Data#3: Shaping up for another record result
About the author:
- Author name:
- By Nick Harris
- Job title:
- Senior Analyst
- Date posted:
- 18 February 2022, 10:30 AM
- Sectors Covered:
- Telecommunications, Technology
- In Jan 2022 DTL upgraded 1H22 PBT guidance from $15-18m to $18.1m (+30% yoy). Today’s result was a slight beat on this with PBT of $18.5m growing 33% YoY (and 100% organically). EPS growth was nearly double revenue growth and this result shows the positive fixed cost leverage in the DTL business model.
- The Board declared in interim dividend of 7.25cps, ff and up 32% YoY.
- As expected, no formal guidance was provided. The overall outlook remains positive and, absent a black swan event, we see upside risk to our forecasts.
Event: 1H22 result
Total revenue was up 17% YoY; gross profit +17.5% YoY (margins +100bps) and OPEX +15% YoY. This led to 30% YoY growth in EBITDA with EBITDA margins compressing slightly YoY. NPAT; EPS and DPS were all up ~32% YoY.
Public cloud revenue increased 35% YoY to an annualised $934m. Cloud now accounts for ~47% of total revenue and ~65% of revenue is recurring in nature.
In 1H22 DTL had an average cash balance of $190m. Negative operating cashflow occurred as expected; and DTL ended the half with $65m in net cash. Operating cashflow should rebound strongly in 2H22. However, much of this is timing related and management noted DTL has around $15-20m of “free cash”.
Analysis and outlook
Digital transformation is critical to most businesses and now a more important medium-term priority (post figuring out how to temporarily WFH). Good strategic positioning from DTL and increased demand delivered an impressive lift in DTL’s services business YoY.
Management aspire to grow higher margin services faster but over the last few years the demand for equipment has outpaced services. This year services grew at a rapid pace which positively surprised us and management.
Consulting revenue +65% YoY (after a few weak years, demand is strong and billables/utilisation is well placed); Support services +62% YoY (lagging project work); and Project services +8% YoY but likely to climb going forward.
Big order book but supply chain challenges likely to remain problematic into FY23.
Management commented ”While our strong trading performance has continued at the start of the second half, given that pandemic-related uncertainties remain, especially related to our people, at this stage it would not be prudent to provide specific guidance for FY22.
In line with previous years, we continue to expect a sales peak in the months of May and June and a higher profit skew in the second half, and to deliver sustainable earnings growth.”
Forecast and valuation update
We’ve made immaterial forecast changes with EPS increasing ~1% in FY22 and FY23. Our Price Target remains (login to view).
Investment view - Add
We have an Add recommendation on DTL. We view DTL as a high-quality company which is one of the best positioned on the ASX to deliver on areas of ICT where there is elevated end customer demand. There is arguably record customer demand for key ICT areas where DTL specialises (including digital transformation).
We expect a July 2022 trading update. Assuming no further material delays in supply chain and/or no Federal government care taker mode related spending delays, then we see upside risk to our forecasts.
As management point out, there are a number of uncertainties. We have consequently opted to take a more conservative approach.
There are some potential earnings risks around: supply chain (delays are not 100% resolved); a potential slowdown heading into a Federal election in mid CY2022; and wage inflation/access to skilled staff. We have made provisions for these risks in our forecasts.
Earnings volatility remains a challenge for DTL. A substantial portion of earnings fall in the June and December periods. This is sometimes subject to supply/demand challenges which can positively or negatively impact EPS.
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