I think this slide encapsulates their working capital model:

I was a bit worried in FY22 when the working capital line was teetering close to the cash position. But that seems to have resolved and they have a very healthy cash balance. Not holding onto too much inventory either (albeit on non-cancellable orders). Or perhaps the lack of inventory could mean a slowing 2nd half? Will be interesting to see.

Disc: Held IRL and on Strawman.

The real thing to behold here is a company with $70m in equity, most of that in cash, no interest bearing debt and $935m in assets. Now that is what float looks like.

Haven't had time to go through all the details, so thanks for pointing everything out in the Half yearly report which is more informative than the press release

So just a bit of context.

Highlighting the interesting bit as mentioned. In the update they expect sales will peak around May June and the difference will be made up then

And hence could not provide guidance

Still things such as for example system upgrades for many of Data#3 customers are unavoidable anyway in the end and you can delay upgrades for so long so not too worried.

We are going through the same process at work even though many employees such as myself are quite annoyed by it

@BoredSaint thanks for sharing and discussing the working capital analysis for Data#3. Cycling of cash reserves between June and December appears to be business as usual for Data#3 and I suspect this reflects fluctuations in cash flows of the business throughout the year. Dec 23 looks quite healthy in comparison to other Dec half year positions.

Can anyone spot the elephant in the room here? Was it just too expensive before and now there’s some profit taking (I think it was overpriced before). Are there some headwinds ahead that I can’t see? Is there something I’m missing in the accounts? There’s got to be some reason for the 20% fall in the share price that can be easily explained. Is there anyone with a bear case?

Disc: held and adding

I think this got caught up in a bit of the AI hype run up that has happened recently. But in reality, this is an IT services business with historically low margins. Earnings for the half also were boosted by interest earned from their cash accounts. This will unwind in the 2H which may impact full year earnings.

Prior to the pullback, this was trading on a PE of over 40x which I believe was quite overvalued. Coupled with a slight miss on earnings compared to analyst expectations and you get a sharp pullback back to a more reasonable valuation. I think I will likely add around my valuation price ($7.27)

I don't have a huge bear case but just mindful that I do believe IT services are slightly cyclical and currently there is still demand for their services. If this were to slow, together with low margins could see profit come down quite quickly. Overall I still see this as a long term hold until there is clear evidence of the cycle turning negative.

Disc: Held IRL and on Strawman.

Thanks @BoredSaint. That’s a great explanation.

The valuation was getting really stretched close to $10. It has pulled back some, but the question is whether the current valuation represents a good price to pay over the long term - that's a tough one, but buyers will probably do alright (if not spectacularly well) from these prices.

Could be more of a timing issue with the receipts and cash as they stated in the report. In which case could be just short term noise till we know until the next half.