DTL - Data#3 Limited

[Ves]

Variable cost management

It actually took me a while for this concept to start to make sense in terms of DTL. And if you look at some of my other posts in this thread, you can tell I hadn't quite grasped the whole picture.

Basically DTL has lots of variable costs in their business model, which means that they can employ cost control. This is the reason why their margins are so thin (that and the fact that the core of their business is a distribution model). In a lot of businesses paper-thin margins are a bad thing, but in this case (if I am right going forward) it simply means that they can sell lower than the competition and still remain profitable. The product services margins have been at roughly the same level (obviously with small fluctuations) for near-on a decade by my calculations. If anything this re-inforces my point (and the fact that asset turnover is so high). It is near on impossible to survive with low margins if you do not have a competitive advantage (in this case cost leadership).

This concept made sense to me after reading about Costco somewhere.

On a second note; it is no secret that there has been speculation about Grant's continued tenure for quite a while now. He still has 2/3rds of his holdings left in DTL, and the recent sell-off last week, and forgive me for speculating because it does none of us any good, is more likely early retirement planning and diversification of his asset base.

I would also note, that if you do not have enough confidence in DTL retaining the QLD government contract then you probably should not be holding. It is obviously different if you believe that this would not put their long-term business model in jeopardy.

Ves, you said:
"RV - can you list some of the companies that you believe directly compete with DTL? Does not matter if they are not listed."

Whilst they may not be go head to toe as competitors, I always compare these companies: DTL, DWS, ASZ, SMX, IFM and HSN.

Suggestion: Look at the growth in revenue, NPAT and wages as a percentage of revenue and you will see a pattern emerge. I regard DTL as the second in the field.
Porty

After reading about some of these companies (in this thread and via their own investor presos) that you mention, I believe that while they are in the same industry, most of them do not directly complete with DTL.

 

[Ves]

Fairly major WA contract win today. Watch this space IMO. The less and less reliant on those material government contracts that they become, the bigger the moat gets in my opinion.

 

[robusta]

Fairly major WA contract win today. Watch this space IMO. The less and less reliant on those material government contracts that they become, the bigger the moat gets in my opinion.

Yeah I know what you mean, this company has me in two minds, I really should buy some more but the prices offered just a few months age and my aversion to averaging up makes me hesitate.

 

[Ves]

Yeah I know what you mean, this company has me in two minds, I really should buy some more but the prices offered just a few months age and my aversion to averaging up makes me hesitate.

Averaging up or down are just tools - your biggest tool is your calculation of intrinsic value. If you still think it is cheaper than your Iv calculation then that should mean more than any movement of share (if you are using this method of investing, that is).

There is no point squabbling over a few percentage points for a business that you think is great. Did you know that Warren Buffett almost walked away from the See's Candy deal over $5 million? Check out how much that business generates all of these years later. He said it would have been one of his very biggest mistakes, if I recall.

 

[RandR]

Averaging up or down are just tools - your biggest tool is your calculation of intrinsic value. If you still think it is cheaper than your Iv calculation then that should mean more than any movement of share (if you are using this method of investing, that is).

There is no point squabbling over a few percentage points for a business that you think is great. Did you know that Warren Buffett almost walked away from the See's Candy deal over $5 million? Check out how much that business generates all of these years later. He said it would have been one of his very biggest mistakes, if I recall.

mmm, Ive found myself starting to become more comfortable with this business after my initial feelings of 'stay away' due to not understanding the possible effects of technological change with the 'cloud' etc...

Im wondering with the likely departure of a key management figure from within the organisation within the near future, if Im possibly considering the business at the worst time. I really need to see that the management skill is there without Grant. More investigation required. But there not trading at a price point that is unreasonable atm.

 

[craft]

mmm, Ive found myself starting to become more comfortable with this business after my initial feelings of 'stay away' due to not understanding the possible effects of technological change with the 'cloud' etc...

Im wondering with the likely departure of a key management figure from within the organisation within the near future, if Im possibly considering the business at the worst time. I really need to see that the management skill is there without Grant. More investigation required. But there not trading at a price point that is unreasonable atm.

Hi R&R

What have you heard to think John Grant is leaving? His contract runs until end of 2015.

New Rugby role has the potential to distract him, but the networking benefits, especially within QLD isn't going to hurt DTL.

Interesting to watch and interesting to see if a successor emerges from within the business. I suspect that succession will be very long winded - DTL is Grants baby and I would imagine he’s going to be on the scenes in some form for a very long time.

Cheers

 

[RandR]

Hi R&R

What have you heard to think John Grant is leaving? His contract runs until end of 2015.

New Rugby role has the potential to distract him, but the networking benefits, especially within QLD isn't going to hurt DTL.

Interesting to watch and interesting to see if a successor emerges from within the business. I suspect that succession will be very long winded - DTL is Grants baby and I would imagine he’s going to be on the scenes in some form for a very long time.

Cheers

Nothing substantial craft. just read rumours. sorry about the late reply

Im just reading the statement of cash flows in the last annual report, Does the company really have 70million of cash in the bank ? Its only got a market value of about 210 million odd. Over 30% in the stock price dollar really cash ? Anybody know if there's a plan to do something with it, acquisitions or return to shareholders ?

edit - had a quick browse through the notes (note 4) and they have 60million sitting in term deposits with the deposits earning an avg 5.1% in interest .... + the other 10million sitting as cash at hand .... this seems bonkers for a company with a market cap of only just over 200million thats making money

There's also an epic increase in trade receivables and payables for 2012 in comparison to 2011. I'm going to have to do some further digging into that, anybody else aware of it?

 

[robusta]

There's also an epic increase in trade receivables and payables for 2012 in comparison to 2011. I'm going to have to do some further digging into that, anybody else aware of it?

Think it might be something to do with the lower margin product revenue up 17.5% compared to the higher margin services revenue up only 9.7%.

 

[robusta]

Im just reading the statement of cash flows in the last annual report, Does the company really have 70million of cash in the bank ? Its only got a market value of about 210 million odd. Over 30% in the stock price dollar really cash ? Anybody know if there's a plan to do something with it, acquisitions or return to shareholders ?

edit - had a quick browse through the notes (note 4) and they have 60million sitting in term deposits with the deposits earning an avg 5.1% in interest .... + the other 10million sitting as cash at hand .... this seems bonkers for a company with a market cap of only just over 200million thats making money

I'm really not sure why they have so much cash but I am happy they have got it. It is a sign of good cash flow and conservative management, also a nice buffer if thew want to buy something small to medium size without diluting existing shareholders.

The other thought is maybe Microsoft, Oracle and their ilk require capital guarantees if you want to run up a few hundred million on account.

 

[Ves]

Look at the balance sheet - it is clearly bloated. Average cash for the year is much, much lower than the year-end balance. It cannot be distributed because they need that cash for running the business (ie. working capital).

Cash flow in the second half is always stronger. The cash will get soaked up in the first half of 2013 just like it always has.

 

[RandR]

Look at the balance sheet - it is clearly bloated. Average cash for the year is much, much lower than the year-end balance. It cannot be distributed because they need that cash for running the business (ie. working capital).

Cash flow in the second half is always stronger. The cash will get soaked up in the first half of 2013 just like it always has.

Ah, so basically they receive the vast majority of the money in june each year ? Then have to try to run the businesss on the smell of an oily rag until the next hit of funny money next june? Makes it quite difficult to know the effect of the economic environment upon the business until the end of the financial year.

 

[Ves]

Ah, so basically they receive the vast majority of the money in june each year ?

What makes you think that this is the case?

 

[RandR]

What makes you think that this is the case?

"As usual the operating cash flow and year-end cash balance were boosted by the temporary cash surplus arising from the timing of receipts and payments around 30 June, with the traditional May/June sales peak".

"Due to the cash flow seasonality around 30 June".

Lifted from page 9 of annual report 2012.

I think its a credit to the business that if cashflow is so lumped in 1 or 2 months they still go through a 12 month period with minimal to no use of debt and fund operations entirely off the cashflow generated, put in a similar lumpy cashflow position the majority of business would need to rely heavily on debt.

Im curious to know why theres a sudden rush of expenditure on IT hardware every May June. Is it a case of people just rushing to spend the remainder of their budget before they lose it ?

 

[Knobby22]

Im curious to know why theres a sudden rush of expenditure on IT hardware every May June. Is it a case of people just rushing to spend the remainder of their budget before they lose it ?

It's a few factors.
(1) In provate business, best to spend before June 30 as can reduce GST payments.
(2) In public enterprise, usually projects are defined via the financial year and often upgrade contracts are only awarded after a long consultation in February- March leaving only a few months to get the works done.

 

[Out Too Soon]

ASF seems to be getting quieter, ASF needs contributors not just browsers. :frown:

Anyway DTL is trending nicely with bumps for good trading opportunities

 

[Knobby22]

It has sort of flatlined. The market has rose quite a bit but this company has been stabilising.
Probably good as a new base will allow a future large jump in price. I doubt the jump will occur before May.

 

[robusta]

ASF seems to be getting quieter, ASF needs contributors not just browsers. :frown:

Anyway DTL is trending nicely with bumps for good trading opportunities

View attachment 50688

We all trade with different criteria and time frames but to me the best time to buy was when the price was trending sideways around the $1.00 mark - and hold to collect the nice dividend yield.

 

[robusta]

Results out today, the results presentation is often interesting.

http://www.brrmedia.com/event/109827/john-grant-managing-director

 

[Ves]

Pretty ordinary result really - profitability has fallen into a rut over the last few periods. There was however ome gross margin improvement this period. Cost control is still an issue. They seem to be carrying extra costs and the market curve isn't agreeing with them at the moment.

 

[RandR]

Pretty ordinary result really - profitability has fallen into a rut over the last few periods. There was however ome gross margin improvement this period. Cost control is still an issue. They seem to be carrying extra costs and the market curve isn't agreeing with them at the moment.

Margin only improved due to the increase in service work and decrease in the lower margin 'product' supply. I saw mention of a change from receiving payments for work from in advance annually now to monthly in arrears. I wonder if this is going to have much of an impact on cashflow and the seasonality of it. I think the fact that they negotiate most contracts around february-march yet dont see 90%of earnings until june-july make it almost impossible to reasonably predict full year results at this point. hence management providing no real forecast other then. we expect conditions in 2013 to be similar to 2012.