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My view regarding DT’s business success and the movement in the SP. Mirrors the experience expressed by Peter Lynch:

“Often, there is no correlation between the success of a company's operations and the success of its stock over a few months or even a few years. In the long term, there is a 100 percent correlation between the success of the company and the success of its stock. This disparity is the key to making money; it pays to be patient, and to own successful companies.”

Jefferies maintains “buy” rating but lowers target price to 570(730).

We all have our views which are often diametrically opposite others as some of us are “true” investors as defined by Graham and others are speculators. Debate, discuss, argue….. but let’s not be personal. It is a great bb with some great insights.

Good to see Free Cash Flow figures being reported and at 90% of EBITDA which in turn is now 19.5% of revenue. DT remains in a strong financial position. They seem confident that a margin of +/- 25% of EBIT is still achievable long term.

Of some concern to me is the expected fall off of Revenue in FY2023 from 48% in FY2022 to 30%. I understand the reasoning, but……. It will be interesting to see how the likes of Crowdstrike and SentinelOne are faring on this score.

GLA

Sheltie - I was wondering how you arrived at your conclusion that DT is “its pretty close to what it's worth already”? Are you talking about the value of DT is as a business ( how much money it will make now and in the future) or is it what you think the price Mr Market will assign to it?Personally I am not surprised that brokers have changed their price targets as circumstances have changed markedly over the last year -inflation, interest rates, war, competition ………. Surely forecasts must, of necessity, be dynamic reflecting these changes in outlook.

Sheltie - For those very few of us LTHs who focus mainly only on how the business is doing, the biannual results and the Q updates are very important. Those RNS’s have so far shown that DT has been doing particularly well and so far so good.

Clearly there is a disconnect between business results and SP - the latter being driven by factors mostly unrelated to business performance - sentiment playing a big role and of-course the antics of traders.

My understanding of the market dynamics is informed by B Graham and I buy into his opinions. What he said - unless wanting to buy or sell for whatever reason is - is that an investor “ would be better of if his/(her) stocks had no market quotation, for he/(she) would be spared the mental anguish caused him/(her) by OTHER PERSONS’ mistakes of judgement”.

Yes, agree, we will only have a full picture of FY22 performance in September, but if their trading updating is as before we should get useful information on:
customer numbers
ARR
Churn
Revenue growth
EBITDA Margin

This should allow for a calculation of EBITDA and an estimation of EBIT and E to give some inking of where the latter are are heading.

We were warned in the HY results published in March that costs were expected to increase this HY so I will be paying particular attention to the growth rate of EBITDA ( Revenue minus all operating cash costs to produce the service (COS) and run the business). Is the growth rate still accelerating or is it stabilising or even de-accelerating to the extent that if affects progression to a sustainable operating profit (EBIT) and net profit (E)?

RNS on update usually pre-opening at 7am. So I don’t believe so.

LDE21 - Personally I don’t think the SP and it’s volatility is specific to DT - all tech stocks, and especially those not yet profitable, are being hammered.

SentinelOne and Crowdstrike in the US are in a similar position and over the last yearly interval all three have seen similar falls. But DT does have a couple of specific issues that will compound short term volatility - or worse- these being the connections to the Autonomy Affair and the overhang of the 32% still owned by the original VC Investors. When there is this uncertainty as well, it is a fruitful playground for speculative traders. And our US cousins are good at that.

If you are not actively trading the share, I think it best to focus on how the business itself is progressing and so far so good. Eventually the SP will reflect the fundamentals a little better - but, when, I have no idea.

AIMHO

No worries - the financial calendar is quite interesting. I note the JPM started commenting on DT shortly after DT attended the JPM conference in May!

No - but all Q updates have been about 2 weeks after the Q end and tend to be mid-week. Announcements are made only for results ( half yearly and yearly) but not for Q updates.

I think a little bit of wisdom gleaned from great investors like Graham is that buying a share is “buying an ownership interest in an actual business with an underlying value that does not depend on the share price” - and that the sillier the market behaviour the greater the possibility business focussed investors have to buy a bit of that business at a good price.

DT is not going bankrupt anytime soon with current performance. It has a robust balance sheet and is sitting on USD300m cash while growing rapidly in in Revenue and EBITDA. It is also on track to produce an operating profit (EBIT) and net profit (E). Next week we should learn a little more on how we are doing on the latter score.

The question I ask myself is, would I like to own a company outright. If the answer is yes then it is for me to buy a wee bit of it and hope to do this at a good price. And we are lucky that Mr Market swings from being overly optimistic to being overly pessimistic. The skill is to sell to the optimistic and buy from the pessimists. All easier said than done.

All IMHO.

I did not think a long term “buy” limit order of mine at 285p would ever be actioned. But it just has been, and I am the proud owner of a few more DT shares bought in the July sale.

TA1 - Thanks for you comment and I concur on your view on the use of P/E ratios and the sophistication of Mr Market.

I only used the P/E ration to try and demonstrate that any companies’ value = whether ‘value’ of ‘growth’ - will depend on future earnings, rather than just present earning as indicated by a P/E ratio. The PEG ratio is a little better but also only factors in current growth an not future possibilities.

I know of only one effective way to value a business and that is by discounting estimated future free cash flows - if not quantitatively, then conceptually and qualitatively - recognising the need to have long term sustainable competitive advantage. That is how we valued our own projects when I was in business, and the concept has served me well in evaluating potential investments. But each to their own.

The way I see it, all companies with a P/E ratio greater than one depend on future earnings to justify their SP. It is just that value stocks have an established history so their future earnings are more predictable.

Probably all companies start life loss making. Take by way of example a gold mine. There are costs associated with exploration and mine development consuming cash before a penny is earned. But they are valuable before they make a profit because the future cash from gold sales can be estimated. To my mind software companies are essentially no different although the future cash generation may be less certain. And Mr Market hates uncertainty especially when rising interest rates make competing investments more attractive and when the world is in a state of great stress.

If you buy into the vision of DT, buying at these prices seems to me the the right thing to do.Some on this bb have that conviction and are buying - .I applaud their approach. I would do the same but I will only allocate 5% of my portfolio to more speculative/growth stocks and this has been reached.

Sheltie- I don’t disagree about the need for extreme caution at times like these , but personally I have found it difficult to gauge when to enter the market after a large correction ( esp 1987, but I did learn something at the time). This, and all major corrections since then, are now but a small blips on the charts. My experience in 1987 mirrors the views of The Economist (below) on indecision, and I now do not attempt to time the market but drip feed in these circumstances and invest only for the long haul. Many of the SP’s of the companies I invest in have fallen by 50% or more at some stage - which is worrying at the time - but almost all recovered and now show substantial gains. Time is a great healer for robust companies, and I still believe DT is in that category.
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History suggests that in recessions American share prices fall even more sharply than they have this year. Panic usually sets in. And a panic is often a good buying opportunity. Should such an opportunity arise again, though, do not imagine that it would be easy to take advantage of. It takes nerve to buy when markets are plunging. You can always convince yourself that an even better opportunity is around the corner. Delay always seems advisable. And delay often ends up meaning not making a decision at all. The opportunity is missed.
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Yes, but how do you turn all those data into a valuation of the company. - a number that says what a company is potentially intrinsically worth. Many of the financials for established companies are meaningless for a pre-profit growth company ( e.g.P/E ratio).

Without a numeric valuation as a comparator how can you say £10 is farcical? Comparing with its peers ( Crowdstrike, SentinelOne) certainly justified the £10 valuation in the eyes of many, and I didn’t see too many people on this board screaming sell when it reached £10 - on the contrary those with the most “likes”were screaming buy, buy, buy and
brokers and PH was getting castigated for daring to suggest £10 war far too optimistic.

In my view the only way to determine the intrinsic value of a growth share is by using DCF to determine the present value of estimated future free cash flows using a discount factor in line with risk free bond yields and a risk premium that takes into account one’s own evaluation of the risks involved. This is the methodology used by Buffett and many brokers and fund managers.

Oldgold22 - I was wondering how, for a growth company, you determine “ the true valuation of the business”?

Agree that this reassessment is about market conditions . In my view nothing has fundamentally changed concerning DT as a business - but let’s see how the business numbers pan out mid-July.

Interesting article in The Economist (Buttonwod - After the Fall) this week on the “equity risk premium” remaining stable at a long term average of about 4.7%. So with interest rates and bond yields increasing the discount rate (bond yields plus equity risk premium) for equities will rise leading to lower equity evaluations. Their conclusion - “the bear market has been largely warranted by the sharp rise in the expected interest rates now embedded in real bond yields.”