Data#3: Helping people with technology

About the author:

Nick Harris
Author name:
By Nick Harris
Job title:
Senior Analyst
Date posted:
19 June 2019, 9:51 AM
Sectors Covered:
Telecommunications, Technology and Financial Services

Company overview

Data#3 (DTL) is one of the largest Australian owned IT services companies. The company was founded 42 years ago and undertook its Initial Public Offer (IPO) on the Australian Stock Exchange in 1997. The longevity of DTL as a technology services company is largely due to the quality of its service offering and its success in evolving within a rapidly changing technology landscape.

Technology continues to evolve and the rate of evolution is accelerating. Consequently businesses and governments are increasingly looking for experienced and trustworthy partners to help them with 'digital transformations'. DTL is a provider of expert technology advice, implementation and support of market leading technology from the industry's major global manufacturers including Microsoft, HP, Cisco and IBM. While it sometimes goes unnoticed, DTL is a top ten global partner for some of the world's largest technology companies. DTL is Microsoft's largest reseller in Australia and also one of Apple's largest Australia distributors.

Investment highlights

In our view, the key investment highlight for DTL is the longevity of its staff. This culminates in numerous supplier awards, long-term customer relationships and an impressive return on equity which drives healthy dividends for shareholders. DTL operates in the services industry so customer relationships and their tenure are critical to business continuity.

DTL also helps customers wanting to transition from upfront capex to pay as you go (i.e. Cloud). Over time the business will increasingly grow its recurring revenue base at the expense of its transactional business. This increases earnings quality and defensiveness.

Investment view

Over 40 years of hard work has turned Data#3 (DTL) into one of the largest and most successful Australian owned IT services companies.

We have not changed our forecast for FY19 but do think there is upside risk. In February we assigned to our forecasts approximately 13% room for slippage due to the possibility of NSW and Federal elections delaying spend. Election delays now seem unlikely.

Key operational risks relate to strength in customer demand (especially through election cycles and around DTL's traditional June peak) and management's ability to improve the services outlook (tightly managing utilisation).

We upgrade our share price target and maintain our Add recommendation.

More information

Morgans clients can login to view our detailed report and increased share price target for Data #3 (DTL). Alternatively, please contact your Morgans adviser or nearest Morgans office for access.

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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