Why the Damstra (ASX:DTC) share price is racing higher today

The market may be tumbling lower on Wednesday, but that hasn’t stopped the Damstra Holdings Ltd (ASX: DTC) share price from charging higher.

At one stage today the integrated workplace management solutions provider’s shares were up over 8% to $1.57.

The Damstra share price has since given back some of these gains but remains 4% higher at $1.51 at the time of writing.

Why is the Damstra share price racing higher?

Investors have been buying Damstra’s shares today following the release of its second quarter update.

According to the release, for the three months ending 31 December, Damstra delivered a record quarter for revenue and cash receipts. Management believes this validates its recent acquisitions.

Unaudited revenue for the quarter came in at $6.9 million, representing growth of 33% on the previous quarter. Whereas operating cash receipts came in at $7.4 million for the quarter, up 59% on the prior corresponding period.

In respect to earnings, Damstra recorded earnings before interest, tax, depreciation and amortisation (EBITDA) (excluding other income) of $1.4 million for the quarter. Management notes that this demonstrates the positive impact of increased scale and the successful extraction of acquisition synergies.

It also pointed out that its EBITDA margin (excluding other income) for the quarter was 21%, which it feels validates and proves the attractive unit economics of its business model.

Key drivers of its growth during the quarter were a 49% jump in user numbers to 623,000, the doubling of its client numbers to 670, and its low churn level of <0.5%.

Another positive is that Damstra has achieved $5.2 million of synergies from recent acquisitions, which was higher than its original target of $4 million. Though, management isn’t resting on its laurels and is busy assessing if further synergies can be extracted.

Management commentary

Damstra’s CEO, Christian Damstra, was pleased with the company’s performance in the second quarter.

He said: “We are seeing growth accelerating in the second quarter and we expect our revenue run rate to increase in the remaining months of FY21. The Q2 performance was pleasing despite cycling off a comparable period in which there were strong contributions from Newmont and NBN contracts and the delayed conclusion of a small number of promising new client engagements.”

“We are especially pleased with our operating cash flow and EBITDA considering we have just completed the Vault transaction, and this demonstrates how quickly we have integrated the business into Damstra from both a product and people perspective. It also reflects the advantages of the greater scale that these acquisitions have provided,” he added.

Damstra expects to release its half year results on 26 February 2021.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Damstra Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Damstra Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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