Data#3 (ASX:DTL) Shares Fall 14% on H1 Margin Pressure

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Highlights

  • Data#3 shares declined 14.40% to AUD 7.79 on 23 February 2026 following its H1 FY26 results release.
  • Gross Sales increased 9.2% to AUD 1.54 billion in H1 FY26.
  • Statutory revenue rose 8.1% to AUD 423.1 million in H1 FY26.
  • Gross Profit edged up 0.3% to AUD 144.0 million, with gross margin narrowing to 9.3%.
  • NPBT lifted 4.5% to AUD 33.5 million and NPAT increased 3.7% to AUD 23.2 million.
  • Interim fully franked dividend increased 3.1% to 13.50 cents per share.

Data#3 Ltd (ASX:DTL) shares fell 14.40% to AUD 7.89 during the afternoon session on 23 February 2026 after the company announced its results for the half year ended 31 December 2025 (H1 FY26). Over the past 12 months, the stock has declined 1.14%, underperforming the broader ASX 200 index, which has risen 8.51% over the same period. The decline comes amid broader weakness across the IT sector, with investors reacting to margin compression and mixed divisional trends despite overall earnings growth.

Topline Growth Holds, But Margin Pressure Emerges

For H1 FY26, Data#3 reported Gross Sales of AUD 1.54 billion, up 9.2% compared with H1 FY25 and above the reported Australian IT market growth rate of 8.7%. Statutory revenue increased 8.1% year-on-year to AUD 423.1 million.

However, Gross Profit in H1 FY26 rose only 0.3% to AUD 144.0 million, with total margin on gross sales declining to 9.3% from 10.2% in H1 FY25. The moderation in margin reflects the anticipated impact of changes to Microsoft’s incentive program, which primarily affected the Software Solutions segment during the period.

Operating expenses declined 1.1% to AUD 113.1 million in H1 FY26, supporting EBIT growth of 6.2% to AUD 27.6 million. Net Profit Before Tax (NPBT) increased 4.5% to AUD 33.5 million, within the previously guided range of AUD 32 million to AUD 34 million. Net Profit After Tax (NPAT) rose 3.7% to AUD 23.2 million, while Basic EPS improved 3.6% to 14.95 cents per share.

Return on equity moderated to 27.5% in H1 FY26 from 28.5% in H1 FY25.

Software Delivers Sales Growth but Profit Softens

The Software Solutions division recorded Gross Sales of AUD 1.1 billion in H1 FY26, up 8.9% from AUD 0.98 billion in H1 FY25, supported by demand for security products, cloud subscriptions, Adobe and Azure solutions.

Despite record sales, Gross Profit declined 4.6% to AUD 37.5 million in H1 FY26 from AUD 39.3 million in H1 FY25, with gross margin easing to 3.5% from 4.0%. Management Profit for the segment fell 9.4% to AUD 19.7 million.

The decline was attributed to Microsoft incentive program changes that took effect from 1 January 2025, with H1 FY26 flagged as the most impacted period. The company expects the Software business to return to gross profit growth in H2 FY26, resulting in a full-year contribution consistent with FY25.

Infrastructure Offsets Weakness in Parts of Services

Infrastructure Solutions delivered favourable growth in H1 FY26, with Gross Sales rising 17.6% to AUD 275.2 million from AUD 234.0 million in H1 FY25. Growth was driven by more than 30% increases in end-user device sales linked to Windows 11 refresh cycles, as well as over 30% growth in data centre storage and server sales as customers prepare for AI adoption.

Gross Profit for Infrastructure increased 16.7% to AUD 36.8 million, while Management Profit more than doubled, rising 105.7% to AUD 10.8 million. Gross margin remained relatively stable at 13.4% compared to 13.5% in the prior period.

The Services segment delivered mixed results. Managed Services benefited from significant contract renewals and new wins, particularly in the resources sector. However, Project Services and People Solutions continued to face challenging market conditions, with customers delaying larger projects and reducing contractor numbers amid softer labour market conditions. Maintenance Services was flatter in H1 FY26 but is expected to improve in the second half.

Balance Sheet Strength and Dividend Increase

Data#3 ended H1 FY26 with no borrowings and highlighted its favourable balance sheet. The Board declared a fully franked interim dividend of 13.50 cents per share for H1 FY26, up 3.1% on H1 FY25, representing a payout ratio of 90.3%. The dividend will be paid on 31 March 2026, with a record date of 17 March 2026.

Outlook: Second-Half Skew and AI Opportunity

Management indicated that earnings are expected to be weighted toward the second half of FY26, consistent with prior years, and noted a typical sales peak in May and June. While specific FY26 guidance was not provided, the company expects Software gross profit to normalise in H2 FY26 and Infrastructure to remain favourable, supported by AI-driven demand and device refresh cycles.

The company also highlighted supply constraints in memory chips due to favourable AI infrastructure demand, which may lead customers to bring forward orders in anticipation of tighter supply conditions through calendar 2026 and potentially into 2027.

What This Means for Investors?

While Data#3 delivered continued revenue growth and mid-single-digit earnings increases in H1 FY26, the modest 0.3% rise in Gross Profit, margin compression and weaker performance in parts of the Services and Software divisions appear to have weighed on investor sentiment.

In a softer IT sector environment, the market reaction suggests investors are focused on profitability trends rather than topline growth. With earnings expected to be skewed to the second half and margins projected to stabilise, attention now shifts to execution in H2 FY26.

Frequently Asked Questions (FAQs)

  1. Why did Data#3 shares fall on 23 February 2026?

Data#3 shares declined 14.40% to AUD 7.79 after the company reported mixed H1 FY26 results, including modest gross profit growth of 0.3% and margin compression, particularly within the Software Solutions segment.

  1. How did Data#3 perform in H1 FY26 compared to H1 FY25?

In H1 FY26, Gross Sales increased 9.2% to AUD 1.54 billion, statutory revenue rose 8.1% to AUD 423.1 million, NPBT lifted 4.5% to AUD 33.5 million and NPAT increased 3.7% to AUD 23.2 million.

  1. What dividend did Data#3 declare for H1 FY26?

The company declared a fully franked interim dividend of 13.50 cents per share for H1 FY26, up 3.1% from the prior corresponding period.