Shares in information technology services and solutions provider Data#3 Limited (ASX: DTL) are down almost 14% in today's session to $1.70 following a trading update that was released on Friday afternoon after the day's session closed.
The Brisbane-based company announced that it expects profit for the first half of the 2018 financial year to be substantially lower than the prior corresponding period.
However, management does expect the company's second half performance to be strong and its full year expectations are intact and projected to be an improvement over FY17's record profit result.
Project delays
The decline in first-half profit expectations was attributed to a number of factors. Supply delivery constraints in November and December have resulted in a delay in some projects. Furthermore, a number of customer delays will also see large transactions move into the second half. These timing delays will now see profit shift towards the second half. The company's strong first half performance in FY17 was also boosted by two large projects that resulted in a 34% increase in first half profit. This is not expected to be matched for the first half in FY18.
Foolish takeaway
Today's announcement was a setback and the company's share price has taken a substantial hit on large volumes for a generally low volume stock.
Data#3 delivered an impressive operational performance in FY17 with the company growing revenues by 11.7% to approximately $1.1 billion and earnings per share increasing by 11.2% to 9.99 cents.
The company is well positioned for the growth in cloud-based products and services with that component of the business growing revenues by 71.3% to $170 million. Management is prioritizing a greater focus toward services revenues which deliver a higher margin than the company's core product revenues.
At $1.70, the company trades at about 17 times trailing earnings and the market is not pricing in much growth for FY18.
Data#3 has a high payout ratio of 89% and trades at a 5.2% dividend yield. Despite today's price fall, the company is still up around 10% this year and does present a more attractive buying opportunity for investors.
