Data#3 Limited
ASX:
DTL
Data#3 Ltd. engages in the provision of on premise, outsourced, and cloud technology solutions in a hybrid information technology throughout Australia and Asia Pacific. The company was founded by Terry Powell and Graham Clark in 1977 and is headquartered in Brisbane, Australia.
Stock Performance Profile:
(Source: TradingView) One-Year Performance Profile of DTL compared to ASX 200 (XJO).
From the company reports:
FY24 Highlights:
(Graphic Source: Company Reports)
Data#3 Limited (ASX: DTL) recently announced its financial results for FY24, ending 30 June 2024, reflecting solid performance across key financial metrics.
Gross sales grew by 7.6% year-over-year to $2.8 billion, driven by robust demand across its portfolio. Statutory revenue saw a modest increase of 0.4%, reaching $815.7 million, while gross profit climbed 7.8% to $270.1 million, indicating strong operational efficiency.
Earnings before interest and taxes (EBIT) rose 5% to $53.5 million, highlighting disciplined cost management despite market challenges. Net profit before tax (NPBT) surged 16.6% to $62.1 million, translating into a net profit after tax (NPAT) of $43.3 million, up an impressive 17%. This robust profitability growth is further reflected in a 16.9% rise in basic earnings per share (EPS) to 28.00 cents.
Data#3 rewarded shareholders with a 16.4% increase in its total fully franked dividend to 25.50 cents per share.
Historical Financial Snapshot:
(Data Source: TradingView. Graphic Source: Pristine Gaze)
Data#3 Limited has demonstrated remarkable financial progress over recent years. The company achieved a significant improvement in net margins, which expanded from a modest 1.3%-1.4% range prior to 2023 to an impressive 5.38% in 2024. This margin expansion fueled net income growth from $23 million in 2020 to $43 million in 2024, showcasing exceptional profitability gains. Return on Invested Capital (ROIC) also surged to nearly 50% in 2024, reflecting superior shareholder returns. Despite its extensive scale, Data#3 maintained a stable sales growth trajectory, with gross sales increasing from $1.62 billion in 2020 to $2.75 billion in 2024, underlining its operational resilience and market strength.
Growth Catalyst:
(Graphic Source: Company Reports)
Data#3 is positioned to capitalize on a robust market opportunity driven by the increasing complexity of IT infrastructure and evolving business needs. Many organizations face challenges in developing effective multi-cloud strategies, compounded by widespread concerns about cybersecurity incidents. With a significant portion of businesses unprepared to address these issues, Data#3’s advanced IT solutions offer a critical value proposition. The company’s AI-powered solutions across key segments, including Security, Data Management, Infrastructure, and Analytics, are set to benefit from the rapid growth in the AI-driven infrastructure market. This market is forecasted to grow from $150 billion in 2024 to $500 billion by 2027, at a CAGR of 19%. Additionally, the data center market is projected to expand by 24% over the next year, while the software market is expected to grow by 13%, driving demand for Data#3’s comprehensive infrastructure and software solutions. The company’s ability to retain over 300 customers for more than 13 years highlights its strong value proposition and utility for long-term clients. Furthermore, the recent significant increase in customer spending reinforces its relevance and adaptability, positioning Data#3 to harness growth opportunities in rapidly expanding technology markets.
Outlook:
Data#3 is well-positioned for sustainable long-term growth, leveraging its robust industry partnerships and market leadership. As Microsoft’s largest Australian business partner, the company benefits from a strong alignment with one of the world’s most prominent technology providers. Additionally, its collaborations with leading firms such as HP, Dell, and Cisco enhance its ability to deliver integrated solutions across a broad range of IT services. These strategic alliances not only solidify Data#3’s market position but also provide a competitive edge in addressing evolving customer needs.
Risk Analysis:
While Data#3 operates in a promising industry, risks remain. The company’s reliance on major technology partners like Microsoft, HP, and Cisco creates dependency risks, as any disruptions or changes in these relationships could impact performance. Additionally, rapid technological advancements require continuous innovation, posing a challenge to maintain competitive offerings. Market volatility and potential economic slowdowns could also impact IT spending, affecting growth. Investors should consider these factors alongside the company’s strong fundamentals.
Technical Analysis:
(Graphic Source: TradingView) Data#3 Limited (ASX: DTL) Weekly Time-Frame (WTF) Chart.
Data#3 exhibits strong technical support near the $6 level, effectively limiting downside risk for investors. The 14-day Relative Strength Index (RSI) at 31.61 indicates a rebound from oversold territory, suggesting potential upward momentum. Additionally, the stock’s recent recovery from its lower Bollinger Bands reinforces the likelihood of a near-term reversal. These indicators collectively point to a promising technical setup, with conditions favoring a potential rebound in the stock’s performance.
Analyst’s Take:
Data#3 is well-positioned in a high-growth industry, leveraging its advanced AI-driven solutions and targeting promising markets like AI-driven infrastructure and data centers. These sectors provide substantial opportunities for long-term revenue growth, aligning well with the company’s strategic direction. Data#3’s robust financial performance, including consistent profitability, revenue growth, and a healthy balance sheet with sufficient cash reserves, underscores its strong fundamentals. Earnings growth has been particularly impressive in 2023 and 2024, reflecting effective execution of its growth strategy. Currently, the stock appears significantly undervalued, trading at a P/E ratio of just 22x, compared to a peer average of 63x and its historical average of over 30x. This valuation disparity, combined with a dividend yield of approximately 4%, offers an attractive entry point for investors. Given these factors, Data#3 presents a compelling investment opportunity with both growth potential and appealing income prospects.
As per Pristine Gaze, you may consider a “Buy” on “Data#3 Limited” at the closing price of “$6.40” (As of 15 January 2025).
*All currency figures are in Australian Dollars unless stated otherwise.
*All data sourced from Company Reports and TradingView.
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