

 

[craft]

Sad that it took me so long to figure out how to use the reply to quotes featuregiven comment that I have worked all my life in IT!

DTL not really in competion with the other listed companies even in the Services sector - they provide consulting services around the IT infrastructure components while the others are focused on Business Applications. Think of it as DTL provides services that are largely directed to the internal IT organisation of a business while SMX, OKN, DWS and UXC are more focussed on the business users (ie: Finance, HR, Marketing, etc). A small overlap with UXC but insignificant. Note that this is a good thing!



Probably a factor of knowing too much about the industry and the management teams running these organisations. Funny really, have no problem investing in mining/engineering service companies which are really no different.

Having said that, DTL is the only one that I am interested in taking a deeper look at as it is the one I know the least about personally. But I know who I can have a coffee with to find out how the story stands up

Hi RV

Are you saying that the likes of SMX, OKN, DWS and UXC are closer aligned to the likes of TNE except providing customer specified applications - do they not venture into infrastructure efficiency/management/consulting/staffing?

Appreciate your input.

 

[Ves]

True to my word, I went away and did a lot more. My opinion of this company has changed, primarily because I understand it far better.

For anyone who is struggling I suggest this recent workshop with a few analysts.

http://www.brrmedia.com/event/98161/john-grant-laurence-baynham-and-pat-murphy

It's long (90) minutes, but well worth it. The overwhelming feeling I got was that management wasn't trying to sugarcoat things, they know it's slowing down at the moment but they've seen it all before.

I've never bothered listening to any BRR Media presentations for any companies until this arvo. I guess I've been a bit hesitant (both because of time and because of my assumption that it'll all go over my head). I think this will change; the DTL preso that you linked is fantastic. I will try to watch some of their other presentations in the next few weeks. Cheers mate.

 

[craft]

As an aside, I really think more companies should be forced to use media like BRR to upload presentations/earnings/analyst's briefings..

Good management doesn't have to be forced into keeping their shareholders informed, they choose too. Quality of communication says a lot about management.

I have always found DTL to be good communicators. One thing I really Like.

 

[Vader]

Hi RV
Are you saying that the likes of SMX, OKN, DWS and UXC are closer aligned to the likes of TNE except providing customer specified applications - do they not venture into infrastructure efficiency/management/consulting/staffing?
Appreciate your input.

No, TNE have their own software stack and operate their consulting services solely around that technology stack... where as the others use other peoples technology stacks (Microsoft, Oracle, SAP etc.) to provide their business/technology services.

...so for TNE, on the plus side, they get both the license fees for their technology and the consulting fees for implementing it. On the negative side, it's a smaller sandpit that they're playing in and their future growth is tied very closely to their ability to improve on their software or acquire additional components they can plug into their framework.

As for Data3, I don't know enough about them really other than general perception and I haven't looked at their figures, but if I had to guess, I would have thought they were in decline... if that's not the case then they are obviously doing well in the IT infrastructure space.

Also, probably two of the better short-term metrics to look at with the other companies mentioned would be utilisation and # of employees. If those two figures are going up, then you should see a corresponding growth in earnings in the next lot of half yearly and annual reports as their revenues are almost completely tied to the number of people they have on client sites.

 

[RottenValue]

Hi RV

Are you saying that the likes of SMX, OKN, DWS and UXC are closer aligned to the likes of TNE except providing customer specified applications - do they not venture into infrastructure efficiency/management/consulting/staffing?

Appreciate your input.

Craft

SMX, OKN and DWS do not venture into Infrastructure consulting, UXC do to some extent through their UXC Connect business.

TNE are different again in that they have developed their own products under the Technology One banner. They compete with the likes of SAP, Oracle and Microsoft in the business application space and have been reasonably successful at the lower end of the market, in particular local government, small water utilities and more recently higher education after Peoplesoft got swallowed by Oracle. They have constantly surprised me by being able to carve out a niche in a very competitive environment, using the "we are Australian" sell to some success.

As Vadar indicated, the others when they are providing implementation services will focus on SAP, Oracle and Microsoft. In this area, UXC are by far the strongest player followed by OKN and SMX & DWS a distant last. Note however that implementation services are just one component of what these companies offer, with rankings being different if you look at consulting services or resource augmentation services (providing bodies to do whatever the client wants them to do).

DTL are in a very different sector of the IT industry - take note of the large proportion of license and maintenance revenue that they receive. This is both a positive factor and a risk. Consider what happens if Microsoft decide to change their licensing models in order to increase competiveness - partners such as DTL will need to just suck it up. Also, we need to consider whether the "cloud" will be a positive or a negative for companies that focus on the Infrastructure space. If organisations increasingly decide to not have their own infrastructure but pay a fee to access someone elses, do we believe that DTL will be a winner or loser in this situation? Will businesses really care whether the infrastructure sits in Australia or overseas?