DWS's worst rout in three years

Information technology services company DWS suffered it worse sell-off in three years on news that it would not be selected for a lucrative Telstra contract.

The stock crashed by over 11% to its lowest level since January 2012 of $1.32 in afternoon trade, its fourth biggest fall on record, even though management tried to reassure investors that the news would not have a material impact on 2013-14 earnings.

What’s more, DWS said that it has a diversified client base and Telstra contributes to less than 7% of group revenue.

However, shareholders were not in the mood to be comforted given that today’s news comes a month after DWS issued a profit warning as it forecasted earnings before interest, tax, depreciation and amortisation (EBITDA) of $9 million to $10.25 million for the six months to end December, compared with the previous year’s interim result of $11.85 million.

There is growing worry that DWS won’t meet full year consensus expectations with analysts predicting 2013-14 EBITDA of $22.7 million and sales of $106.6 million. The estimates represent a 6.6% and 2.2% decline from the previous year’s results.

There is a slight historical second half bias in DWS’ EBITDA performance, but unless things pick up materially in the next few months, the consultancy is unlikely to meet earnings expectations.

The problem is that there are few signs that demand for business IT services is rebounding, particularly at a time when businesses and government agencies are still focused on cost cutting.

DWS is the worst performer on the Uncapped 100.