Why has the DWS Ltd share price suddenly taken off?

What: The share price of information technology (IT) service provider DWS Ltd (ASX: DWS) has leapt 9.5% to $1.265 a share in early trade on Monday morning after the company released a strong set of interim results to the market.

What happened: For the six months to 31 December 2015, the IT services company reported a 46% surge in revenue to $68.2 million with underlying earnings before interest, tax, depreciation and amortisation (EBITDA) jumping 51% to $12.1 million.

DWS continued to maintain a strong balance sheet with the company reporting $7 million in cash and $18.5 million in debt following the acquisition of the Phoenix and Symplicit businesses.

Shareholders will be pleased to see a 4.75 cent per share dividend which represents growth of 27% on the prior corresponding half.

Now What: DWS offers a suite of IT related services including consulting, strategy, systems integration and analytics. These are services which are bound to continue to grow in demand as businesses become increasing connected to the cloud.

Regarding DWS’s outlook for the second half, management stated that they expect the group to maintain first half productivity particularly in Victoria; there to be a continued focus on margins,; demand from Banking and Finance to remain steady and the group to see continued success from leveraging its offering.

The result and outlook statement from DWS could potentially bode well for the wider IT services sector which means some investors may be reassessing their expectations for peers such as SMS Management & Technology Limited (ASX: SMX) and ASG Group Limited (ASX: ASZ).

DWS achieved interim earnings per share (EPS) of 5.8 cents per share. With analyst consensus (source: Thomson Consensus Estimates) forecasting full-year EPS of 11.3 cps, the stock – even after this morning’s rally – is still trading on a prospective price-to-earnings ratio of just 11.5 times which could mean there is still further upside in the stock.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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