I will give it a try with my 5 cents.
I see DTL as a good, reliable but not exciting investment. The management team has demonstrated great execution skills but seems not entrepreneurial. They tend to be very prudent and conservative, which can be seen from their balance sheets of the past 5 years (or even longer): no debt, no new issuing of shares, no acquisitions, and no plan for geographic expansion. They are focusing on generating organic growth within the means that they can afford and they have done a rather good job.
From 2015 to 2020, their revenue has increased 13% yoy, with EPS up 16.5%. Most of the growth came from the Cloud division, growing at 56% p.a. This explains the re-rate of the business since the beginning of 2019. Before that the average PE ratio for DTL has long been around 15, very much in line with the whole market. In 2019-2020 after continuous updates about the extraordinary growth in their Cloud business, the PE has quickly doubled and even reached a high of 43 in September last year. However the latest HY results have cooled down the market a bit, with shrinkage in operating margins and the slowed growth in Cloud. Combined with the current rotation from tech to value stocks at a more macro level, the SP is sitting at a PE of 31 as of today.
The short-term SP movement will depend on 2 main factors:
1) the macro rotation reaching its end. When will it happen? Nobody knows. but personally I am optimistic and think that " this too shall pass", just like the sell-off that we experienced in late 2018.
2) the FY21 results. On this matter I am optimistic as well. Not only because the CEO has stated that they have "very strong pipeline" for the 2nd half, which is quite a bullish claim for a conservative CEO, but also because their only increase in costs for the 1st half was related to headcount expansion. This, with the Covid-19 as a backdrop, suggests a robust and resilient business with good growth prospects. On this basis, I would expect a decent growth on the top line and some improvement in EBIT margin.
Now let's do some math:
- Assume the revenue will maintain the same growth rate as in 1H (+19%), FY21 revenue would be around $1935M
- Assume the NAPT margin will be the same as FY20 (1.45%), FY21 net profit would be $28M (+18% on pcp)
- 3 scenarios for PE ratio & SP:
1) if the market remains as gloomy as it is now on the tech sector, and thus no change in PE: Mkt cap = 31*$28M = $868M, up 17% on today's value.
2) if the market (re)warmed up to tech and raised the PE to 35 (the average of the past 2 years): Mkt cap = 35 * $28M = $980M, up 33%
3) if the market (re)warmed up to tech in general and got excited about the quality of the business (re. consistent growth and margin rates), PE could go up to 40: Mkt cap = 40*$28M = $1120M, up 52%.
In conclusion, I think the downside risk of DTL in the near term is quite small, whereas the upside potential could be considerable. And from a long term view, DTL remains a safe and steady investment. You won't lose any sleep (at today's price) with it in your portfolio, however it wont be your Disallowed anytime soon either.
All IMO.
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