IT stocks with decent returns this year – CDA, NEA, DDR, EML

From using drones to research its extensive flora and fauna, to incorporating artificial intelligence in daily use and utilizing machine learning in a number of platforms- Australia is one of the most technologically advanced and innovative users of contemporary solutions of the world. The country is famous for putting together technology to good use which consequently has driven a great tech business sphere in the region.

Australia is known to adopt new technologies quickly and Australians have been responsible for many major technological developments and discoveries around the world- with over 16 Nobel Prize recipients. The growth traction of technology has not only helped various industries make improvements in their already existing establishments and improve the quality of their goods but improved the economy as well.

A report by Data61 (later acknowledged by the Australian Government) estimates that improvements to existing tech industries and growth of new ones could be worth $315 billion to the Australian economy over the next decade.

There are a number of technology stocks listed on the Australian Securities Exchange (ASX) that have witnessed strong gains this year. Four companies will be discussed in this article below, that have delivered decent returns in the past one year-

1-year returns of CDA, NEA, DDR and EML (Source: ASX)

As demonstrated from the image above, these four information technology sector stock- Codan Limited (151.5%), Nearmap Limited (73.2%), Dicker Data Limited (134.8%) and EML Payments Limited (2015.8%) have generated decent dividends in the past one year (return percentages as on 20 December 2019).

Let us have a look at the probable events that might have taken these companies on a growth trajectory, brought in profits and consequently propelled this upswing of returns-

Codan Limited- Record year, increased sales and profitability

FY19 marked the 60th year of operation for Codan Limited (ASX: CDA). On 1 October, the Company was valued in excess of $1 billion for the first time ever, based on the closing price on that day (compared to $570 million on 1 October 2018). The stock has gradually been re-rated over the past year as the market has better understood the quality of its earnings and due to the inclusion in the ASX300 index in September 2019.

A record year for the Company, in FY19, CDA witnessed increased sales and profitability across both Metal Detection and Communications. The Company is investing heavily in new product development and plans to release several exciting new products to the market during FY20 across each of these businesses.

While the Minelab business performed well in FY19, the outperformance was evenly spread between sales of Gold Monster®, GPZ 7000® and SDC 2300® gold detectors into Africa, strongly supplemented by sales of the Equinox® coin and treasure detector.

CDA’s dividend policy of paying shareholders in the order of 50% of the after-tax profits remains unchanged. As on 30 November 2019, CDA’s net cash position was worth $44 million. The underlying NPAT of $30 million is expected by Board for the 6-months to 31 December 2019.

Nearmap Limited- Recent acquisition after ‘a year of execution’

Nearmap Limited (ASX: NEA) has developed well from being a small online startup to a next-gen digital content leader and was admitted to the S&P/ASX 200 in April 2019. The Company offers its customers with instant access to –

· high-resolution aerial imagery

· integrated geospatial tools and

· city-scale 3D datasets.

On 12 December 2019, NEA announced the acquisition (faciliated by the $70 million equity raising in Sepetmber 2018) of intellectual property and technology from Primitive LLC (Pushpin) for US$3.5 million. The acquisition will help NEA with a technology which will enable it to obtain and distribute roof geometry from its widescale 3D content as well as offer a new location intelligence type to users. Semi-automated extraction and calculation representation by the Company will be possible for any roof geometry in the interior of one hour.

Chairman Peter James belives that FY19 was a year of execution for NEA- with an expanded product suite, progressed AI, ramped up growth in North America, reinforced leadership position in ANZ and solid funtional areas of businesses to deliver long-term sustainable growth. The September equity raise strengthened the balance sheet and offered flexibility to meet objectives. The Group annulaised contract value is forcasted between $116 million and $120 million.

Dicker Data Limited- Incremental revenue growth and fresh Board expertise

Australia’s longest and largest established Australian-owned distributor of IT products, Dicker Data Limited (ASX: DDR) has achieved record trading results since listing on the ASX (2011). As at the end of September quarter for FY19, Revenue YTD was reportedly $1,289.1 million, up by over 17% to the prior corresponding period.

The Company has recently appointed Ms Leanne Ralph as an independent Non-Executive Director, who bring strong governance expertise to DDR’s Board.

DDR was named as Check Point Australia’s newest distributer. Check Point is globally recognised as a leader in firewall and associated security technology. This new partnership is one of the largest potential sources of incremental revenue growth for DDR for FY20, as the enterprise security segment is likely to be one of the fastest growing areas for DDR in FY20. The present available distribution market for Check Point in the Aussie land is over $100 million.

EML Payments Limited- S&P/ASX 200 Replacement, New Agreement

With a portfolio of innovative financial technology that offers solutions for incentives and rewards, payouts, gifts and supplier payments, EML Payments Limited (ASX: EML) issues virtual, physical and mobile card solutions to corporate brands globally and manages over 1,500 programs across 23 countries in Australia, North America and Europe.

On 5 December 2019, S&P Dow Jones Indices announced that EML will replace Bellamy's Australia Limited in the S&P/ASX 200, after the final court approval of the scheme of arrangement for Bellamy’s acquisition by China Mengniu Dairy Co. Ltd. This was effective at the open on 11 December 2019.

The Company recently announced that EML Payments USA, LLC, its wholly owned subsidiary, had signed a non-exclusive multi-year agreement (expiring 14 December 2024) with Simon Property Group, a global shopping mall operator, to distribute multiple payment card products through select Simon shopping malls and B2B distribution channels across the USA. The Company anticipated that the GDV to revenue conversion ratio will be substantially in line with other Non-Reloadable card programs that the group operates, under the agreement.

Share Price Information

Let us look at the stock performance of these four companies after the close of trading hours on the ASX on 24 December 2019 (AEDT: 01:11 pm).

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