Here are some notes on the DDR AGM yesterday (IRL only).

It was well attended, up on the last AGM to my eyes.

Some talk around the sandwich table was about the potential for a takeover rising significantly (from zero to possible). It’s thought that Rodin (David’s 17%) could use the funds for fast cars and Fiona might be open to cashing in if she feels out of her depth / has a better use for the funds. I would imagine they’ll be getting pitched along these lines right about now.

The business is likely worth more to a strategic buyer than it’s current EV I reckon.

COO Vlad zoomed in as he was at a DELL gig in the US.

David was not present but mentioned a lot in new Chair and Co-Founder Fiona’s speech in which she was quite emotional (I hope David is OK?)

They copped another strike against their remuneration report so next year will likely face another spill motion.

In short it was an underwhelming affair with the ghost of David hovering in the air. I left before the end.

A cyclical business

This is a very cyclical business with operating (and financial) leverage in a highly competitive, mature industry. The extent of the cyclicality was not as well understood by me until this meeting.

That cyclicality is highlighted by shrinking margins as SMB and SME end customers (typically 80% of revenue) remain under pressure which forced a move to enterprise to save revenues at the expense of margins (no EBITDA or NPAT growth in the 4 months to Apr-25 despite revenues being up 17%).

Also by the hope put in interest rate cuts to loosen the purse strings of SMB and SME end users.

So the bottom line seems at the mercy of PC refresh and interest rate cuts but does not look like growing significantly if at all this year unless one or both of those deliver a spike in demand for DDR offerings.

To recap, revenue in FY24 remains below FY21 levels when they were over earning due to post covid / WFH booms, NPAT is up 7% (CAGR 2.3%) since then.

AI is a structural driver of growth for the long term however only lower margin enterprise end customers are meaningfully investing in it at the moment. So profiting from this may take more time.

PC refresh is still hoped for and expected this year. The extent of it remains unclear but Vlad remains confident...

Management

I thought the new Chair was unimpressive but perhaps that is to be expected on her first outing. Key recent contributions include input to the design of the new distribution centre. Maybe this is more fundamental or game changing for a distributor than I am giving it credit for. She does have a long track record as she was there from the beginning in 1978 and was a GM until 2004. She is easily the largest shareholder with 31% earning her $24.5m in dividends last year.

COO Vlad, now in his 15^th year, is impressive but ex sales. If I recall correctly, he talked himself into a head of sales role before the COO role when he said they could hit a target that the prior sales head told David couldn't be hit (not sure if it got hit in the end but belief and ambition got Vlad the job).

He still sees a bright future just over that horizon. However, all the reasons for recent poor performance are tangible and well understood while the optimism is less so.

I feel like David may have been a stabilising focal point for board and management over the years. His sudden but not unexpected departure and the manner in which he did it - a complete exit and 6 months availability as a consultant with no CEO successor named but the Chair becomes ED (effectively his full replacement) – is likely less stabilising. Not sure in what capacity Fiona is an Executive but I expect it’s for the 3 ED’s to roll up to (de facto CEO).

Thesis from here

There’s still a lot to like about this business – especially its competitive position, long history of success and some gusty tailwinds that should blow it in the right direction over time.

However this is only an investment for me when the SMB and SME sector is tangibly turning and we are not there yet.

The YTD (4mths to Apr-25) show that there is still a way to go and they seem to be positioning themselves as best they can from the inside – just need factors beyond their control to move in a better direction.

Luckily for me, I trimmed down to a small holding through all that tariff volatility last month to top up some more volatile and cheaper looking opportunities.

Disc: Held (residual position).

Many thanks for the AGM updates @Slomo

That confirms some of what I was also worried about along with some interesting new insights as well.

I'm not convinced the business is better off with David leaving and things now look riskier to me at least in the short term.

In addition I too underestimated how cyclical the business really is. They may just have got closer to the top of their growth curve and be a bit too big now to grow at past rates?

I sold out a couple of months ago on concerns about growth and was becoming increasingly uncomfortable with the debt if growth slowed. So, happy to sit out now and will watch closely. I'd re-enter if the team executes well without David going forward and promised sales growth starts to return.

I think the market knew David hasn't been involved in the business for years so him leaving has little impact.

Interested to see how PC sales are going and whether this 'AI refresh' is actually happening. Also 5 years since COVID so some electronics would need replacing. That would need to be balanced against the rather muted economic environment.

Wonder if there will be a change in dividend policy now that David has left the business. Wouldn't mind them retaining some profits to further growth in the business.

@BoredSaint i suspect DD stays on the board and it will depend on his influence over it, my base case no change on p/o policy

over the US quarterlies, i say no evidence of an AI PC refresh cycle, plenty of activity in the enterprise space with use of AI models, so im not expecting much, we shall see, the wear and tear argument must be getting stronger......

@Solvetheriddle he also resigned as a Director effective last week. So he might still hang around but it won't be in any official capacity.

He is going to stay on in a consulting capacity for 6 months.

The market reaction is not surprising, given all the soft signals he was throwing off which indicated he was going to move away from the business. Fortunately, there's a good bench of tenured and aligned executives waiting in the wings.