Data#3 Limited

ASX:DTL

Data#3 Limited

ASX:DTL
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$9.00 (-0.3%)
Last close price
#76
Rank
10
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37
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Reports (7) My Report Forum Investors
Forum Topics DTL DTL Bear Case

Pinned straw:
Scott
Added a month ago

I've sold my holding in DTL DTL are, and have been, a very well run company for a long time. My decision is more about me increasing cash with the current strength of markets and the real risk of a re-rating of DTL (from a high P/E) and the Fed Govt tendering for a panel of Microsoft Licence Providers. They dropped 9% a couple of years ago when Microsoft changed the licence revenue model. DTL have always been very cagey about how material the Fed Govt MS Licence deal is worth. This lack of transparency means the risk is hard to quantify and I've erred on the side of caution.

The whole of Fed Govt Microsoft licensing expires in June this year. The govt has shifted its model to a panel based arrangement. The tender for the panel closed in Sept and is being evaluated.

The Fed Govt has had panels in place before but DTL got 100% of the sales due to lack of competition being able to handle the complexity. Now they have competition with Insight Enterprises.

  • Insight is listed in the US and is Microsoft's largest global LSP with 25+ years of Microsoft licensing expertise.
  • It has won major state government contracts in South Australia and Western Australia in 2025.
  • Microsoft's largest global partner and worldwide solution assessments partner of the year.
  • It was also 2023 Microsoft Australian Partner of the Year.

Insight also bought (Nov 25) Sekuro - an AUS cybersecurity company. Sekuro had $200M revenue annually with 300 employees. Security services in Fed Govt is also a revenue earner for DTL. The risk here is Insight being able to grow in this sector but this would be incremental.

DTL revenue only grew 6% last FY but EPS was up 11%. This isn't sustainable on a high P/E, especially if there is more than one member on the panel when announced. But if they are sole supplier again then I'll probably lose out.
lowway
Added a month ago

That's a really interesting Bear Case @Scott and one I don't doubt at all. My problem, as a significant holder IRL and also as a part of my SM portfolio is when do I think I've taken Data#3 as far as I can. E.g. my IRL holdings still include shares purchased at IPO in 1997!!

For 11 months I have set a target of $10 to hit the eject button and final look elsewhere for the reliability and returns I have gained from $DTL. IRL they have kindly given me a return of 48% p.a. (including dividends of ~11%) since 1997, which I just viewed in Sharesight and even though I knew they had been very kind to me for many years, I'm still surprised by the quantum.

Therein lies my dilemma, as I have ridden with DTL through some very rough times (down to $6.40 dec 2024, which was another buy signal for me) as well as some good highs, only ever taking some part profits and then reinvesting again once the market marked them down again. On top of that they have been a great source of franked dividends for my SMSF that's in retirement (no tax) mode for a very long-time.

As you stated, they have almost always been an extremely well-run local (Qld) company that has been the market leader in Desktop solutions for a stack of State and Federal Govt departments, but I think that quasi-moat is starting to show cracks in relation to this Govt revenue and I'm not super convinced that their AI aspirations are going to give them the type of exclusivity with Govt customers that they have been used to for so long.

I'll stick with them for the near term, but I'm sure I'll find it very hard to look away from a sale if the share price tops $10. It has been a fun ride though and a great advertisement for letting the well-run companies just do their thing for as long as you can.

Thanks for your insight into the upcoming licenses renewals as well!!

16
Karmast
Added 4 weeks ago

Well done @lowway and no doubt there would have been plenty of times you could have "cashed out" along the way.

I have been following DTL closely for a few years including multiple meetings with management and the Board. My two cents - you have excellent, trustworthy management still running the business and possibly the best and most shareholder friendly Board they have ever had, after a few recent changes.

Does their industry still have tailwinds? I'd vote yes.

Are they facing new, really serious competition they would struggle to compete with? I'd vote no, as while Insight have won a couple of contracts DTL has never had total market share. And they will no doubt respond to them. With their very low net profit margin, competitors don't have much fat to go after either.

Are the still growing? Yes sales and earnings have more then tripled over 10 years and more than doubled over 5 years. ROE and ROC continue to increase as well and are at very high levels given it's a capital light business.

How about debt? It's low and very manageable.

Price? The multiple at 31 is up around the top end of its range rather than around 20 which is the low end. So, you could make a case for selling or trimming on price but equally this multiple is relatively low for companies with similar growth and return metrics on the ASX.

So, it still looks like a high quality, well run business to me and you have to forecast future problems that haven't been proven yet to be hitting the sell button in my view.

25
Rick
Added 4 weeks ago

I bought DTL late 2024 when Mr Market had a sale on it. DTL wasn’t a holding I had even considered selling yet. However the PE is getting up there and there is likely to be some psychological resistance around $10. This is a wonderful business and not one I’d part with easily.

16
lowway
Added 2 weeks ago

Well, I decided to split the difference yesterday after the share price passed my magical $10/share and keep my long, long (somewhat significant) IRL holding in $DTL, but sell my SM holdings to play in other areas ($ARB for one).

Sensibly, with the benefit of hindsight, I should have followed with a partial sale IRL, but it's been such a gem and after further research using my AI friends, I tend to align with @Karmast and @Rick. That is not to say that I don't think @Scott made some very salient points, but a strong and effective Board was the clincher for me, at least IRL. It is coping a pounding today, but so is tech generally and it will be just another wave to ride out (here's hoping!!).

14
Karmast
Added 2 weeks ago

And unlike some of the pure SaaS companies, DTL can sell and then service whatever their customers want. So, if AI takes over the world all good - DTL can hopefully implement it and support their customers in that world too. Not saying there are no disruption risks of course - just that they should be less exposed than a single software business would be...

9