Ok let's keep this light, because that's what I am - a light-weight investor with no in-depth or special knowledge. Even less so when it comes to I.T services companies. So you may well ask why bring them up in the first place? This is because I'm interested in their earning and dividend paying capacities. DWS is the one I wanted to discuss but as I read more into it I somewhat lost enthusiasm. So it's just for discussion and possibly your own 'research' - right? DWS was once on Roger Montgomery's top 20 A1 stocks Uploaded Nov 15 2010 With Peter Switzer: Roger Montgomery's top 20 A1 stocks list http://www.youtube.com/watch?v=w24Mlon9DZQ However when reviewed in August 2011 DWS was demoted to an A2 stock http://blog.rogermontgomery.com/what-has-probing-the-reporting-avalanche-revealed/ I got into it when it took a panicky plunge at start of December 2010 upon this earth shaking announcement: http://www.stocknessmonster.com/news-item?S=DWS&E=ASX&N=346775 Eventually, when financial results were reported for year ending June 30 2011 the drop in earnings per share compared with pcp was only 1c, from 14c cps to 13 cps. Anyway I don't have the energy to go on and on; here's the record of Return On Equity (ROE) from FY06 through FY11: Return on Equity (%) 27.9 43.4 36.8 30.8 32.9 30.3 But note how the eps has not had much growth: Earnings (cents) 5.9 12.7 13.0 12.1 14.0 13.1 And the book value has not grown much due to the strong payout ratio into dividends: Book Value ($) 0.21 0.29 0.36 0.39 0.43 0.43 This company has no debt. However it has low liquidity, is not in the S&P ASX300 last I looked, and is susceptible to whims of big customers, like Telstra in Dec 2010. The SP got massacred in the GFC, but you kept getting those dividends, and earnings per share (eps) stayed strong. I don't know whether it is currently above or below intrinsic value. Later I will make a post about the stock in the same I.T. sector that I actually bought on Friday. That's Data#3 (DTL) The chart of DWS. This is what prompted me to post about a non PM stock, however it is not as striking as I first thought. The chart has been in a gently declining consolidation for more than 2 years with the price contained in a narrowing range. Recently it broke above the steepest resistance downtrend line but not yet out of the overall pattern. Whether it breaks out decisively or drops back down might well be decided by the company report early next week. The interim dividend should stay steady at the least, and DWS will probably pay a minimum yield of 8% ff for FY12 which is about 11%, taking into account the taxation benefit of the franking credit. Will go ex div in a month. I hold 50,000 shares of DWS at average 1.20 and will not be selling foreseeably Source:
There was a company that was using a cloud-esk server to build a business solutions company that i remember having a look at - they payed dividends - but i cant remember what they were called.
There was an episode of Secret Millionaire (which I saw) ages ago featuring the founder and (I think also the CEO) of the company Danny Wallis (DWS = Danny Wallis Services or Danny Wallis Solutions, something like that). What I've heard from people who know him is that he is a difficult man to work for, is an egomaniac, and control freak and to a large extent the success of the business is built on long term business relationships that he has personally made (as opposed to the company necessarily) with senior people who work for customers of the company. He spends a lot of time networking and runs the business as a one man show (think about what happens if he gets hit by a bus or even just retires). Again this is what I've heard from a fund manager I know who did some scuttlebutt on the guy. A few years ago they put Trevor O'Hoy on the board of directors. Trevor is the idiot former CEO of Foster's Group who made some disastrous wine acquisitions (which resulted in billions of loseses and write-downs). Not long after his appointment to the board Trevor resigned and joined the board of ASG. After this debacle I questioned the wisdom and judgment of management and decided to stay clear of the company (after following it for some time). Also the company's cash flow momentum (i.e. haven't seen any strong increases in operating cash flow or free cash flow) has been weak in recent years. Also during the GFC the company had a strong balance sheet and announced a share buyback but chickened out after only buying a small number of shares which to me indicates a lack of courage by the board and management. By the way I'm not a fan of roger Montgomery but read his blog because there are some real smart commentators on there (e.g.Lloyd). Any questions about DWS? By the way its a breath of fresh air to have someone make a post about a non "resource" related company. In relation to Data 3 (DTL) it was a company which I respected as well managed for a long time until an announcement some months ago of a share split. The reasoning the company gave is that it would increase liquidity and marketability in the shares and allow shareholders to buy and sell smaller parcels. Although it seems harmless to split shares from $12+ to $1.20 (i.e. ten for one split) the reasoning is bogus and assumes that shareholders are stupid and seems like a pathetic promotional tactic (reeks of share price promotion). In a company like Berkshire Hathaway where even the lower priced shares for thousands of dollars liquidity can be an issue for retail shareholders (e.g. what if you want to buy or sell $11,500 worth shares and the shares are $10,000 each?) however as if it's going to affect decision making weather the shares are $12 or $1.20 e.g. "oh shit I can only buy $3012 worth of shares instead of $3001.20 which is the amount I really wanted to buy". Can you see how irrelevant and absurd it is. I know it seems like a small thing but I'm weary of companies that try to play these sorts of games and are interested in share price promotion. After that announcement I lost interest in the company. I know I'm being harsh but better safe than sorry.
Phew, thanks for those insights Bargain Hunter. I think I'll try to treat the company as a price chart now. I found this link to his 'Secret Millionaire' episode, but cant find if the program is archived for a viewing. Doesn't appear to be. http://channelnine.ninemsn.com.au/s...bsectionid=156020&subsectionname=millionaires 9th slide in series I did notice the trailing off of cashflow in the last two years, but complacently thought an acquisition or higher payout ratio might account for it. I've since had a look at the 2011 financial report and see that, comparing FY11 to FY10, cash cost of employees and suppliers went up 10% while operating revenues went up only 3.6%. The higher dividend was also paid out of cash holdings. Usually avoid doing that sort of thinking. By the way I bought two copies of Rog Monty's book but never got through a chapter - the internet has stunted me for sustained reading. Just to revise my position and sentiment: I hold 50,000 shares of DWS at average 1.20 and will not be selling foreseeably will probably hold - at least to the ex div date.
My favourite stock for the past few years which is still my favourite stock (and currently my only shareholding) is Credit Corp (CCP). Credit Corp is Australia's largest debt collector and recently posted a strong FY2012 first half result.
Might not be relevant now but I remember CCP back in the GFC crash. A fund being run by Roger Montgomery was a substantial holder of this company and it dived from $10 to $1. Roger took a major bath on that one. Take a look at a 5 year chart. Then again a lot of weird sh*t went down around that time. I still kick myself for not buying TRY when it got down to 80c
DWS reported today for first half of FY12, and it appears not too bad. The margin is down slightly on the pcp (i.e. Dec Half FY11), but because the revenue is up 14% the company did raise the earnings per share by 6% and declared an interim dividend of 6.25c fully franked, up from 6c in pcp. Ex dividend date should be about 15 March by my count. The company cites labour cost pressures and "organic growth strategy" as two of the causes for poor match in revenue growth and bottom line earnings per share. The cash flow improved markedly for this half at least - up 34%, and the company maintains zero debt, and after div payout will hold net cash of $17.42M
Data#3 Ltd (DTL) Here's an attempted match-up of DTL with DWS. I couldn't work out on the keyboard how to shift along the brackets of figures for DWS to match year to year for DTL, so note that figures of ROE and Book Value are for the last 6 years for DWS and the last 10 years for DTL. Comparison shows that DTL is a better quality company in its earnings performance. The ROE is stronger and the book value has been growing consistently and better. However DTL is much more expensive with price at twice the multiple to book value. That is, to buy a share of DTL you will pay about 6x the amount that shareholders have contributed originally for shares + accumulated retained earnings, whereas to buy a share of DWS you will only pay 3x I would rather own DTL but not sure about paying twice as much by Book measure, although I did just that on Friday. DTL P/E Ratio 13.47 P/B Ratio 6.64 Dividend Yield 6.0 DWS P/E Ratio 10.1 P/B Ratio 3.23 Dividend Yield 8.1 DTL has small debt of 8% of capital DWS has no debt DTL: Return on Equity (%) 40.3 42.9 32.6 28.4 33.8 37.7 42.7 42.1 41.8 49.7 DWS: Return on Equity (%) 27.9 43.4 36.8 30.8 32.9 30.3 DTL: Book Value ($) 0.05 0.07 0.08 0.09 0.11 0.12 0.14 0.15 0.17 0.20 DWS: Book Value ($) 0.21 0.29 0.36 0.39 0.43 0.43
Briefly some more on DWS ltd and Data#3 The article quoted on the RMS board also included DWS and DTL in the rankings for Skaffold's (Roger Montgomery) list of top stocks in 2012. The article was from Money Magazine' February issue. DWS was ranked at 26 out of 50 A1 and A2 quality stocks for 3 years of forecast growth. Also DWS was ranked number 1 out of the 50 for income. However DWS was only valued at 1.25. This value would have risen a bit with the not too bad H1 report but at market price of 1.44 would still be over priced by Skaffold's measure. DTL came in at number 31 out of 50 for growth, and was ranked 7th for income. DTL valued at 1.32, so is currently priced at a slight discount. DTL not reported H1 yet which will nudge it up or down.
An admission here - I succumbed to an old weakness that I thought had been cured by painful consequences and bought Data#3 (DTL) on impulse. I just had to have it and bid at the asking price right on the closing knocker at the close of week. I would have been the last one to have his bid filled while the market was open. It was a losing purchase within 10 minutes because in the after market settlement auction the price fell from my buy @ 1.32 to 1.30 at final settlement. Fell like a shot bird since, which suggests to me that the price was being ramped up towards the H1 financial report or that news had leaked that management was going to report a dull second half outlook. On the chart I bought @ 1.32 on Feb10 and H1 report came out Feb20 Two small lessons if they can be learned: don't get controlled by the urge to own a particular stock, and never buy into weakness leading up to a financial report. R Montgomery's Skaffold program now values the stock at only $1.10, 1.21, and 1.36 for FY12, FY13, and FY14. The quality and performance rating is maintained at A1. Obviously with their system there is no margin of safety buying at current price, although there is a near interim dividend .
I have a general rule of never buying anything coming into reporting season, I would rather just wait a bit longer for the results to be released. The exception is if I'm adding to a long-term holding which I know well and which I expect to issue a profit upgrade, in which case I may buy before the announcement so i can get in before the price spikes up.
Up and out of the pattern now - put a ruler along the peaks of the 2yr downtrend. If I were going purely by chart perception alone, and did not know the name of this stock, nor anything about it, I would consider it a buy because of the breakout above downtrend. Yet on the fundamental side I understand enough to say it is not exactly cheap, and conviction is helped there by Monty's Skaffold program valuing DWS at $1.15, 1.32, and 1.51 for FYs 12, 13, and 14. Closed today at $1.53. Maybe it'll keel over upon going ex dividend in a couple of weeks. On the other one, Data#3 (DTL), the fund manager from Wealth Winners chose it as his promotional stock for the 30 seconds segment on Your Money Your Call tonight. Said management was outstanding and conservative. In its H1 report DTL couldn't give an outlook currently except to say that it didn't think H2 is going to be better. Closed today at $1.10 which is equal to Skaffold's intrinsic valuation for FY12
Data#3 (DTL) - How's this for a breakout? Been watching for the low, looked at the chart on Thursday, saw what I interpreted as a rectangular pattern and was asking should I wait for a bit of down and bounce, or wait till it breaks above resistance for confirmation. Then on Thursday night 'Your Money Your Call' on Business Channel, what stock comes up? Data 3 - and there's my favourite T/A guy, Garry Glover, pointing out that the price was sitting on top of an earlier high, which I hadn't noticed, and looked good; and Mark Moreland from Team Invest raving about the stock from a fundamental perspective. Then announcement comes out Friday morning, before open, reaffirming FY12 earnings guidance, and drawing attention again (not new) to the strong revenue, and to earnings growth conforming to trend, even if lower than an exceptional FY11. Then market opens and kaboom - too late.
The thing about Data #3 is they have a lot of Govt contracts sewn up. They seem to be the default SW license renewals partner for Govt depts, and this is business that is low touch, high margin and revenue. In other words, good business to have. Oh, and yawn
Been a dud, but DTL chart suggesting strength off a low now? Long way to go though. More a bottom picker's spec stock imo. Has been a strong ROE stock in the past. Has confirmed guidance and payout for FY14 today
As a prior customer of Data#3, I feel they have really gone downhill in the last 2 years or so. When they cut away from Datacom they were providing an excellent service, nowadays they are consistently the highest quoting company and as a result very rarely get an order from my organisation. Half the time they don't even reply to my emails for quotes. Either they are doing so unbelievably well, they don't want my easy money, or they are very understaffed and the sales reps are greedier than ever. A lot of these businesses rely on government money to survive. The profit margins are huge, but government money has changed significantly. This FY (and I presume for the next 5 years at least), expect a drought in spending until next February/March when they will be spending hand over fist to clear out accounts before the end of May. In my experience, these suppliers haven't changed their business model to suit this situation just yet. Staff appear to be getting laid off, but then they are too slow to react when there is loads of money to be spent at last minute. How this impacts the share price, I have no idea.
Thanks petey - very interesting to get a hands on perception. I'll never be able to grasp a business like this on an intrinsic level, so I go by tipster and valuation services, my own impression of earnings records, forum chat, and the hit and miss approach of charting. Clime's valuation is under review after the results announcement, but has been at forecast 69c per share for FY14. Should be revised a little upwards? I'm just hoping now Data#3 will adapt and change. Who knows? Recent initiatives, like the partnership with an internet education business (The Alpha School System), might restore its mojo. Its revenues have remained not so bad. I'm prepared to be patient, and also assume the government spending will rebound if considering a few years' outlook. The company's saying the dividend payout ratio will be the same as FY13 and that was 89%. The eps will be about 4.8c from NPAT of $7.5m. So I get the total year's dividend to be either 4c or 4.5c. The H1 div was 1.5c, so holders can look forward to a minimum 2.5c div for H2, which overall is still a 5% yield on a 78c share price.
I don't mean to be too negative on them. They are certainly a well established player, just from my experience they seem to be losing their competitiveness on price. HP constantly undercut them by at least 30%. Some of these companies have been taking the easy money for years and the easy money has dried up for at least 9 months of the year now. I imagine a change of their staffing is all they need, but if 2008/9/10 is anything to go by, as soon as there's a bump in the road, the easy money businesses are shaken out. But who knows, maybe they have a heap of income streams that aren't government based.
