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Consensus community valuation
XXXXXX
Average Intrinsic Value
XXXXXX
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Valuation of $8.50
Added 2 months ago

Valuation based on 28c EPS and 12% growth rate for next 5 years with PE of 25. (PE of 25 is in bottom quartile of its trailing 5 year history.)


Why do I own it?

# Mid cap and market leader which provides IT hardware and software from mostly Microsoft to predominantly commercial and government customers across Australia and NZ. Also provide support services.

# Has 10 years of 20% p.a. earnings growth

# Founders have all exited the business now as it was created 45 years ago. But still has a strong founder like mentality with insiders holding 15% of the company and the "new" CEO having worked at the company for 28 years before his appointment this year!

# Strong staff engagement across their 1400 employees, with average tenure of over 5 years and consistently awarded as an employer of choice.

# Consistently high ROE / ROC of over 50 / 40% as it's a capital light operation.

# Acceptable MOS at current price of $7.85 in Feb 2024 at almost half the previous growth rate.

# They can deliver double digit revenue and earnings growth for 5 + years so the return should exceed my 15% p.a. + target

# They were recently added to the ASX200 providing indexing tailwinds to the historical multiple.

# Probably has structural tailwinds as Australia keeps growing and spending more on IT / AI and in particular cyber and security products that have been a source of good growth in recent years.


What to watch

# Low net profit margin of 1.5%. This is probably a moat though as given their large volume it will be tough for competitors to undercut them. They have been able to maintain this for many years now.

# Any significant change or approach from the new CEO and new Chair, that may add risk or distractions to what is a well proven business model.

# Loss of supply/service contract with major suppliers, especially Microsoft.

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Valuation of $7.27
Edited 2 months ago

Update 15/02/2024

Updating based on 1H FY24 results.

  • NPBT = $30.8m
  • NPAT = $21.4m

Updated chart below:

1b5f1ae40dc7b59c00da990b022514f0128caa.png

Based on historic seasonal strength in 2H, I'll assume around $45m NPAT for the full year.

25x fwd PE would give a valuation of around $7.27.

Disc: Held IRL and on Strawman.

Update 22/08/2023

Updating based on FY23 results. Below is the graph of their NPBT results.

65080a5621b3f479c8a466f9f6360f58dfcfbb.png

Maintaining a 25x PE on the current set of numbers, gives me a valuation of $5.98.

I think I will likely top up at around $6.

Disc: Held IRL and on Strawman.

Update 20/01/2023

More of a target buy price to top up my current holdings. A 25x PE would equate to a share price around $6.20.

$6.20 is also the valuation for DTL assuming 15x EPS growth for 5 years and discounting back 10%pa.

Disc: Held IRL and on Strawman

Update 14/07/2022

DTL are reporting NPBT of $44m for FY22. NPAT ~$30.36m

$5.75 valuation would give a fwd PE of ~30x

For a company that has grown NPAT YOY by 19% this isn't too demanding IMO

Disc: Held IRL and on Strawman

Original Report

Assuming NPAT of $29.5m for FY22 (See my Straw)

PE of 30x = 885m MC

SOI = 154.3m

Valuation = $5.75

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Valuation of $12.00
Added 2 months ago

15 Feb 2024

1H FY24 Highlights

• Gross Sales up 13.4% to $1.3 billion

• Statutory revenue up 11.1% to $450.1 million

• NPBT up 25.3% to $30.8 million

• NPAT up 25.5% to $21.4 million

• Basic EPS up 25.5% to 13.85 cents per share

• Interim fully franked dividend up 26% to 12.60 cents per share

• Strong balance sheet with no borrowings

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#Market Flogging
Added 2 months ago

It seems these results are not meeting shareholder's approval with a sudden price drop of 10%!! To be fair, DTL has been on a strong Bull run lately, but 10% in one foul swoop, the market is certainly fickle. I'll be sticking with them for a while yet.


1H FY24 Highlights

• Gross Sales up 13.4% to $1.3 billion

• Statutory revenue up 11.1% to $450.1 million

• NPBT up 25.3% to $30.8 million

• NPAT up 25.5% to $21.4 million

• Basic EPS up 25.5% to 13.85 cents per share

• Interim fully franked dividend up 26% to 12.60 cents per share

• Strong balance sheet with no borrowings

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##H1 FY24 Results
Added 3 months ago

Data#3 to report strong 1H FY24 earnings growth BRISBANE, Tuesday 16 January 2024: Australia’s leading IT services and solutions provider, Data#3 Limited (ASX: DTL) announces that its consolidated net profit before tax for the first half of FY24 is expected to be between $30 million and $31 million (1H FY23: $24.6 million), exceeding the $27 million to $29 million guidance range provided at the AGM in October 2023. The final result is subject to the completion of the interim accounts and audit review. The result reflects increased activity and is inclusive of interest income substantially higher than FY23, earned as a result of the company’s effective working capital management, improved deposit rate and strong debt-free balance sheet. The Board intends to announce the detailed audited first half results and interim dividend on 15 February 2024. Management will also host a market briefing at 11:00am (AEDT) following the release.

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#Financials
Added 3 months ago

Nice profit upgrade though not sure its the highest quality if most of it was driven by increased interest income.

1896a962c4a18d86b74dc3a24fcb0be1e1bba8.png

05zgz1mbcvzct7.pdf (asx.com.au)

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#Bull Case
Added 5 months ago
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#Bull Case
Added 5 months ago

52 Week high today

Checking the investor day presentation , apart from having the MD for Microsoft Australia as guest speaker, the word "AI" was mentioned several times on the 15 November call from the new CEO

443725c7481fd3917f36c511942c1023411d8a.png

aa44242268de6b9a403dc2c328494725222a29.png

The CFO Cherie O'Riordan also mentioned focusing less on margins and more on improving profitability. They believe by not growing gross margins, Data#3 will be more competitive in winning new business and hence increase profitability.

5f45d22f8d27b6766d51dbd99bd67a516989d7.png

Data#3 also mentions they are able to still pass price and wage inflation into their customer contracts. Several measures mentioned include:

  • Reseller agreements that allow the company to pass price increases to the customer
  • Professional services contracts being more time and materials based while managing fixed price contracts
  • Periodic price reviews of managed services contracts

Finally for Working capital, they have no issues with drawing down this component as it is mostly current and there is a low default rate from customers

Lots to unpack from the call transcript so above is just a summary of the main points..

There was also a special call today which I do not have access to the transcript so not sure who was invited here.

Note: I've been cashing on the dividend reinvestments in SRL only. If only I bought more during that mini crash months back.

[held]

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#2023 AGM meeting address
Added 5 months ago

This was announced at the AGM a few days ago, long time CEO and MD Laurence Baynham is stepping down from his position and will be replaced by Brad Colledge who is the current Executive General Manager of Software Solutions, Infrastructure Solutions and Services.

The transition will occur over a 4 month period with Brad formally stepping into the role on March 1 2024.

Guidance for 1H FY24 was also given at the AM with expected NPBT to come in between $27m-29m:

d0d2ca56560352059dde32758a1034be085f77.png

I've updated my chart below showing the earnings growth over the last 5 years:

45ba6f49d141dd721d03a8d72e4df69cd451b3.png

If they meet midrange of guidance then this represents growth of around 13% to pcp.

As expected, H2 will be the stronger half and management did state that they expect to have overall earnings growth, although the level of growth may not be as large as previous years. Nonetheless this remains a solid company with good growth prospects.

AGM meeting address here

Disc: Held IRL and on Strawman.

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#Index Buying
stale
Added 8 months ago

Looks like some index buying incoming.

4dc331eafdd986bc820a098fc33d6e178f348c.png

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#ASX Announcements
stale
Added 8 months ago

The company's response to the ASX Aware query on the price action post its FY result report is an example of how to deal with this sort of request professionally. Strengthens my conviction in management.

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#Financials
stale
Added 8 months ago

I have owned DTL at various points over the years. I think it's a great company. With that being said, I cannot get past the valuation v where I think they are in the cycle. This is a more cyclical business than the market generally appreciates (hello 60c/share back in 2014) and I think a decent part of the last few year's business performance can be explained by very favourable business conditions.

Every metric seems to be saying peak cycle earnings. And yet the market is pricing this at almost 30x earnings. It's worth pointing out that the last down cycle took NPAT from $15m to $7.5m; ie it halved in the space of 3 years and PE ended up at 13x trough earnings (down at 60c). In the last down cycle they retained a lot of staff and carried them internally rather than letting them go, which I think explains some of ICR* surge between 2012 and 2014. I find the valuation here quite hard to justify unless I make some very generous assumptions around where revenue and earnings go over the next 3-5 years.


*I like Internal Cost ratio (ICR) for these guys as a quasi way of measuring asset utilisation given the people nature of the business the assets don't really show up on the balance sheet. That they bench staff rather than sack them during tougher times makes the ratio rather good at picking up general business conditions, imo.


A few charts to explain what I'm seeing.

Cheers260f307fc50afae012052be56a762976b8c36a.pngc74347505e1a16fe0f7ea414b476363434dc8f.png7df5533f5103cff1ce9501d39bbd3355597202.png

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#Bull Case
stale
Last edited 8 months ago

Strong Day 2 rebound today on good volumes, which is bittersweet as it leaves me with only half a position.

Lends credence to the theory that the selloff was caused by punters hoping for ASX 200 inclusion and closing out their positions when the company fell short of consensus.

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#FY23 Results
stale
Last edited 8 months ago

Data #3 (DTL) released their results. From their presentation:

1511fc84264d9b68127bd1ccd3a8aa04f3b35a.png

The market has not liked their results giving them a 15%+ sell off.

By my estimates, 2H profit which has often been very strong compared to 1H missed by around 5% (I had them growing NPAT by around 15% compared to 2H FY22, they grew by only 10%). I suspect this is the reason for the sell off today. Overall NPAT was still up by 22.4% which was on the back of strong growth in the 1H of the year.

516c7aaf7cc69d0bf401d04d7de2a386214af6.png

The breakdown of revenue by sector was interesting. The increase in higher gross margin sectors had an overall increase in the gross profit and net profit margins for the business. As this increases further we may see less seasonality in the overall profit timing for the business. The increase in gross profit margins is also pleasing given the relatively low overall margins that DTL runs on.

34720b6d9eadf9f9e4da818bf7449b716d2edd.png

Cash flow seasonality was as usual with a high cash balance at June 30 reflecting the increased receipts prior to the end of the FY. The next half will be the one to watch in terms of working capital concerns as stated in my straw from 1H FY23. As long as they can receive cash from their customers quickly enough to pay off their payables I don't think there should be any concerns. Management of their cash flows has always been solid so I'll give them the benefit of doubt for now.

Overall I think this result was solid even though profit was a slight miss in the 2H. Will likely adjust my valuation down slightly but don't see any reason to sell as yet. May even look to add with the current share price weakness.

Disc: Held IRL and on Strawman.

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#ASX Announcements
stale
Added 8 months ago

Data3 down 17%

Looks like they missed in something on their results

They did lift the dividend

[Held]

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#1H FY23 Result
stale
Added one year ago

Data #3 Limited released their 1H FY23 result today. Results were basically as expected as they had pre-released unaudited results about a month ago.

From their presentation:

faa8b2c7f2fab6c7e9e73b56c1620632c7cf95.png

NPBT came in just under their top end of guidance as expected with another record half.

Once again management stated that profit would likely be skewed again towards the 2nd half of FY23. I don't expect 2H FY23 to have another 38.1% increase on PCP like 1H but if they increased on the previous half by 20% then 2H FY23 NPBT would come in at around $31m giving full year NPBT of around $55.6m. EPS for the full year would be around $0.25 giving DTL a fwd PE of around 29x.

Probably the only thing I'm keeping an eye on is the cash position of the business. DTL typically operate on a short of negative working capital basis and so the timing of cash receipts is usually elevated around the FY year end (May, June). Operating cash flow is very often negative for the 1H as a result of this as evidenced in the current report (operating cash outflow of $88m). However in the last few years, full year operating cash flow has also been negative and the cash balance has decreased down to a level not seen since Dec 2019. With increasing supply chain issues, the company has stated that cash flow collection has slowed to around 33 days (up from around 27 days) and inventory is inflated but will be allocated to non-cancellable orders. The below chart from the presentation shows the slow increase in the working capital requirements of the business. If working capital goes above cash, will DTL be able to fund its operation? Something to look out for in the next half. I expect management to be able to work through this issue as shown in the past.

0b4ff6125b68f61fd5b133d9fc27d6d22362e2.png

I will maintain my valuation at $6.20 as a potential top-up price.

Disc: Held IRL and on Strawman.

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Valuation of $5.00
stale
Added one year ago

Strong half year results with EPS of $0.11 or $0.22 annualised.

Mean PE over the last 10 years is 19.4x - higher last few years.

Call it 22x gives me a price of around $4.84 and round up to $5 as think the business has improved with increased recurring revenue over time.

Will keep holding my parcel IRL but I've haven taken profits. Would look to buy more at $5 or slightly above.


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#Bear Case
stale
Last edited one year ago

Shorts increasing but not reaching the peak in July 2021 when Mitsubishi Financial Group went substantial so they can lend out a whole heap of shares for shorting.

Although I added in strawman, I did not add any in my real life portfolio as I was a bit late putting in the order before it went parabolic today.

[held]

e019ec871730243d48085421454868bc0277d8.png

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#FY23 Outlook
stale
Added one year ago

Data 3 limited (DTL) held their AGM today and released an outlook for the 1st half of FY23:

37ada72ebdb267be72471aed2989c29386c8c7.png

Taking the midrange of guidance would equivalate to around 24% growth to NPBT. This does include a backlog of $6m which could not be invoiced in FY22 due to supply constraints (normal backlog is around $3m). Management did mention that they would once again be heavily skewed towards 2H of the FY as is seasonal so to achieve good growth in the 1H is a good result.

Updated chart below of trending NPBT. Note the FY23 figures are estimates.

08f7f0e362c8c2ae7cab43e8ee51e7e6db5ba4.png

Disc: Held IRL and on Strawman

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#Risks
stale
Added 2 years ago

Seems there are still some short on DTL.

But I haven't seen any substantial holding announcements from MUFG (Mitsubishi Financial Group) who are facilitators of borrowed DTL stock.

424d4ac43a5cad41d43f48c22b33774f4d95bb.png

[held]

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#FY22 Result
stale
Added 2 years ago

Data #3 Limited (DTL) release their FY22 results today. From their release:

  • Revenue = 2.19b (up 12% YOY)
  • NPAT = $30.26m (up 19.1% YOY)
  • Final Dividend of 10.65c bringing the final dividend to 17.9c for the year (up from 15c in FY21)

Not much news considering they released a market update around a month ago. They have continued to avoid giving guidance for FY23 given supply chain issues and other covid related disruptions however they did mention that there was a backlog of $6m of NPBT that will be realised in 1H23.

Some charts given from their results presentation.

7daf108d5d7d62f7324717aad3bb7c9a5acdd3.png

I also found it interesting that they are changing their revenue mix with increasing high gross margin revenue.

d1594ea0cb181825874e9ddf208c1ddaea16f8.png

This may help with profitability in the long term and already shows with increasing profit compared to increase in revenue.

Disc: Held on Strawman and IRL

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#1H FY22 Result
stale
Last edited 2 years ago

Data #3 released their results today. From their release:

  • Revenue up 16.6% to $999.3 million, with public cloud up 34.8 % to $466.7 million
  • Gross profit up 17.5% to $105.4 million, boosted by services growth
  • NPBT up 33.0% to $18.5 million
  • NPAT up 31.7% to $12.4 million
  • Basic EPS up 31.5% to 8.01 cents per share
  • Interim fully franked dividend up 31.8% to 7.25 cents per share
  • Strong balance sheet with no borrowings

Results were actually stronger than what they were expecting at their market update last month and above their NPBT guidance of $15-18m.

They have not provided any guidance for the rest of the year due to "pandemic-related uncertainties" but are expecting 2H to be stronger than 1H as is the seasonal trend (See my last Straw).

Disc: Held IRL (have ended up buying some shares since my last straw), not held on Strawman

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#ASX Announcement 18/1/22
stale
Added 2 years ago

Thought I'd take a look at this company following their announcement yesterday regarding 1H22 result.

DTL expect a 30% increase in NPBT compared to 1H21 which would be approximately $18.1m. This just above their top end of guidance. Management did mention that 1H22 would be a good half due to the backlog at the end of FY21.

Reading back through their past results, DTL usually have markedly more activity in the backend of the year as shown in the below graph so the large increase in profit for the 1H is definitely encouraging.

ff18c121fde97defb079f8a89a19909aeae626.png

I have assumed only slight growth for 2H22 which would bring their total NPBT for FY22 to around $42m. NPAT would therefore come in at around $29.5m.

At the current share price this represents a forward PE of around 32x.

In the past 4 years DTL have averaged NPAT growth of 20% PA although there has been a slow down in FY21 (may be related to COVID). FY19 and 20 NPAT growth was 28% and 32% respectively. At my calculated NPAT for FY22, growth was around 16%.

Obviously if DTL can recover their NPAT growth back to FY19 and 20 rates then the current share price is very attractive however I find it very hard to determine if this is possible. DTL, whilst are profitable, operate a very low margin business with net margins around 2%. Therefore they would need to increase revenue markedly in order to be able to increase their NPAT at rates above 20%.

I will look at this company again following their full year 22 results to see if their second half of the year can continue the momentum of the first half.

Disc: Not held IRL or on Strawman.

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#ASX Announcement 18/1/22
stale
Added 2 years ago

Data# 3 expects to report strong 1H FY22 earnings growth

Estimated first half earnings growth of approximately 30%

BRISBANE, Tuesday 18 January 2022: Australia’s leading IT services and solutions provider, Data# 3 Limited (ASX: DTL) has advised that its consolidated net profit before tax (NPBT) for the first half of FY22 is expected to be slightly ahead of the top end of the $15 to $18 million guidance range provided at the AGM in October 2021

Subject to finalising the interim accounts and the audit review, 1H FY22 NPBT and earnings per share are expected to be approximately 30% higher than the record 1H FY21 results.

The Board intends to announce the detailed audited results and interim dividend on 17 February 2022.

The company will present a market briefing on the results starting at 11:30am (AEDT) on 17 February 2022. The following URL will provide access to the live event, and to an archived webcast following the event: https://webcast.openbriefing.com/8302/

Approved for distribution by Mr Richard Anderson, Chairman.

ENDS

Disc: Iown share on SM and IRL

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#FY21 Results 19/8/21
stale
Last edited 3 years ago

DTL has again delivererd another record Full Year Result

Highlights

  •   Revenue up 20.3% to $1.96 billion, with public cloud up 36.2 % to $791.6 million
  •  NPBT up 8.4% to $36.9 million
  •  NPAT up 7.5% to $25.4 million
  •  Basic EPS up 7.5% to 16.51 cents per share
  •  Total fully franked dividend up 7.9% to 15.0 cents per share
  •  Strong balance sheet with no borrowings

DTL just keeps on keeping on... Still a happy holder....has been a growth & dividend stock for me

Edit spelling

DISC~ I Hold

View Attachment

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#Business Model/Strategy
stale
Added 3 years ago

This was one of the companies studied in my MBA. That was back when the shares were less than $1. It is not a business I follow, so I wanted to look and see how much the business had changed. Back about 10 years ago, Data#3 were large resellers with a reasonably small services division. 

The Brisbane based information technology company first listed way back in 1997 and has been operating for more than 35 years. There are also some management that have been there for almost that amount of time. The CEO, who has been in the seat 7 years, has been with the business since inception.

Continuity of management can be a great thing, but it also (potentially) means you get lost in your own ideas. Not pointing to Data#3 with this thought, it is just something I have observed too often. I’ll come back to this.

With revenues now exceeding 1.6B they have done a good job continuing to grow the business. This revenue is more than double since I last looked. It is also good to see they have continued to grow the dividend.

Back 10 years ago they were a large licence reseller. Now they are the largest in Australia. Impressive to retain the mantle for so long. It is through low margin. The service business has been significantly increased.

The business carries almost zero debt.

Back to the management. They are currently executing on a three year strategic plan. Everything contained seems really sensible to me. 

What we are looking at is a modestly growing, sensible, stable business. Employing a thousand or so Australians. This is the kind of business the management team should be proud to run. 

Is it going to shoot the lights out. Probably not. It is going to halve overnight. Doubt it. If that is what you are looking for this one might be suitable. 

 

 

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#H1FY21 Result 18/2/21
stale
Added 3 years ago

 Growth across all key metrics:

  •  Total revenue up 19.2% to $856.7 million, including $346.1 million of public cloud revenues • NPBT up 10.2% to $13.9 million
  •  NPAT (excluding minority interests) up 7.9% to $9.4 million
  •  EPS up 7.9% to 6.09 cents per share
  •  Interim fully franked dividend up 7.8% to 5.5 cents per share
  •  Strong balance sheet with no debt

DISC: long term happy holder...also in Strawman

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#ASX Announcement 18/1/21
stale
Added 3 years ago

Data# 3 expects to improve on previous 1H record result

First half pre-tax profit estimate of approximately $13.7M, up 8 to 9% on the PCP

Disc: I hold

View Attachment

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#Business Model/Strategy
stale
Added 3 years ago

Overreaction

It seems that some people weren't happy with aspects company update even though guidance was reaffirmed for FY21 at the AGM.

This prompted a selldown which was probably cascaded further from the ruthless shorting by MUFG.

I still think this is a solid business which is managing to adapt itself during this difficult period.

Just remember the director bought at 5.85 back in September.

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