SIF Folio: D4T4 has good data but lumpy progress is a risk

Tuesday, Dec 04 2018 by
13
SIF Folio D4T4 has good data but lumpy progress is a risk

As I hoped, last week’s results from SIF folio stocks Motorpoint Group and Character Group were showed decent progress at both firms.

Graham and Paul covered both sets of results in last Thursday’s SCVR report, which you can read here. I won’t repeat their excellent commentary, but one thing I would like to add is that Motorpoint continues to qualify for my stock screen based on its latest trading results. So it seems that leaving the portfolio’s holding untouched last week was the right thing to do.

SCVR to the rescue

I don’t often I come across a UK stock I have zero familiarity with. But this week my Stock in Focus screen has highlighted a company that’s completely new to me: D4T4 Solutions (LON:D4T4).

This AIM-listed software business is a specialist in data solutions. Luckily it’s been covered by Graham and Paul in the Small Cap Value Report on a number of recent occasions. Their standout work provides a fantastic pool of commentary to draw on when getting up to speed with new small-cap stocks.

What does D4T4 do?

House broker FinnCap describes this company as a “specialist provider of data collection, management and analysis solutions”.

In short, it seems that clients pay D4T4 to collect data “from all consumer touchpoints”. This data is then stored on the firm’s platform, which ensures it is compliant, complete and accurate. Technology such as artificial intelligence is used to analyse the data and create behavioural profiles, personalised offerings and other insights that might drive growth.

The company’s clients are pretty varied. According to the firm’s website, clients include Axa Insurance, major banks, the NHS, Qantas and Toyota.  

Essentially this is a Software as a Service (SaaS) business. Like most small-cap software firms, it’s vulnerable to lumpy contract awards. Last year the firm had a weak H1, but bounced back surprisingly well in H2.

This year’s performance has reverted to a more typical H1 weighting. Last week’s H1 results showed revenue of £14m and adjusted pre-tax profit of £3.35m for the six-month period. This translated into earnings per share of 7.4p.

Stockopedia is showing full-year consensus revenue forecast of £23m with earnings of 12p per share. So about 60% of these forecasts were delivered in H1. Finn…

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D4t4 Solutions Plc, formerly IS Solutions Plc, is a United Kingdom-based company, which focuses on data solutions for its clients to provide end-to-end management of the entire data lifecycle, from its initial creation through the manipulation, analysis and management of the data all the way through to its eventual retirement into industry-compliant archives. Its segments include License sales, Project work and Recurring revenues. Its market focus areas include Data Collection, which captures data from any digital channel through its division, Celebrus Technologies; Data Management, which includes the secure storage and management of all forms of data, either in the cloud or on client premises, for presentation through multiple devices and applications; Data Analysis, which focuses on delivering value through analytics capabilities, and Data Solutions, which includes areas, such as Web and mobile application development, systems migrations and upgrades, and Software-as-a-Service. more »

LSE Price
190p
Change
 
Mkt Cap (£m)
72.5
P/E (fwd)
14.7
Yield (fwd)
1.5



  Is LON:D4T4 fundamentally strong or weak? Find out More »


4 Comments on this Article show/hide all

drvodkaquickstep 4th Dec 1 of 4
3

Great write up Roland - D4T4 are my No 1 holding having owned them since they were IS Solutions back in 2011. Lumpiness may continue to some degree but mgt are very focussed on mitigating this and recurring revenue streams are ramping up. You forgot to mention they have freehold property assets (their Sunbury HQ) and the mgt team with Peter Simmonds as Chairman are high quality.

Lots to like.

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dscollard 4th Dec 2 of 4
3

The Celebrus platform ties together all customer/customer touch points across all digital channels including voice, email, web, social media etc and integrates these to allow much deeper management and development of prospects. Apart from the obvious e-commerce/abandoned carts scenarios, this  is particularly useful (and used) by call centres and B2B applications. Their IP is patented and I see enormous growth opportunities for them especially in an increasingly more fragmented multi-channel world: they are actively going after the elusive "omnichannel" conundrums

Some good case studies on their sites to give a better insight of what they do 

https://www.d4t4solutions.com/...

Worth noting they have partnerships with big houses like teradata, sas, microsoft

Blue Prism (LON:PRSM) really took-off when they partnered with Accenture on roll-out . 

Clearly I am long .....

finnCap has published a recent note following the interims : it is worth a read

from finnCap

New segmental analysis: The Interims present a revised segmental analysis
breaking down the previously rather opaque and lumpy ‘Projects Work’ revenue. It
reveals the high level (46%) of high-margin own-IP product in the H1 sales mix, as
well as suggesting c.£5.5m annually of recurring support & maintenance revenue (in
addition to the growing SaaS revenue, which has yet to reach material levels).

Website: runprofits.com
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Ramridge 5th Dec 3 of 4

Great report, Roland.
Worth mentioning, on a trailing basis, operation margin =28% and ROCE =34%. These are impressive and I'll be keen to see if they stick come the FY results. Now that would be impressive.

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Roland Head 5th Dec 4 of 4

In reply to post #424658

Hi Ramridge,

I think that £D4T4 TTM operating margin and ROCE are likely to fall back to historic levels when the full-year results come through. These ratios will have been boosted by last year's H2-weighted profit being added this year's H1-weighted figure.

Having said that, ROCE has generally been impressive in recent years, averaging nearly 16% since 2013.

Regards,
Roland

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About Roland Head

Roland Head

I'm a private investor and writer on stock markets, with a particular fondness for free cash flow, dividends and value. I also have a lingering interest in commodity stocks. In earlier life, I worked as an engineer in telecoms and IT. The rules-based approach required for this kind of work undoubtedly influenced my investing style. I also learned a lot from seeing the tech bubble deflate in 2000-1, when I was working for a large and now defunct Canadian firm.  My investment focus is increasingly on developing rules-based strategies such as my Stock in Focus portfolio. This reflects a significant part of my personal portfolio and is the subject of my weekly column here at Stockopedia. more »

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