For the holders of this company I notice a recent BUY placed on it by Intersuisse
Data3 (DTL) Mainstream ICT group growing strongly with a sound yield Buy 5.050
Event ** Data #3 is a Brisbane-based Information and Communications Technology (ICT) solutions provider, growing soundly with a current market capitalization of $79m.
** DTL reported another record interim profit with NPAT up 17% to $3.0m on revenue growth of 20% to $135.5m in 1H07 ended 31 December 2006.
EPS rose 15.5% from 16.9¢ to 19.5¢. The interim franked dividend was raised from 11¢ to 14¢, a 72% payout ratio.
EBITDA rose 19% to $4.4m and pretax profit was up 13% at $4.3m.
Revenue from product sales grew 16% to $102.5m and service revenue increased 35% to $33.0m. Gross margin percentage slipped by 0.4% due to strong increases in the relatively low margin software licensing and recruitment areas. Staff and operating expenses were held steady as a percentage of gross margin despite staff cost pressures.
The 17% NPAT increase followed a similar 17% growth in NPAT in 1H06. Traditionally, the second half generates some 10% more than the first half and H2 should again prove more profitable this year.
DTL had cash of $2.9m at 31 December 2006 with negligible debt. There is typically a net cash outflow in H1, which this year rose to $8.6m compared with $1.9m in the pcp, attributed to collection delays with three or four major customers. DTL sees little risk and is working to bring these to a more suitable level – most accounts are monthly with a typical 38-day collection period.
Impact Revenue growth was strongest in the recruitment area, up a remarkable 61% and likely to be $35-40m for the full year. Some 90% or more of this is contract, including for DTL’s own projects which continue to be strong particularly on the east coast. Licensing income, a steady annuity stream, rose by 24% over the pcp. ICT product revenues rose 22% against market growth of 5-6%. This mainly relates to desktop, server and communications equipment. ICT services revenues grew by 13% with a focus on managed project related integration.
There was little change in the sources of revenue save that more came from state governments, which generated 47% of income compared with 44% in 1H06. Commercial business dropped from 48% to 45% or revenue while local government (6%) and federal government revenues (2%) remained unchanged.
Over the last three years, DTL has been moving from a general IT company to a specific ICT supplier, able to plan, develop, operate and optimize ICT solutions. It has very strong relations with each of its major mainstream vendors, IBM, Hewlett Packard, Cisco and Microsoft, for instance winning a global award from Microsoft last year for its for its best practice for its whole of government software asset management contract with the Queensland Government.
DTL’s current focus is to build on its expertise-oriented strategy to sharpen the ‘solutions’ orientation of its customer proposals. Some key strengths lie in software license and software asset management; integration of management services infrastructure, communications and security; outsourcing, contract management and remote management; data centre optimization, and procurement and supply of software, equipment and contract and permanent staff.
DTL now has some 350 staff, 200 of whom are typically on-site with customers, and it is also using 350 contractors on site. As a mainstream ICT company with very strong government and corporate connections in the eastern states, particularly Queensland, it is centrally placed to share in the systemic growth of ICT in business and government. While IT has seen cycles of demand in the past, it is now seen by customers as a critical requirement for their growth: there will be a far smaller cycle across most parts of ICT.
The result, released on 26 February, was foreshadowed by guidance of the pre-tax number of $4.3m on 29 January. The share price had risen from mid January from a plateau around $4.80 to a record $5.50 early in February and has since retreated in the correction to $5.05. While more of the value of DTL is in the share price than it was a year ago, the company looks now even better placed to continue to grow in a strong ICT sector. The franked dividends provide a yield that is quite hard to match. We continue our Buy recommendation.
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