Australia | Sep 10 2007
By Chris Shaw
Intersuisse had expected a record profit result from IT and communications solutions group Data#3 (DTL) and was not disappointed as the company delivered a 26% increase in net profit to $7.2m on revenue up 19% to $285.1m.
This continues a run of strong performances from the company, the broker noting Data#3 has averaged a 35.6% return on capital over the last five years, with FY07 coming in at a 37% increase.
While acknowledging the company has benefited from a strong market in recent years the broker also points out management has been attempting to create a competitive advantage through a focus on productivity applications and by supplying a more specific solution for each customer’s needs.
This is helping the company develop cross-selling opportunities among its client base, the broker highlighting the success of this strategy by noting the group’s top 100 customers delivered a 45% increase in revenues over the year.
It is also helping with the winning of new contracts, with a deal signed just last week with Queensland Health and another a few weeks ago with the Queensland Government. These new contracts support the broker’s forecast for continued strong growth, its estimates for earnings per share (EPS) showing an increase to 53.8c in FY08 and 62c in FY09 against 46.1c in the FY07 year.
Net cash flow of $8.1m last year was more than the amount required for dividend payments, so the company has cash on hand and its dividend is well supported. As a result the company offers an attractive yield, the broker forecasting dividends to increase from 36c in FY07 to 42c in FY08 and 48c in FY09, equivalent to yields of 6% and 6.8% fully franked as at Friday’s closing price of $7.00.
Others in the IT sector such as SMS Management & Technology (SMX) and Oakton (OKN) have attracted broader analyst coverage thanks to larger market capitalisations than that of Data#3 at just over $100 million but the FNArena database shows ABN Amro analysts also research the stock and equally rate it as a Buy. The broker has a price target of $7.07 on the shares.
Data#3 shares today are trading 15c lower at $6.85 compared to a year’s trading range of $4.00-$7.10, though it should be noted the stock is trading ex-dividend today.
