Data#3 Limited delivers huge profits and dividend: Time to buy?

Last week technology consulting services company RXP Services Ltd (ASX: RXP) released its stunning full year results to the market. Its share price rocketed higher by 7% thanks to delivering sales growth of 61% to $127.1 million.

Today it was the turn of fellow technology consulting services company Data#3 Limited (ASX: DTL) to report its full year results and it certainly didn’t disappoint either. After a few years of declining profits, its change of direction to capture more revenue from the cloud and services sector looks to have paid off.

With its business reporting growth in almost all Australian states, Data#3 reported a strong 13% year on year increase in revenues from ordinary activities to $983.2 million. Whilst its top line performance was great, its bottom line result was even better. For the full year Data#3 posted an incredible 30.4% increase in net profit after tax to $13.8 million or 9 cents in earnings per share.

In early trade its share price has edged higher, but having provided the market with profit guidance just a few weeks ago it would appear that much of this result had already been priced in. Its share price has rallied over 20% higher since the company advised the market in late July that it expected FY 2016 net profit after tax to be between $13 million and $13.5 million.

The company declared a final dividend of 5.5 cents per share, bringing its full year dividend to 8 cents per share. At the current share price this equates to a fully franked 5.7%, making it an attractive option for income investors in my opinion.

At just under 16x full year earnings its shares may not be as cheap as RXP Services, but they do look great value in comparison to sector peers Melbourne IT Limited (ASX: MLB) and SMS Management & Technology Limited (ASX: SMX).

With its change of focus working, almost zero debt on its balance sheet, and a big fully franked dividend, Data#3 could prove to be a great long-term investment if you ask me.

Finally, before you make an investment in Data#3 or RXP Services I would highly recommend taking a quick look to see if you own one of these three wealth-destroying ASX shares. Now might be a great time to swap them out if you ask me.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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