Consensus community valuation
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CEO Bradley Kellas continues adding to his position purchasing ~12M shares on market for $44,588. This likely explains the recent share price rise. If my math is correct that makes it $143,000 in shares bought since December last year for the CEO.
DDT – Activist Led Turnaround
*This is an abbreviated repost from my September 2020 straw.
History
Aug 2015
CEO Temogen Hield is hired and is paid $250,000 base salary + fixed sum STI and LTI comprising 20M options ex price 2.7cents
2017/18
In 2017/2018 it’s decided an employee share and loan scheme will be adopted:
•Certain KMPs are offered the opportunity to subscribe for shares in the Company, with the payment for that subscription being lent to the KMP on a limited recourse basis.
•No amounts are paid or payable by the recipient on issue of the shares;
•Shares to be issued when the loans relating to those shares are fully repaid.
•Where any loan amount remains unpaid the proportionate number of shares in respect of that loan amount will be forfeited for the total nominal consideration of $1
Note 1 – 40,316,032 shares are to be issued to KMP one day after this report.
CEO receives a pay raise to $390,000 all while accomplishing a 19% decrease in revenues, 63% increase in net loss after tax and a 75% drop in share price.
Hield cancels 20,000,000 options to receive his “loan”
Rathie cancels 2,000,000 options to receive his “loan”
Gary Flowers cancels 1,000,000 options to receive his “loan”
David Williams cancels 9,000,000 options to receive his “loan”
Stephe Wilks does not participate
Andrew Winfield does not participate
2019
Throughout February Bradley Kellas (6.5% current stake) purchases 17M shares on market at $0.008/share.
March – Mr Kellas buys a further 8.5M shares on market at $0.008/share.
Company announces it’s looking to sell the Dots Business (DataDotDNA Theft Deterrent System) for $3.1M and to continue with the Trace business. The Dots business accounts for 90% of revenue.
Bradley Kellas requests an EGM requesting the removal of Stephe Wilks and Temogen Hield as directors.
Bradley Kellas purchases a further 5M shares on market at $0.008/share.
Results of GM
Divestment of Dots business: not carried
Removal of board members: withdrawn; Hield and Wilks leave company
Majority of board restructure and replacement resolutions approved
New Board – May 2019
Ray Carroll – believer in the product with relevant experience and success in the industry.
David Lloyd – business and tech experience and relevant passion
Bradley Kellas – extensive experience in the field with proven entrepreneurial skills and ability to leverage social media platforms
https://www.datadotdna.com/au/our-team/
DataDots Rescue Plan put in motion – Aug 2019
Mr Kellas believes in the excellent DataDots products and has backed his ability to turn the fledgling DataDots business around by becoming the largest shareholder with a 10.35% holding.
Oct 2019 David Lloyd buys 14M shares on market at $0.007/share = $99,344.
Nov 2019 AGM (6 months since leadership change)
Bad news: company was in worse financial state than anticipated
Good news: significant opportunities for quick turnaround
Immediate focus: secure company’s financial stability
Intermediate goal: implementing rescue plan
Financials:
Revenue up 7%
Gross profit up 21%
Expenses down 24%
EBITDA up 79%
Loss down (improved) 65%
Notes:
Since Feb 2019 (to time of writing - September 2020) CEO Brad Kellas has purchased $647,000 worth of shares on market (~$0.008/share) or through entitlement offer ($0.004/share)
As of 12 May 2019 - Mr Hield ceased to be a Director. Mr Hield has subsequently agreed to forfeit all rights to 16,126,414 shares issued to him under the Share Loan Scheme.
Mr Hield is now CEO of DDT competitor – ntick8
Half-Year Report and Recent Happenings
One of the news stations was reporting on the QLD youth crime spree on Wednesday. For a brief 15 seconds someone came on claiming microdots, an antitheft deterrent similar to what DataDot offer, might help stop the problem. While the company wasn’t mentioned specifically, it could explain the share price rise from $0.003 to $0.005.
This may be first level thinking by the market. I’ve read youth crime numbers aren’t up in QLD and it’s more a case of the media reporting on it more; however, I’m happy to be corrected if someone has numbers to disprove my skepticism. More importantly, I’m not sure how an asset identification theft deterrent is going to stop youth, or anyone, from stealing vehicles for joy rides. That said, it could explain why the share price in this illiquid microcap has seen a rise in the past few days.
DataDot released their half-year report in February and it wasn’t pretty.
Revenue fell 31%
Fueled entirely by a fall in their high margin royalties revenue. This was attributed to the ongoing conflict in Ukraine.
Gross profit fell 41%
Expenses rose 23%
Net loss of $190,118 compared to a profit of $508,744 the pcp
The balance sheet remains strong with $2.9M in cash and $9.6M in net assets.
Cash outflow for the half was $225,000.
Despite all this, both the CEO and major shareholder DMX Asset Management have been quietly buying shares.
On December 9th, 2022 CEO Bradley Kellas acquired 5,349,733 shares for $34,773 through his super fund and off-market.
From December 9th – 14th Mr. Kellas acquired 4,032,504 for $28,727 on-market.
On December 20th and 21st Mr. Kellas acquired 4,462,235 for $31,235.65 on-market.
On June 30th, 2023 Mr. Kellas acquired 1,394,942 for $4,204.78 on-market bringing his total ownership up to 19.01%.
On July 5th, 2023 DMX Asset Management issued a change of interest in substantial holder. An additional 8,554,953 shares for $38,043 had been purchased, bringing their total ownership up to 6.14%.
*I’ve reposted my straw titled “DDT – Activist Led Turnaround” from 3 years ago as it doesn’t seem to be appearing in the reports tab and gives some insight into how Mr. Kellas got involved in the company.
As part of an off-market minimum shareholding buy-back, DataDot bought back a total of 32,916,683 shares reducing the number of shareholders from 2,373 to 1,100 and shares on issue from 1,243,869,466 to 1,210,952,783 or by 2.7%. The company states this will reduce share registry and other shareholder related administration costs.
Given DataDots worrying half-year report, investors may be wondering if the company’s recent problems are crippling or a short-term blip on an otherwise solid long-term investment? CEO Bradley Kellas clearly believes it’s the latter.
Datadot released an announcement regarding a reduction in royalty revenue as a result of the conflict in the Ukraine.
The company is forecasting a reduction in royalty receipts of $100,000. Despite not having any direct sales or customers in the Russian Federation, their South African distributor (Datadot South Africa) distribute automotive related products through third parties into the Federation. Due to sanctions, these parties have ceased distribution for the foreseeable future.
FY21 royalty revenue was $1.4M and more recently Dec 2021 half-year royalty revenue was $0.7M. Full and half-year profits were $1.2M and $0.5M, with a $1.3M and $0.3M increase in cash for the full and half-year respectively.
Barring any other negative changes and based on this news alone, the company should remain cash flow positive and profitable. With shares down 25% to $0.006 it appears Mr Market is overreacting and under normal circumstances I'd consider buying pending a deeper review of the thesis.
DataDot Appendix 4D – Half-Yearly Report
DataDot released their Half Year Report. Below are the highlights and my thoughts.
•Revenue up 5% to $1.8M
•Gross profit up 39% to $1.3M
•Expenses up 6.7% to $710k
•EBITDA up 66% to $613k
•Profit from trading operations up 96% to $509k
•Total profit for the half year of $6.3M; however, $5.8M of this is unused tax loses*
*This means the company is not required to pay company tax on future profits of $22.2M; subject to any changes to Australia’s current corporate tax rate.
Main driver of their bottom line result is a reduction in cost of sales and an increase in royalty revenues. Royalties now comprise 40% of total revenue in the half-year period.
•Total sales down $163k to $1.03M
Both the increase in royalties and improvement in cost of sales more than offset this impact on the bottom line.
Cost of sales improvement attributable to improving supply of raw materials and components and a reduction in some lower margin sales channels.
•Net assets of $9.5M
•Cash & cash equivalents of $2.7M vs $1.6M the previous year
•Positive free cash flow of $342k
State there is growing interest in the European market and the company will be pursuing this.
•Loss of a non-automotive customer resulted in a $98.7k decline vs pcp but expect this to be offset by a new customer and increase in forward orders from existing customers.
DDT is pursuing higher valued classes of insured property market – marine, caravans, plant and equipment and specialty vehicles, recover and salvage services charges.
Aside from an increase in freight costs, the company states they have felt no material disruption to their operations as a result of Covid. I’d suggest this is likely due to the royalty business model they have with their largest customer in South Africa.
Things to monitor
•Inventory has doubled
I was impressed by the level of transparency and honesty in this report. I don’t often see it to this extent with other companies.
DataDot released their Dec Quarterly today and there weren’t any surprises.
•Cash is up $158k to $2.7M
•Positive free cash flow over the past 5 quarters
With the improvement in trading performance, the company is investing in marketing and business development resources to pursue growth and implementing their business plan for the PropertyVAULT suite of products and services.
Thanks to thetjs for their summary of DDTs annual report
Below are my 2 cents
DDT App 4E Annual Report 2021 Thoughts
Highlights
•Revenue relatively flat yoy, up 3.2%
•Gross margin up 14%
•Expenses down 41%
•KMP compensation fell 35% from $674,000 to $439,000 as the company transitioned from 4 directors to 1
•EBITDA up 383% to $1.5M
•Profit up 4000% from $29,000 to $1.2M
•Net Assets improved from $1.9M to $3.2M yoy
•Cash from operating activities improved from -$0.5M to +$1.4M yoy with the company achieving positive FCF of $1.3M
Additional notes
The significant improvements have come predominantly from a restructure since current management took control of the company in May of 2019.
While total product sales declined 2%, higher margin royalty and license fees are up 9.9%.
Cash has more than doubled to $2.3M enabling management to use this to invest in growth opportunities to mitigate revenue concentrated to a small number of clients in a single sector – automotive.
Google Trends confirms management’s comment that PropertyVAULT has a “growing public profile” & they can leverage this to expand revenue streams.
https://trends.google.com/trends/explore?date=today%205-y&geo=AU&q=Property%20VAULT
Meanwhile, it’s harder to get a read on any trend in PropertyVAULTs BikeVAULT portal. It peaked at the start of Covid & has been a bit hot & cold since.
https://trends.google.com/trends/explore?date=today%205-y&geo=AU&q=Bike%20VAULT
60% of revenue comes from the automotive sector & due to long lead times, should DDT secure a new automotive client, revenue is unlikely to start rolling in before the end of FY 2022.
A focus on R&D has resulted in a new spray applicator for the microdot application process, reducing adhesive by 40%, reducing waste & significantly improving the finish. It is expected this will decrease COGS & improve customer satisfaction.
No STIs or LTIs were paid to directors in 2021 as the goal is to first return to sustainable profitability.
The key factors that will support sustainable profitability for DataDot are maintaining sales in the automotive industry across South Africa, Europe & the UK.
72% of revenue is geographically concentrated to South Africa, Europe & the UK & 60% of revenue is concentrated to the automotive sector
Using new car sales in these 3 geographies as a sales heuristic, clarifies the 2% fall in product sales for the company
New car sales South Africa show a slow decline
https://tradingeconomics.com/south-africa/total-vehicle-sales
New car sales Europe show a sharp decline
https://www.acea.auto/figure/new-passenger-car-registrations-in-eu/
https://www.statista.com/statistics/1104622/monthly-car-registrations-europe/
As does new car sales in the UK
https://www.statista.com/statistics/265959/vehicle-sales-in-the-uk/
https://www.statista.com/chart/16548/uk-new-car-registrations/
Management remained aligned with shareholders with CEO Bradley Kellas holding ~17%; the majority of which were purchased on market.
If I've missed something please let me know
Prelim Final Report:
Select Headline YoY numbers;
- Revenue up 3.22%
- Expenses down 40.91%
- EBITDA up 383.13%
There is also a circa 4,000% change in profit that has been listed as attributable to the owners of DDT, which as a minor minor minor shareholder I can take some credit for?
Putting this claim aside, DDT have again (4 in a row) posted a cash positive quarter. Each quarter appearing to further cement management’s commitment to reduce outgoings.
Though beyond actions taken to date I believe they are reaching the end of the holes that can be plugged and don’t expect further material reductions to come forth.
With the ship somewhat righted updates on future revenue are outlined in broad, broad terms. Late FY22 realisation of revenue if agreements currently in early stage discussions are agreed.
Vague references to the big big money, that is coming super soon i swear, are never great. But, it does go hand in hand with the progress shown by management and cash positive quarters does buy you some faith in my book.
So my question is to those more intelligent than I, at what point does the market start to invest time, money and belief here in a company that runs with 1.2 Billion SOI and a 52 week range of .003 - .011?
For me;
- Realisation of some, any, of these possibly large/possibly new contracts with some revenue in the books late FY22.
- Continued proof of management holding the line on outgoings.
Basic, but surely enough.
Any thoughts, more than welcome.
Comparables
This is a surface level look at a few of DataDot Australian competitors. If you’re familiar with any of these company’s please let me know if I’ve missed anything. This list is not comprehensive; feel free to add additional competitors to this discussion.
ASX:YPB MC $15M
3x cap raises in past year & 5B (yes, that’s Billion) SOI
Revenue: $616,000; down by nearly ½ yoy and declining every year for past 5 years
Gross margin: 94% (I'm skeptical of this)
Loss: $11.2M
True free cash flow: -$3.6M
Valuation: P/S 24x, P/E n/a
ASX:DTZ MC $135.5M
Revenue: $375,000
Gross margin: 29.5%
Loss: $3.65M
True free cash flow: -$2.5M
Valuation: P/S 361x, P/E n/a
ASX:SMX MC $52M
Revenue: $13,500
Gross margin: 23%
Loss: $6M
True free cash flow: -$4.5M
Valuation: P/S 3,851x, P/E n/a
ASX:DDT MC $7M
Revenue: $1,735,973
Gross margin: 55%
Profit: $513,000
True free cash flow: ~$1M*
Valuation: P/S 4x, P/E 14x
*Extrapolated from recent 4C
I believe DataDot’s moat is their brand, but admittedly this is a weak moat at best. Regardless, it is in much better financial position, profitable & positive FCF, than its Australian competitors. It’s run by an aligned management team who have bought ~$750,000 shares on market approximately 2 years ago.
At a P/S of 4x and P/E of 14x and room for continued improvement in fundamentals, I believe DDT is a buy at its current price.
Disc: Held
Highlights
Cash at end of Q $1.9M up from $1.6M last quarter & up from $1M at start of FY
Third consecutive profitable quarter compared to a loss of $269,700 pcp
Positive free cash flow of >$270,000 for the quarter
Management continues to execute the turnaround with this illiquid nanocap (MC $7M) stock slowly and quietly gaining momentum. Considering the difficult environment re Covid, I'm happy with the results. My thesis remains intact.
Disc. Held
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02368008-2A1294841?access_token=83ff96335c2d45a094df02a206a39ff4
Dec 2020 Appendix 4C
Fairly positive quarterly. Cash receipts down slightly, positive free cash flow down slightly qoq but both improved yoy. Profitable vs unprofitable a year ago.
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02334883-2A1277064?access_token=83ff96335c2d45a094df02a206a39ff4
DDT released their 4C and an update
Now cash flow positive ~$400,000
Both quarterly revenue and expenses down yoy
No reason they shouldn't continue to remain cashflow positive going forward.
If management can get some sales leads and grow revenue the share price should respond strongly.
Market & Outlook
What is DataDot Technology?
Tiny polymer or metal discs with unique identifying codes that can be brushed or sprayed onto assets and read with a simple magnifying device. Its purpose is to deter and prevent theft. The asset and its owner can be identified via a database employing blockchain technology, accessible by law enforcement.
What is it DataTrace?
Forensic Tracers bond to the molecular structure of the host material, detectable in very small concentrations by a sophisticated smart reader. The Tracers can withstand explosions, fire and heat. DataTraceID delivers authentication and detection management for the life of the product.
Developed and patented by the CSIRO, DataDot now owns the technology and patents outright.
How DataTrace works
Using handheld proprietary scanning and cloud technology you can scan anywhere and review data on any device. This allows immediate verification of the authenticity of your product by scanning a QR code generated by DataDots software.
This increased assurance improves consumer trust leading to increased loyalty, brand equity, and sales. It provides a supply chain free of counterfeit.
What is PropertyVault?
A comprehensive stolen goods (ie tools, vehicles, bicycles, boats, building materials, etc) database delivering full-service solutions to combat theft. The website features:
•Asset registration forms
•Logbook with date stamping, edit tracking and block chain recording making it virtually unhackable
•Stolen property reports viewable both publicly and privately by police
•Expert assistance to victims and police
•Missing property portal
•Online change of property ownership registration
The company is transitioning from being a provider of identification products to a full-service provider of an asset protection system via the PropertyVault partnership.
This partnership agreement allocates 50% share of all gross profits from PropertyVault products and services to Datadot Technologies. These include:
•PropertyVault security products
•Advertising revenue
•Recovered property salvage commissions
Markets
Auto spare parts, gaming (ie casino chips), pharma and healthcare, food beverage and tobacco, military and defence, industrial assets, value brands, bulk materials.
Customers are located in 28 different countries and include well known names such as: Subaru, Holden, Hastings Deering, Club Marine, Rubicon, Case Construction, Xcel Energy and Vermeer.
Outlook
With declining revenue, new management’s key focus is on diversifying the company’s revenue and customer base particularly beyond a relatively small number of automotive customers.
Initiatives to address this:
•International digital and social media campaigns to increase awareness and leads for DataTraceID with a focus on: Pharmaceutical/Nutraceutical, Food and Beverages, Medical Devices and Automotive Parts industries
•Continue to build general awareness of DataTraceID as a leader in authentication solutions
•International digital social media campaigns to diversify DataDotDNA® customer base targeted at Utilities, Schools, Local Councils and Hire and Rental providers
•Engage with Indian government to introduce a micro-dot standard for motor vehicles
•Transactions and partnerships being explored to broaden customer base, offerings and capabilities