DWS lets the numbers do the talking

By Trevor Hoey. Published at Aug 14, 2018, in Features

Name: DWS Ltd

Market Capitalisation: $173 million

Last Closing Share Price: $1.33

DWS has delivered a fiscal 2018 result that not only exceeded management’s guidance, but was also ahead of consensus estimates.

Not surprisingly, the company’s shares have traded higher following the result which featured underlying earnings of $22.8 million. This compared with management’s mid-range guidance of $21.75 million. The net profit of $15.9 million represented earnings per share of 12.1 cents, well ahead of consensus estimates of 10.1 cents. The final dividend of 5 cents per share brought the full year payout to 10 cents, once again outstripping consensus estimates of 8.7 cents. DWS hit an intraday high of $1.39, representing an increase of 6% on Friday’s close. However, the company is trading at a discount to its consensus price target of $1.50.

The past performance of this product is not and should not be taken as an indication of future performance. Caution should be exercised in assessing past performance. This product, like all other financial products, is subject to market forces and unpredictable events that may adversely affect future performance.

Diversification provides insulation

As a provider of a broad range of services to diversified markets, DWS’s mix of digital solutions, business analytics, and IT consulting services provides leverage to both traditional and long established industries as well as emerging technologies.

This leaves the company a little more comfortably positioned than many other players in the consultancy sector which rely on large one-off contracts from a narrow field of clients.

Management has taken another step to not just insulate the business against possible volatility, but also create a substantial new revenue stream in fiscal 2019.

The acquisition of Project Assured effective July 2, 2018 has diversified the group’s earnings by industry and geography.

It is a leading Canberra-based strategic management and IT consulting business with more than 100 consultants and an experienced management team that services both the government sector and a broad range of non-government industries.

Management expects the acquisition to contribute between $35 million and $40 million in fiscal 2019. To put this in perspective, this is about 30% of the group’s fiscal 2018 revenue.

It should be noted that these numbers are speculative and investors should seek professional financial advice before considering this stock for their portfolio.

Earnings and dividend growth anticipated in fiscal 2019

Analysts have no doubt framed their fiscal 2019 projections around the sizeable contribution from Project Assured. Consensus forecasts based on previous estimates of 10.1 cents per share for fiscal 2018 implied year-on-year growth of 30.1%, bringing earnings per share to 13.2 cents. However, with DWS having delivered earnings per share of 12.1 cents in fiscal 2018 it is possible that these numbers may be upwardly revised. As a back of the envelope exercise, a 30% increase on this year’s earnings per share equates to 15.7 cents.

Of course, analyst projections and price targets are only estimates and may not be met. Those considering this stock should seek independent financial advice.

The company presents as relatively cheap on a price earnings basis, even relative to fiscal 2018 earnings.

Consequently, any growth that is captured in fiscal 2019 could see the company spotted by value seekers.

It also shapes up as an attractive yield play with this year’s dividend implying a yield of nearly 8%.

Given the strength of the company’s balance sheet which features minimal net debt of $1.9 million and cash of $8.1 million there would appear to be the scope for a dividend increase in fiscal 2019.

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