Australian (ASX) Stock Market Forum

DTL - Data#3 Limited

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Now only if the share price would move higher, hasn't really does much over the recent rally in the last 8 months.
 
fanger said:
Now only if the share price would move higher, hasn't really does much over the recent rally in the last 8 months.
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IT services stocks in general haven't done much...
SMX is down, DWS flat, DTL flat, OKN flat (even with share buybacks).

Even though I own DWS and not DTL, this one is the pick of the bunch... Just waiting for the right price
 
I really thought after the trading update this would be hit a little more then it has. I am curious with all the sacking of QLD IT public service if it will lead to opportunities for companies like Data 3 to increase their 'service and support' presence and lead to tighter business relationships with the public sector. I am not convinced this will be the case but watching this space. In the words of one of the former state IT workers I have spoken with "they have been getting rid of all of the doers and only keeping the thinkers and planners".

This is the critical month of the year for Data 3 success and it wasn't at all surprising to see the lower profit target come through. I actually think IT hardware spending should be quite cyclical though, not just as a result of the business environment but also due to the introduction of new hardware technology and software. I'm not sure if this technology and hence revenue/profitability cycle assumption holds true to these sorts of firms going back into the past, but probably worthwhile investigating.
 
fanger said:
What did everyone think on dtl's report?
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More of the same for me. The company has lost momentum since the 2011 results.

Cost control is still an issue - they are still carrying excess costs in the hope of an industry turn around, but still no signs of improvement. However, it does show that this business is resilient and has the cash flow to achieve something like this without putting a massive dent in the excess returns above cost of capital.

It is still ringing short term pain for long term gain in my ears, and there is a tremendous amount of internal financial leverage that will make this company look very good when the conditions in the industry swing back to growth.

However, all of this being said, there does become a time when carrying excess costs will start to make investors very impatient over an extended period of time.

I would not be holding if you expect returns on your investment in the next 18-24 months.

The report didn't impress me much - but no massive red flags.
 
Ves said:
It is still ringing short term pain for long term gain in my ears, and there is a tremendous amount of internal financial leverage that will make this company look very good when the conditions in the industry swing back to growth.
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One point that I don't have much of an insight into - yet it is a factor to consider for IT companies, is something that ROE mentioned in a seperate thread. It was to do with the structural shift of domestic employment/contracting to overseas outsourcing for IT work/projects. As I beleive he works in the IT industry it is a very valid opinion and perhaps if he reads this he could shed some more light on the topic.
Whilst I have yet to make my own decision on the topic, I have Buffet's words ringing in my ears when he talks about 'new norms' rarely bearing true.
For DTL specifically, service revenue is only 16% of total rev, and its actually product rev which has been causing the problems, service rev is growing nicely...so perhaps its not an issue at this stage...
From a valuation perspective I think its looking okay - but as you have pointed out, its obviously going nowhere fast in the near-term. This leaves me with plenty of time to keep analysing and forming my opinion. The yield should offer some support to the share price unless earnings capitulate and management fails to reach the 2/3rd split in the second half...which may result in the div being cut..
 
VSntchr said:
One point that I don't have much of an insight into - yet it is a factor to consider for IT companies, is something that ROE mentioned in a seperate thread. It was to do with the structural shift of domestic employment/contracting to overseas outsourcing for IT work/projects. As I beleive he works in the IT industry it is a very valid opinion and perhaps if he reads this he could shed some more light on the topic.
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I don't see how this will affect DTL. Their core revenue is from the software / hardware distribution business (in which my analysis tells me that they are a cost leader) that operates in its own well entrenched distribution channel in Australia. The main value driver for their customers in their business is that they simplify technology and make it an enabler in their clients business. They save their clients money in the long run by making technology an efficient and integrated process. DTL's customers are outsourcing their IT already - to companies like DTL. But can they outsource DTL's core function to an overseas based department when it is often done on-premises and requires communication and planning?


Whilst I have yet to make my own decision on the topic, I have Buffet's words ringing in my ears when he talks about 'new norms' rarely bearing true.
For DTL specifically, service revenue is only 16% of total rev, and its actually product rev which has been causing the problems, service rev is growing nicely...so perhaps its not an issue at this stage...
From a valuation perspective I think its looking okay - but as you have pointed out, its obviously going nowhere fast in the near-term. This leaves me with plenty of time to keep analysing and forming my opinion. The yield should offer some support to the share price unless earnings capitulate and management fails to reach the 2/3rd split in the second half...which may result in the div being cut..
Click to expand...

Currently technology is seeing another "Disruptor" appear in the form of Cloud / Big Data and it is gaining traction faster than initially thought by the industry insiders. Disruptors provide risk to the revenue lines of those who are involved in the sale / integration of technology - in the short-term because the market becomes uncertain of IT spend in relation to current developments ("do we continue with the old or move to the new?") and hence they often delay decision making and in the long-term for those who are not able to adjust their sales / services models to integrate the new technology (history is littered with plenty of examples ie. Blackberry).

DTL's core business is based on creating value from technology and especially from the innovation of technology - therefore my opinion (DYOR) is that I believe that their business has benefited immensely from the continuous appearance of technology disruptors in the last 10-15 years and that they are well placed to continue this trend well into the future. The balance sheet is still solid and most of the indicators still compare very favourably compared to the rest of the Australian industry. They are well positioned to respond to any uptick in business conditions, and they've already been spending to gain traction from this (see internal cost measures rising).

As I said previously don't expect big gains in the short-mid term - this is a long term hold and you will not know whether you are right or wrong for a long time yet. :2twocents
 
It seems the company, like most in the field, persists to a notable extent on government contracts and is sensitive to public sector cutbacks. With most states and the Commonwealth in deficit (and now under conservative governments), and particularly the federal bureaucracy experiencing budget freezes and a raised efficiency dividend next year, is it not the case that Data#3 will face serious revenue if not margin challenges? And whether those challenges are short/medium/long term depends on the duration of the austerity? Given the structural problems in the budget, increasing unemployment, increasing ageing, etc, I cannot see government expenditure* stabilising or increasing in the foreseeable future (and, of course, that impacts private sector expenditure also).

* on non-essentials like IT upgrades

The above is simply my opinion
 
I sold out around 1.18 but I'm looking to get back in. If I can get back in around a dollar I'll be happy with that.
 
VSntchr said:
One point that I don't have much of an insight into - yet it is a factor to consider for IT companies, is something that ROE mentioned in a seperate thread. It was to do with the structural shift of domestic employment/contracting to overseas outsourcing for IT work/projects. As I beleive he works in the IT industry it is a very valid opinion and perhaps if he reads this he could shed some more light on the topic.
Whilst I have yet to make my own decision on the topic, I have Buffet's words ringing in my ears when he talks about 'new norms' rarely bearing true.
For DTL specifically, service revenue is only 16% of total rev, and its actually product rev which has been causing the problems, service rev is growing nicely...so perhaps its not an issue at this stage...
From a valuation perspective I think its looking okay - but as you have pointed out, its obviously going nowhere fast in the near-term. This leaves me with plenty of time to keep analysing and forming my opinion. The yield should offer some support to the share price unless earnings capitulate and management fails to reach the 2/3rd split in the second half...which may result in the div being cut..
Click to expand...

I know the general counsel at one of the listed IT consultants (not DTL) and he told me more than 12 months ago that they chose to heavily scale back their outsourcing to India because it wasn't providing the same level of customer service as their Australian operations could provide their clients, and the cost savings weren't sufficiently high enough to justify the switch.
 
robusta said:
Profit downgrade today, following UXC the other day.

http://www.asx.com.au/asxpdf/20131220/pdf/42lrn2dbj90h2p.pdf

Seems conditions are still tough in this sector, however with nice recurring revenues and no debt I was happy to top up my holding at $0.93 today and collect the 7% plus dividend yield.
Click to expand...

Are you sure the dividend is sustainable given the reduced profit outlook?

H1 PBT is only $3.5-4m (vs 9.8m last year)... that's a major downgrade. They said full year profit is 33:66 split for H1 and H2 (they have not explicitly confirm or revise that). So full year PBT may only be $10m, or NPAT ~$7m, or EPS ~4.5c.

Historically they've been paying out 80% of NPAT. So on this guidance it may be too much to expect a dividend of 7c like last year?

I am surprised that the share hasn't fallen more on the back of this.
 
I'm glad I don't have a concentrated portfolio on days like today.... EAX downgrade, now DTL. Didn't so much expect the first, but from my previous posts on DTL you probably see that I was expecting weakness for the short and medium term earnings.

There's not really much to add, most the top-line revenue uncertainty is still in the second half.
 
IT companies I reckon will face the same pressure as mining service company.
Governments and Companies will focus on cost cutting.

With Federal and States has a pile of debt and growing, I cant see them splash too much cash on IT spending.

I don't have any of the IT service companies for some reason it isn't attractive to me unless
you are a software producer with high switching cost and patents like IRE
 

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