ddt report doing the rounds

Why Recession Can’t Come
Soon Enough for this Tiny Aussie
“Guardian Angel”
By Kris Sayce

What is the most valuable thing to you in the world? Your spouse? Children? Parents? Maybe it’s your pets?
Chances are you would do everything you possibly can to protect them. They can never be replaced.
But what else is valuable to you? What about the possessions you have earned and saved for over the
years? You may have a house, investment property, share portfolio, jewellery, car, boat, plasma television,
the list could go on forever.
Whatever, these are things you have worked for. They are things you have saved for. They are things that
you need, and things that you want.
They are also things that you do not want anyone else to take from you. You may not be prepared to put
your life on the line for them like you would for your family, but you will do all you can to ensure that what
is yours stays yours.

Global leader trading for peanuts

That is why this month you will read about is a company that takes the security of private property to the next level. And if you invest in this company I believe you could see at least a 150% return in less than two years.
But that’s not all, if things pan out like I think they will, that return could easily reach more than 400% in the same time.

This month’s share tip is a company that protects your property
just as effectively as you protect your loved ones. And if security
experts and history are to be believed, this year your personal
property will need all the protection it can get. If you’ve ever dreamed of getting in at the early stages of a bright, young Australian-based company before it becomes a
global leader, then I’ve got some good news and bad news for
you. The bad news is that this month’s share tip is already a global
leader in its field. The good news is that for investors the share price has been left
behind. The company - as a business - is no longer at the ground
floor. In fact, it is within touching distance of the penthouse. Yet
despite this, the share price is well and truly stuck in the lobby.
But if you think it will stay that way forever, think again.


Hedge against a recession

This share tip is the global leader in an industry that is set to

boom even if there is a global recession. In fact, it
is the fear of a recession that could actually help it
boom. And if there isn’t a recession? That’s fine too. It has a
chance to win either way. So, what does the company do? The company
website tells us it is a: “global leader in the development of assetbased
identification, having developed four
leading-edge identification technologies that
allow assets, and their component parts, to be
uniquely marked and identified.”
In plain English, the company owns patented
technology that enables it to uniquely identify
almost any item of property. It is a technology that
can be used by individuals or – more lucratively –
the commercial market. In fact, industrial companies
have been the early adopters so far and that is set
to continue as the global economy takes a turn for
the worse.

Profit in the Age of Identity Management

In a moment I will tell you how the coming
economic downturn could be the very catalyst for
this company to make it big on the world stage.
But before I get down to the brass tacks, think about
how you protect your own personal property.
It is yours. And you want to make sure that it stays
yours.
For most people, that goes no further than an
insurance policy, which is fine up to a point. But look
at the drawbacks:
• It is a hassle to make a claim
• The insurance company may not pay you out
for weeks – if at all
• You may not have insured your property for
the full replaceable value
• It doesn’t hide the fact that someone has
taken something of value from you!
What you need is a company with a technology that
is not only a deterrent to thieves but can also be
effectively used by law enforcement agencies and
insurance companies to recover stolen assets.
That’s where this month’s share tip enters the frame.




Property Security One Dot at a Time

The company is DataDots Ltd [ASX: DDT]. Based
in Frenchs Forest, New South Wales, it is an Aussie
small cap company that has already gone truly
global with operations across Europe, Asia and
North America.
The international scope of the business means that
in the commercial sector it has already contracted
with marquee names such as Nissan, Subaru, Avis,
Yamaha, Australian Broadcasting Corporation, and
the Master Builders Association.
The reason these companies are involved is due to
the leading-edge technology. But that’s only half the
story.
The other half is the potential for massive growth.
That’s why I believe this company has the potential
to be trading at five-times its current share price.
That’s a 400% gain over the current share price of
3.5 cents. Actually, I even think it could go much
higher than that, but you know I like to err on the
side of caution with the price targets.
Anyway, I’ll go through all the numbers shortly, but
before I do, let me explain why I believe the share
price will perform so well over the next couple of
years.
At the moment DataDots is a $6 million company.
But it is a $6 million company that is already
building its business on a global scale. Your
opportunity is to get into this company before it
becomes a big-name global company.
And I believe it is on the verge of a ‘Tipping
Point’ that will turn it from being the global leader
in a niche market to being a global leader in a
mainstream market.
How is it going to do that? This is how I believe it
will play out.

Recession Leads to Hard Times and More
Crime

Ask anyone what happens during an economic
downturn. Seriously, if you are reading this near
some friends, put this newsletter down and ask them


“What are the effects of an economic downturn?”
If they are anything like my friends, they will say
– “job losses, companies going bust, and rising
crime.”
They are certainly the subjects on a lot of people’s
mind at the moment.
But just supposing your friends come up with
different answers, ask them this question instead,
“What happens to the crime rate in bad economic
times?”
My guess is nine out of ten will say that crime rates
rise during an economic downturn.
How do they know that? Do you think they are big
fans of crime rate web sites? Maybe they have a
hotline to the Police Commissioner.
Of course they don’t. They are just guessing.
Conventional wisdom tells them that when times
are tough crime rates rise. There are any number of
theories into why that is the case.
But here’s the key. It doesn’t matter. Crime rates
could stay the same, go higher or even fall. As far as
this investment goes, it just doesn’t matter.
All that is required is for people and businesses
to think that crime will rise and they will take
precautions to either prevent it or to protect
themselves.
Fear and the Desire for Security
Gold is a perfect example. The Perth Mint has been
inundated with orders for physical gold. Why?
Because if you fear that assets such as cash, bonds
and shares will be worthless in a hyperinflationary
environment followed by civil unrest and the
collapse of society as we know it, then your best bet
is to hold physical stocks of gold.
Will such a doomsday scenario play out? The truth
is we don’t know. However, just the belief that
something could happen causes the effect. That’s
why so many people have been putting in orders
with the Perth Mint for gold bars.
The same scenario is likely to play out with the
security and protection industries. Only in this
instance the company (and shareholders) will be the
winners regardless of which direction the economy
and crime rates eventually turn.
But people must get the idea from somewhere
about the link between the economy and crime.
Look no further than a few cuttings from the
mainstream media:
• “People are more likely to steal from shops
and beat up their partners in the worsening
economy” - The Australian newspaper
reporting on comments from Scotland Yard
• “Senior police in Victoria are warning of a
possible spike in property crime if previous
economic downturns are anything to go by”
- ABC News Online on comments by the
Victoria Police
• “Unemployment means a hand-to-mouth
existence, especially if prolonged. It is
associated with family breakdown, rising crime
and poor health” - Sydney Morning Herald
It is partly why I believe DataDots could return you
five times your money within the next two years.
Shortly I will take you through the numbers. But first
let me explain how I came across this extraordinary
little company, and the five lines of business that will
take it to the top.
Precious Metals Thieves Create Opportunity
In late December, when I first started looking around
for this month’s tip, the last thing on my mind was
a company like DataDots. In fact I had started off
looking at various metals prices to see if there was
anything worth getting into following the drop in
many metals during 2008.
That’s when the Platinum Group Metals (PGM)
caught my eye. For the record, the PGMs include
Platinum, Paladium and Rhodium. One of the main
uses for these metals is in the car industry. They are
used as the catalyst in catalytic converters.
It was whilst doing some further background
research that I stumbled across a story how thieves
were stealing catalytic converters from cars because
of the PGM content. At the time of the news story
Platinum was trading over USD$2,000 an ounce. It
isn’t surprising the criminals were so keen get hold
of it.
That is what led me to the amazing micro
technology of DataDots Ltd. What the company
does will help other companies and households
manage their inventories of goods or personal
possessions. Except for the most sophisticated
Fortune 500 business, this simply isn’t possible at
the moment. But that’s why the market is potentially
so large.

How Identity Management Works

Here’s the breakdown of what DataDots does,
including the technology that helps prevent the
theft of things like catalytic converters. The program
has five components, each of which helps a person
our business label and track important items.
DataDotDNA – This is the flagship product for
the company. At just the size of a grain of sand, a
DataDotDNA disc is laser-etched with lines of code
enabling the identification of the asset it is attached
to. The discs, or ‘dots’ are brushed or sprayed


onto the surface of property such as cars, boats,
trailers, computers, or any other type of personal or
business asset.
DataThreadDNA – DataThreadDNA is integrated
into a fine thread that can be used by the clothing
industry to prevent counterfeiting of expensive
product lines. This is done by literally applying the
DataThreadDNA to a fine thread and sewing it into
the clothing label. The result is that the product
contains a unique code that is virtually impossible to
copy.
DataLabelDNA – This incorporates the
DataThreadDNA concept by building it into a selfadhesive
label. This is also designed to prevent and
reduce instances of counterfeit products.
DataTraceDNA – This is the point where things get
really futuristic. DataTraceDNA is a joint venture
between DataDots Ltd and the CSIRO. I’ll let the
company explain exactly how this will work:
“DataTraceDNA is bonded to a product’s
molecular structure, it is chemically inert, safe
and strong enough to persist in any conditions.
DataTraceDNA can be added to a wide range
of materials to ensure product management,
manufacturing process and logistics control.”
In other words DataTraceDNA becomes an actual
part of the manufactured product. Amazing!
DataBaseDNA – This ties everything in. The
DataBaseDNA service is used by law enforcement
agencies and insurance companies to allow them
to trace the origin of a vehicle or property that has
been recovered. As the company points out, police
in Poland won’t need to know that the recovered car
they have originated from Germany, they just locate
the ‘dots’, retrieve the data and locate the details
through DataBaseDNA.
All this adds up to a great opportunity for an
Australian company to corner the market in this
leading-edge technology. And it will do so just at a
time when the protection of personal and corporate
property will be taking centre stage.
So, how do the numbers stack up? And how exactly
can DataDots give you a 150% return on your
money in two years?
Well, I’ve kept you waiting long enough, so let’s go
through the numbers.

Cheap on a current and forward basis

Even before I look at the future earning potential of
this company, I have to look at the current price. In
my opinion it is trading at a dirt-cheap level. Based
on the most recent earnings result it is trading at
a price to earnings (PE) ratio of 4.5 times 2008
earnings.
Even if you take out the tax benefit it received which
helped to boost earnings it is still trading at a PE of
less than 9x earnings.
For a hi-tech company with massive growth
potential ahead of it that is just plain crazy. Even in
bear markets, technology companies tend to trade
at much higher earnings multiples than their peers
in the retail or basic materials industries.
So there must be a reason for the low valuation.
One reason is that most stocks were slammed down
in 2008, especially those that were seen as more
risky than others.
Another reason involves who some of its biggest
customers are – the car industry. But I’ll get onto the
risks shortly, because it’s important you know them.
Even before global economies started to turn
south many countries have begun the move
towards mandatory identity marking of cars. One
such country is Taiwan. Already, DataDots has
signed agreements with ten Taiwanese vehicle
manufacturers, and according to DataDots CEO,
Ian Allen “falling insurance claims represented by
their brands is becoming widely known among the
others.”
On top of that, DataDots is seeing huge interest
from plant and machinery manufacturers. Mr. Allen
claims, “In Australia seven machinery manufacturers
and importers are rolling out our program. We
anticipate 100 per cent coverage of the Australian
market within two years.”
Subject to the company achieving stronger revenue
growth over the next two years, I see little reason

why the company cannot leverage off its European,
North American, Asian and Australian businesses to
at least double its revenues.
Yet a doubling of the revenues wouldn’t necessarily
require a doubling of expenses. In fact, if we look
back to 2005, company expenses were roughly the
same as they were for 2008. During the same period
sales have more than doubled.
So even if we look at conservative revenue growth
of 25% through to 2010, much of this should flow
through to the bottom line, giving the company up to an additional $2.5 million of profits by 2010. And even if the market continues to price DataDots Ltd at a PE of 4.5x to 9x earnings, then you would still be looking at a company valued anywhere between $16 million and $27 million. If that were the case, the share price would be anywhere between 10 cents and 17 cents. That’s compared to the current share price of 3.8 cents. If I’m right, that means the share price could at least increase by 150% to 325%. If you factor in the possibility for a greater rate of growth then the share price must surely move even higher than that.

Beware the Risks

Earlier I mentioned the risks. And like all of our share tips in ASI this does come with its own set of risks.

So let’s go over the main downside risks now. The risks are four-fold. First, one of the major markets for this type of technology is the car market. We’ve all seen the numbers from the car manufacturers. They aren’t very good. Even Toyota, which for years has been pinching market share from the American manufacturers, is suffering. Therefore a sustained drop in demand for new cars will have an effect on the sales of DataDotsDNA to this market. However, it could lead to a pick up in aftermarket sales, although that can’t be
guaranteed. The second potential downside is that the effects of the economic downturn
outweigh any ‘benefits’ the company gains from the fear of rising crime.
Third, that the company is unable to successfully diversify its business further into the
non-car market, meaning that it is not able to spread its risk across different products and
industries.

Finally, last week the company did make a brief and cryptic
announcement. It was as follows:

“The Directors of DataDot
Technology Limited (ASX:DDT)

announce that the Board is investigating avenues
for raising capital in the form of a convertible
loan and rights issue and will inform the market
as soon as further details become available.”
And that was it. My guess is that you can expect to
receive a notice about a rights issue sooner rather
than later. The inevitable outcome would be that
you will need to hand over more cash to prevent a
possible dilution of your share holding.
As always, you need to make sure that you are
comfortable with these risks before you make the
investment.
But based on everything I’ve seen about the
products, the company, and the outlook for the
global economy, I’m convinced that DataDots Ltd is
a great addition to the ASI portfolio.
Action to take: Buy DataDots Ltd (ASX: DDT).
Recent price $0.035. n