Forum Topics DDR DDR 1H FY24 Results

Pinned straw:

Added 2 months ago

Dicker data released results yesterday for their first half, which you can see on the below link as well as listen to managements comments on the call and some better than usual Q & A afterwards.

https://openbriefing.com/OB/Dicker-Data-Limited/2024/8/30/Half-Year-2024-Results-Presentation/5564.aspx

Key takeaway for me was it was a very soft 1st quarter and then a much stronger 2nd quarter, so revenue came in flat for the half and profit came in 5% down vs 1H 2023 (mostly due to some higher costs and change in the margin mix of what was sold).

While that doesn't look great at first glance for a business that has been compounding sales at 15% p.a. for the last 5 years, it is what Vlad and Mary advised was likely to be the case at the AGM in May. So I give them a tick for reasonable guidance and also for them not giving specific ranges of guidance and just a general view. They also said they expected the 2nd half to be much stronger in May and they then reiterated that again yesterday.

Catalysts for stronger growth over the next 12 months are -


  • Windows 10 support ending Oct 2025, so many businesses/government will need to upgrade equipment and software


  • They are confident AI adoption is going to expand considerably over the next few years, so again many businesses/government will need to upgrade equipment and software


  • They are getting nice market share growth in NZ, so can hopefully keep getting closer to the market leader there like they are in Australia


  • Hopefully interest rates are at a peak, so financing larger orders will get a little cheaper moving forward


So, if most of that's the case and they can sustain growth for the next 5 years at only half the rate of the past 5 years, I expect to still get a return in the mid teens from the current share price of $9.10 in Aug 24. No change to valuation at this point.

Will be watching the 2nd half results closely to see how genuine the above expectations they are setting are.


Trancer
a month ago

In terms of the hardware. Much of the hardware that is bought by large customers including large government tends to be bought direct from the supplier. Some of the hardware companies, such as Dell have pretty underhand sellers who will take a 'deal registration' and then still go around it and undercut a reseller who is working through a distie. Having said this their investments in warehouses and 'Device as a Service' are great for smaller to medium sized businesses.

I'm apprehensive about AI. Go google Gartner Hype Cycle. We are coming to the end of year 1 of Microsoft Co-pilot being tested in businesses and from what I'm seeing it's not going gangbusters. Blockchain came in with similar excitement and it's rarely ever heard of. I see a better future for AI, had a recent demo from the folks at Adobe and the things they're doing with document ingestion to assist with things like legal review are good to see, but it's still early days.

I'm not with Dicker but I work with one of their partners.

Don't hold IRL but probably should.

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SudMav
2 months ago

Thanks @Karmast for your review.

I did listen to the call as well and I totally agree with what you have posted . Vlad and Mary were really honest and open which was really refreshing from my perspective.

On top of what you have written, I had some other takeaways as well from the presentation being:

  • Their prior FY was exceptional, and there were a lot of back orders from COVID which helped boost this figure.
  • They had $2m in bad debts that they had to report on, some of which could be reversed later in the year if they can recover
  • Have formed a partnership with Equinix to try leverage off the AI opportunities in the market and put forward a simpler offering to customers in the future to make a deal.
  • Inventory at hand has slightly increased to align with the government work.
  • Expecting single digit growth for remainder of the year, with the next quarter traditionally being their slowest from a sales perspective.
  • May be some slight decline in Calendar 2026 as a flow on effect from the future refresh work


I agree with you that the business still has a lot of future upside and should still be able to grow earnings into the future. The lower price also means the div ratio is getting closer to that 5% pa payout.

Expecting that EPS here can get up to at least 46-47c per share over the next few years, which would hopefully represent a price between $10.5 to $11.5.

Held in RL and contemplating increasing my position by a little.


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Karmast
2 months ago

Thanks @SudMav and thanks for the additional details.

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Good reviews the only thing I would add was that Vlad stated that AI sales are more complex and have a longer cycle and they need to improve the sales skills in this area. Sounds complicated and least they are aware of the issues and are attempting to address them.

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Mujo
a month ago

GS report - they're netural.

We saw the following key takeaways from DDR’s 1H24 result:

(1) Solid sales momentum through 2Q24 sets up solid 2H. The SME end market remains challenging with longer sales cycles than usual, however PC sales are expected to improve towards the end of CY24 on the beginning of a long-awaited refresh cycle as well as introduction of AI PCs (tailwind to volumes and ASP). New vendors signed through 1H24 (incl. Adobe in Software) should also add incremental revenue into the end of CY24, with DDR impacted in the 1H by the one-off loss of both Autodesk and Dahua distribution arrangements;

(2) Gross margin commentary was constructive, with management noting that mix shifts towards larger, lower margin Enterprise deals put downward pressure on GP% during the half. With growth in DDR’s DAS business (>20% GP margin) and a cyclical recovery in SME IT spending, 10% GP margins could be achievable in coming years (vs ~9-9.5% historically) – in our view significant in the context of DDR’s ~3-4% PBT margins;

(3) Cost growth surprised to the upside, partially driven by ~$2mn bad debt expense, though also reflective of headcount growth through 1H24 and higher interest costs. DDR is executing well on improving NZ profitability, however we trim our EBITDA/PBT outlook to incorporate higher staff and interest costs; and

(4) Working capital slightly elevated as DDR invests in inventory ahead of expected revenue growth in 2H24 – a healthier dynamic than the supply chain driven build-up during COVID. DDR’s inventory balance is expected to normalise towards Dec-24 as large deals convert and sales cycles reduce

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Mujo
a month ago

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Looking at their forecast a lot rests on the expanding margins to the near 10% range. The revenue growth looks reasonable.

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