As we introduce the exciting new strategy on the TAMIM investment platform, the TAMIM Australian Equity All Cap Value IMA, we thought it would be a good idea to give you, our valued readers, a idea of the way portfolio manager Guy Carson thinks. The underlying fund introduced four new positions during the month of December. One that we are really excited about is Data #3.
A New Position - Data#3 - December 2016 Update -
Data #3 is a company with a long track record. The company was founded in 1977 and first listed on the ASX in 1997. Through most of its history it was purely a software distributor. With no competitive advantage of its own, apart from exclusivity agreement on products from manufacturers, the business historically has been one of very low margins. More recently the company has sort to diversify their revenue base and has expanded into Services. Their service offering has become focused on assisting Small and Medium sized enterprises with their Cloud network needs.
The advantage this style of business provides is recurring revenue (as opposed to the billable hour’s model that is common in the IT services industry). Through their existing customer base they have managed to grow their services division consistently in recent years with a particular acceleration in the last 18 months.
A decline in product revenue in 2013 saw EBIT fall 9% and NPAT fall 11%. However, since then the growth in the services division has meant that the product revenue is of declining importance. In fact, due to the significantly higher margins, the gross profit from the services division is now the same as that from the product division.
The company has net cash, pays a fully franked dividend that places it on a yield of 5.3%, trades on 16.9x historical earning and has issued guidance for the first half that represents earnings growth of between 15 and 39%. Overall, that business is performing strongly.
The underlying fund is currently the most diversified it has been with 17 investment. The cash balance fell slightly over the month as we added positions in DTL, CSL, ADA, MLB and APX whilst greatly reducing our exposure to the Telco sector.
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