When you see a stock like Datadot Technology Ltd selling in the market for 4.5c the immediate reaction is that something is seriously wrong and possibly skirt around it.
But in this case investors have been poorly informed about the worth of this company with a fascinating technology.
The company's technology is a security identification system that uses what it calls DataDots - microdots that identify your household belongings.
They are tiny microscopic discs that contain unique information that's linked to your property and you.
As small as a grain of sand, DataDots are recognised as being one of the most effective ways of preventing theft, and play a crucial role in the recovery and return of stolen goods.
The unique laser etched code on the DataDot is stored on a worldwide verification database, DataBaseDNA.
DataDots can be brushed or sprayed onto assets, and stay there for the life of the asset.
DataDot Technology has patented its own innovative spray process, which can now spray a complete car in less than 60 seconds.
A car can be sprayed with thousands of DataDots, most often applied at the place of assembly, importation facility, or in the after market through dealers.
DataDots can be detected with a UV light due to DataTraceDNA which is included in the adhesive as an invisible marker, providing absolute proof of product, and supply an additional layer of security.
The unique code on the DataDot can read with a simple magnifying device - no complicated forensic investigation is necessary.
DataDots are most widely used to protect motor vehicles, motor cycles, trailers, marine craft, business and personal assets.
Ferret is seriously impressed by this company which in many ways looking like Lazarus coming back from the dead.
DDT had a disappointing period over the six months to December 31.
The company reported total revenues of $4,137,264 for the half, a decrease of $954,699 (18.7 per cent) from $5,091,963 in 2009.
Earnings before interest, tax, depreciation and amortisation (EBITDA) for the same period were $677,621, down $126,545 from $804,166 a year earlier.
Consolidated net profit from continuing operations after income tax for the half-year was $481,530 (2009: $632,300), including a one-time favourable adjustment of $552,134 for the revaluation of DataDot's investment in DataTraceDNA Pty Ltd.
These results reflect global trading conditions that continue to challenge both sales volumes and sales revenues in most markets.
In Europe and Asia-Pacific, consumer demand in DataDot's key auto market was weaker than anticipated, resulting in fewer sales of auto kits to original equipment manufacturers (OEM) customers.
Further, some DataTrace orders received before December 31 were not completely fulfilled by the end of the reporting period.
Although total expenses were lower than in the same period of the prior year, they were higher than would otherwise have been achieved due to the decision to fund several key steps in DataDot's growth strategy.
Additional expenses incurred specifically to generate growth over the longer term included the appointment of business development personnel, an increase in marketing expenditure and the transaction costs incurred in acquiring the CSIRO's half-share of DataTrace, which included full absorption in December of DataTrace costs as well as income.
Operating cash flows were markedly lower in the half year compared with the previous corresponding period, however, they remained positive.
As at December 31 cash balances held by the company amounted to $5.2 million.
Asia-Pacific product sales for the half-year decreased by 26.6 per cent to $2,371,172, primarily due to the loss of one auto OEM customer during the prior year and delayed OEM purchases in Australia due to new model releases later in the year.
Net profit decreased to $445,875 from $1,299,384, reflecting an investment in new business development activities and the establishment of an additional manufacturing facility in Taiwan.
Revenues in the Americas increased by 11 per cent to $497,253 in the prior year.
The half-year loss for the Americas was $23,609, a significant improvement on the prior half-year loss of $145,179.
New distributors were appointed in Argentina, Brazil and Chile.
SHARE PRICE MOVEMENTS
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Shares of DataDot yesterday rose 0.1c to 4.4c. Rolling high for the year is 6c and low 2.5. The company has 474.5 million shares on issue with a market cap of $20.4 million. It has earnings per share of 0.23c and a price/earnings ratio of 18.7.
Notwithstanding that all existing OEM customers continued to apply DataDot products to vehicles included in their programs, European revenues were 47 per cent lower than the prior year at $998,962 due to lower consumer demand and the effect of adverse currency movements.
Several expected sales orders for DataDot products were not received by December 31, which reflected greater softness than anticipated in the European vehicle market.
The technology continues to be tested in controlled environments by several international seed breeding companies in Asia-Pacific, India and Europe.
On December 1 DataDot acquired the 50 per cent shareholding in DataTrace DNA Pty Ltd owned by CSIRO, so becoming the sole shareholder and owner of DataTrace and making DataTrace a wholly owned subsidiary.
In addition, CSIRO assigned the associated intellectual property to DataTrace, so providing DataTrace with access to the currency, personal identity and national security markets that had previously been closed to DataTrace under the terms of its licence to commercialise the intellectual property.
The total transaction was valued at $1,395,015 and consideration (net of CSIRO's half share of valuation costs) was 33,718,327 ordinary DataDot shares valued at 4.1c per share.
As a result of this transaction CSIRO became the largest shareholder in DataDot, initially holding 8.93 per cent of issued share capital though this has since been diluted to 7.1 per cent of issued capital.
As part of the acquisition of DataTrace, DataDot's investment in DataTrace was revalued to reflect fair value, resulting in a one-off gain of $552,134.
This transaction will streamline the management and strategic direction of DataTrace.
The initiative is strategically important as the technology underpins many of the products that it has been developing and full ownership of DataTrace gives the company access to additional growth markets from which it was previously excluded.
On December 15 DataDot raised an additional $970,000 in capital by issuing 23,658,537 ordinary shares at 4.1c per share to Collin Hwang, owner of DataDot Technology Taiwan Pte Ltd.
This share placement further consolidates the strategic alliance between DataDot and DataDot Taiwan, which together are forming a joint venture company to distribute both DataDot and DataTrace products in China.
The joint venture company, DataDot Technology (Asia) Pty Ltd, will be funded by DataDot Taiwan but controlled by DataDot, which will appoint a majority of directors.
BACKGROUND
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DataDot Technology Ltd was listed on the ASX in January 2005.
It is an Australian public company that has been at the forefront of developing theft deterrent and asset identification technologies for the past 15 years.
DataDot products are sold by distributors in 23 countries as the company leads the way in identification technology.
The company offers solutions with highly innovative technologies, creating new methods of asset identification, protection and authentication leading to new markets for its products.
DDT technologies work by marking each asset with a unique and individual code.
This code is then recorded on a secure database and matched with other asset and ownership identifiers.
In some cases the code is the primary manufacturer's identifier - for example a car's Vehicle Identification Number (VIN).
Identification technology is not a new concept.
For a long time cars have had unique VINs, engines have had serial numbers to discourage theft, designer clothing has had brand labels to discourage counterfeit brands and so on.
Professional thieves can easily defeat these identifying tags.
DDT technologies take identification to the next level.
They are virtually impossible to reproduce, unlike the designer clothing labels and thieves can't easily make fake copies.
DDT Price at posting:
4.2¢ Sentiment: Buy Disclosure: Held
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