This report is an updated version of the report published on 25 July 2024 at 2:23 PM AEST.

Data#3 Limited (ASX: DTL)

DTL is an Australian business technology solutions provider. The company delivers an integrated array of solutions spanning cloud, modern workplace, security, data & analytics, and connectivity. Headquartered in Brisbane, the company has facilities across 12 locations in Australia and Fiji.

Recommendation Rationale – SELL at AUD 8.60

• Financial Highlights: DTL's total assets decreased to AUD 392.59mn as of 31 December 2023, compared to AUD 935.61mn as of 30 June 2023, primarily due to a reduction in current assets during this period. The company noted increased operating expenses attributed to higher costs in employee benefits. DTL reported an increase in net cash outflows from operating activities, amounting to AUD 266.94mn in 1HFY24 vs AUD 88.80mn in 1HFY23. The primary reason for this increase is attributed to customer prepayments.
• Trading Around Resistance: DTL’s share price surpassed its R1 level recommended on 3 May 2024; and thus, it offered a profit booking opportunity.
• Overvalued Multiples: On a forward 12-month basis – key trading multiples (EV/EBITDA, Price/Earnings, and Price/Book) are higher than the median of Technology sector.
• Market Risk: DTL operates in the technology sector, which can be volatile. Changes in market conditions, technological advancements, or shifts in investor sentiment can affect stock prices. The company also faces competition from other cloud networking companies and traditional telecommunications providers.

DTL’s Price Chart

Valuation Methodology: Price/Earnings Approach (FY Jun'25E) (Illustrative)

Stock might trade at a slight premium to its peers, considering the gross sales growth in 1HFY24, expected technology and digital transformation, improved supply chain conditions, etc. For conducting the valuation, the following peers have been considered: Iress Ltd (ASX: IRE), Bravura Solutions Ltd (ASX: BVS), and Dicker Data Ltd (ASX: DDR).

Considering that the stock has surpassed its R1 level, current trading levels, rally in share price movement, downside indicated by valuation, and risks associated, it is prudent to book profit at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 8.60, as of 25 July 2024, at 11:05 AM AEST.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 25 July 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.