Three out of four ain't bad; so DWS is now working on growth
The Age
Wednesday February 16, 2011
AFICIONADOS of companies that enjoy a high return on invested capital, no debt and strong cash flow usually look for growth as well.DWS Advanced Business Solutions a listed IT company founded by Danny Wallis boasts the first three attributes but as far as growth is concerned, well, it has stopped.The company was reviewed here last August after it reported an 8 per cent sales gain and a 16 per cent earnings improvement.This week, Wallis unveiled marginally higher interim sales of $48.5 million and earnings that were down slightly at $9 million ($9.3 million previously). The dividend went from 5 to 6 a share.Wallis said he was disappointed and noted that the group encountered "quite significant headwinds".He blamed business uncertainty associated with the federal and state elections, and Telstra.Telstra is a long-term customer, but the problem is, it's too big up to a third of sales.The perils of that were displayed over Christmas when Telstra decided on an out of the blue seven-week contract labour layoff. The effect on DWS wasn't as bad as it could have been: an estimated $200,000 loss. But Wallis is rejigging his client book; the aim by June is to have no one client responsible for more than 20 per cent of revenue.DWS wants to increase its business with the banking, finance and utilities sectors. As well, it is setting up four specialist practice areas that hopefully will deliver higher-margin consulting fees. The costs of setting up a new business analytics practice last September were a drag on first-half earnings but it is "going along nicely", Wallis reports. He expects it to be earnings positive in the last quarter.An office in Geelong will open next month.Last August, Wallis was quoted here saying DWS had grown geographically and that "you'll see that our profits will grow in a much more linear line as the business grows".Asked yesterday whether he stood by the forecast, he said: "Absolutely."DWS was set up 19 years ago and earnings have fallen in only one year. Will the current year be year two? "I don't think so," says Wallis. "I think we'll get a good result with a stronger second half."At $1.52 a share, DWS is valued at $201 million, about 10 times earnings, assuming a 10 per cent gain in the current year.
© 2011 The Age