Listened to the DTL call this morning and picked up a learnt a few interesting items that I used when considering my :

• Wage inflation over the past year and an increased headcount of 2%. Are expecting wage expenses to normalise from here unless the business scales significantly in the managed services area.
• Election in Queensland (large volume government customer) which may result in some sales or contracts in that region taking longer to execute.
• Pre-payments from work contracted in 2023 impacted the revenue generated for this FY (DDR said the same thing this morning).
• Company focussing on more managed services revenue which has high margins.
• Best ever June on record, with revenue to be recognised next FY.
• Gross profit increase of 7.8% YOY.

What wasn't on the call, but a learning from my former workplace in SA is that servers for some large organisations (including government) are approaching end of life over the coming years and will need to shift to a cloud based solution. Companies like DTL with existing integrated services with these organisations are well placed to benefit from a transition to a cloud based solution and data centre hosting. A familiar face and resistance to change can be good for business.

My valuation is as follows, based on a forward looking a couple of years into the future.

Future NPAT = $50,000,000 (working on a conservative 5% NPAT growth P/A, is much lower than the average of 16% over the past four years)

Future PE = 25x EPS to reflect the lower growth rate.

Valuation = $8 per share.

A higher than expected growth rate over or some big contract wins in the managed services space could warrant a higher multiple and value in the future.

Disclosure: shares Held in RL and SM