DWS Ltd (ASX: DWS) recently released its full year 2015 results.
DWS is an Australia-based information technology (IT) services company. It operates in most of Australia's capital cities and develops, manages and maintains software solutions and information technology solutions for corporate entities and government agencies.
DWS provides cloud based services, including cloud planning services, IT strategy & architecture, integrated technical services and fast start services. It also provides digital solutions, offering iApply, an online data capture and workflow automation solutions delivered via the cloud, together with a range of modern business analytics services using cloud technology.
Here are the highlights of DWS's full year 2015 results:
- FY15 revenue of $94.63M in line with prior corresponding period (PCP) of $94.40M
- FY15 underlying EBITDA (excluding one-off items) down 13% to $15.86M
- NPAT down 19% to $10.4M
- EPS of 7.9 cents (PCP 9.7 cents)
- Fully franked dividend of 7.5 cents per share representing a total payout ratio of 95% ( 90% payout ratio excluding one-off items)
- Operating cash flow (before interest and tax) of $15.12M
So what
DWS competes with other consulting firms for the same pool of consultants, but must add value by winning large and complicated projects that consultants could not undertake independently.
The second half of the fiscal year was weaker than the first, but the rate of decline versus the prior comparable period improved a little in the second half.
The recent Symplicit and Phoenix acquisitions will diversify the company into new areas of consulting, including management and digital consulting, which should create revenue synergies and improve access to large customers.
Phoenix and Symplicit will add about 250 employees, increasing total headcount by about 50%.
What now
The key risks for DWS are loss of business as a result of failure to deliver against contractual requirements, increasing competition for tenders, an economic downturn that leads to reduced IT spend, the loss of key personnel, and work deferrals.
Earnings per share, have been falling for the past five years. The company is being marginalised by the market share gains of the large global consulting firms, and low-cost overseas companies. The decline in profit margins increases operating deleverage and investment risks.
The company is heading in the right direction by trying to diversify into other areas of consulting but, competition with large global consulting firms will continue to make it increasingly difficult and that's why I will look for other investment options.
