DUG Technology Ltd

ASX:DUG

DUG Technology Ltd

ASX:DUG
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$1.980 (-1%)
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#404
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1
Held by
21
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Forum Topics DUG DUG Quick Reporting Notes H1FY25

Pinned straw:
Dominator
Added 9 months ago

Overall comment - Still glad I got out when I did last year (probably some confirmation basis in comments below!). Business is going backwards. An investment in DUG needs to assume a strong growth trajectory which isn't occurring at the moment. CFO issue remains unresolved in my opinion.

  • Revenue was down 4%, EBITDA down 26% and NPAT now negative at US$3.9m. Negative operating cash flow for the half.
  • No third-party compute required during the half which would be an improvement to EBITDA compared to PCP, however, EBITDA down significantly. No third-party compute shows they are now keeping up with demand but not surprising given revenue hasn't grown.
  • Cash flows show that the raising was important to reduce the lease liabilities of new compute. Still hasn't completely paid for the new compute though.
  • Order book at US$42m as of January with January being a strong month. However, this has been higher in the past. Probably a sign the next half will be better but not a return to strong growth.
  • CFO issue still remains.
  • A lot of money being spent in Middle East. Over the next year this will need to start providing revenues to justify the cost.
rh8178
Added 9 months ago

Hi @Dominator,

I hold IRL and SM. I think you make some good points, but I do think they are short term problems. My counter view would be:

  1. They are transitioning to a new product, and so some flatness in revenue while they do that is perhaps not surprising - i.e. going to elastic MP-FWI
  2. They do have operating leverage, typical in the software business (I compare them to RUL), but they are investing in the business. I don't mind that for a company of this age and stage - will they go down some dry gullies? Maybe. But investing in BD in the middle east when you sell smart software for oil exploration is worth a go,
  3. The cooling technology opportunity is very interesting, and under exploited in my opinion. Their partner in the US on looks like a very good partner (private, founder owned and led, good feedback from the market in what they do)
  4. Founder still has a significant skin in the game.
  5. DUG now have the compute to not only do the core business, but expand to other high end computational applications (also under exploited in my view).
  6. Bottom line, their core product has huge benefits to their customers and can save massive amounts of money and time exploring for oil - that is what they spend a lot of time talking about, and I think that is a good thing.


I agree with your negatives, and they have definitely had some missteps (I was counting on the leasing of the new compute to sort their profitability issues, but they've spent it on other growth initiatives...the cap raise could have been better executed as well - looked rushed to me) - I'm betting they don't repeat those. Assuming I'm right, there could be a good business emerge, which given the opportunity looks to be at a very reasonable valuation.

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Dominator
Added 9 months ago

@rh8178 I think my view on holding something like DUG is that it must be executing otherwise the share price remain weak. I don't like holding out for the turn. I want to see some evidence of a business actually turning before getting back in. Much better risk reward ratio in that case.

I would characterise DUG a bit differently, as a leveraged play on the amount of oil/gas exploration. They provide an on demand niche service, unfortunately doesn't have SAAS type revenue but does benefit from taking the margin a HPC cloud provider would normally get for the processing of their imaging work, a different business model to competitors.

The new imaging MP-FWI was meant to be a huge step change, initially this looked to be true but if it is really such a good product why isn't revenues continuing to increase this year? It's just a big red flag I can't get over...

What are your thoughts on management? Do you think a new C suite could improve the business? I'm not convinced more mistakes won't be made...

10
mikebrisy
Added 9 months ago

@rh8178 in addition to @Dominator‘s points, I looked at $DUG superficially, when it was being touted by some small cap fundies in late 2023, coincidentally, while it’s SP was on the up.

While the story on their technology and capability including global footprint is impressive, I never saw compelling economics in the business. And as I’m not a practising G&G guy, I can’t actually assess the technology in a competitive context.

But more than anything, in the back of my mind, I wondered how they can compete with the industry OFS giants like US$56bn $SLB, who spend US$750m (or more than 10x $DUG’s market cap) annually on R&D alone.

And I wondered if that explained why I can’t see compelling economics in $DUG’s numbers.

It’s almost secondary to me who’s in charge. Of if their SP looks like it’s turning around. I wasn’t able to form a thesis.

I could be missing something, but I didn’t see enough for a deeper look.

Disc: Not held, never have


16
rh8178
Added 9 months ago

Thanks @Dominator and @mikebrisy - appreciate the discussion and points are well made - you've definitely given me pause for thought and consideration of my thesis.

The competitive positioning is an interesting one compared to SLB and VGG. Whilst SLB and VGG are larger and have similar technology (including elastic), they do not yet have multi-parameter FWI and would appear some time away. DUG's challenge is to convince clients that MP-FWI is a better way to go, before SLB and VGG get there...

The link here is a good explanation from the MD about how he sees it competitively. https://dug.com/dug-webinar-investor-briefing-and-qa-part-3-technology-3659m/

I didn't think Matt answered the question well in this seminar earlier when asked about competitors (if you go to the full link of this briefing), but when he talks about the technology, which is clearly in his wheelhouse - it's much clearer where DUG sits. The 12 minute mark of the Technology session explains it best I think.

To answer your question @Dominator re management - I'm not sure, I think with DUG you need the developers of the technology in there. Matt and the team are clearly more of a scientific bent than a business bent, so maybe a professional CEO might make a difference. Having said all that, I can only go off the public presentations not having management personally.

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