A German IT-Service Provider with loads of Upside
Datagroup
Disclaimer: This article is for informational and educational purposes only. Do not interpret anything below as financial advice. Always do your research & speak to a financial professional before making investment decisions. See the full disclaimer at the bottom of this article. Stock prices and market value have changed since the time of writing. This is NOT a buy or sell recommendation.
WKN: A0JC8S
ISIN: DE000A0JC8S7
Symbol: D6H
General
1. Take all my thoughts and opinions as well as assumptions with a grain of salt.
I’ve been looking into this company since a very long time and therefore am probably heavily biased towards a positive outcome.
2. I’m invested in this company with a substantial amount of my portfolio
=> even more biased
3. I tried my best to evade / prevent miss judgements caused by Biases.
4. If you have any thoughts or question on this Company or the Analysis, let me know in the comments / write an email to me.
5. Preliminary results were published on 22.11 (only including EBITDA, EBIT, Net Income and some Debt info). The Annual Report will be published on 20.1.2023.
6. Some grammar and spelling mistakes might have been overlooked, I’m sorry in advance.
Thesis:
1. Recurring Revenues
2. M&A Strategy
3. Great Management and culture of constant improvement
4. Strong Tailwinds
5. Win-Win Product
6. Decreasing Costs and decreasing investment spend
KPIs:
1. Labor Cost as % of Revenue
2. EBIT Margins and EBITDA Margins
3. Services to Trading revenue mix
4. Amount and Sizes of Acquisitions (shoudn't be to big (<?) or to many (<5)
5. Ownership of stock
History:
1983 Founding
Datagroup was founded in Germany in 1983.
It started off by Programming software products for medical practices and expanding into similar fields.
1992 Hardware
The cash generated by the software products was invested to expand into Hardware. But this turned-out to be a mistake, after some years the EBIT-Margins where finally slightly positive but the revenue started to shrink again, so Datagroup sold this business unit again.
2005-2006 Founding of the Holding Structure and the IPO
To better acquire companies a holding was created, in this period all the revenue was earned by Trading/Creating Software and Trading Hardware. The holding was IPOed.
2006-Today
The Business moved towards being a service company. (nowadays 80-85% of revenue is made by services and 15-20% by trading software/hardware). During the 17 years after the IPO Datagroup acquired 30 Companies all of which where Service Companies.
In 2014 the most important Product was launched, the COREBOX. It includes a new way of standardizing IT-Services.
Till today all the Revenue is generated in Germany.
The rest of the write up is in the following files:
Quick update:
I missed some points in my analysis especially regarding M&A and the Management quality.
Which lead me to believe that M&A was a lot better than it is...
I also underweighted the Management changes in my analysis...
This was my first deep dive into a stock, therefore I knew from the start I would make some mistakes.
I sold my entire portion a while back, and still do believe that it was the right decision.
Very stable company, but I wouldn't expect high growth or good capital allocation...
Especially in the current environment, there are multiple better (cheaper & higher quality) opportunities.