Consensus community valuation
$7.09
Average Intrinsic Value
5%
Overvalued by
Active Member Straws
#CEO Interview
Added 4 weeks ago

Interesting interview with the laconic CEO of DDR, David Dicker, on Ausbiz last week. 

https://www.ausbiz.com.au/media/ceo-chat-dicker-data-gets-ready-to-go-global?videoId=2421&sectionId=1908

He outlines the company's acquisition strategy funded 100% by debt, his frustration with the lack of access to decent corporate bond markets in Australia and briefly touches on his ambitious F1 project. 

I heavily favour straight shooter CEOs like David who aren't in any way promotional. There's just something about leaders who cut to the chase that to my mind is a reliable indicator of future success.  
 
Based on what he has to say in this interview, it's a good bet that there'll be an international acquisition within the next year or two to bolster the top line and provide some avenue for growth. 

It's a risky move – given most acquisitions fail – but if all goes well any 'value' buy they get their hands on could end up being very profitable if they execute on what David is implying about cost savings, operational efficiencies & margin expansion within the acquired business.

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#ASX Announcements
Added a month ago

Revenue up 18.3%, details to be released 23/7/20

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#Business Model/Strategy
Added 5 months ago

My overall opinion of this business is very high, and they tick (or lead the way) in a number of key metrics. However, I am looking for help trying to quantify the risk associated their high levels of systemic debt.

The good bits first; the FY19 results:

  • Rev up 17.9%
  • NPAT up 67.3%
  • Gross profit margin steady at 9%
  • Software segment bringing in $429.1m with recurring software rev up 47.9% to $366.5m (significant!)
  • Operating costs reduced as a proportion of revenue to 4.9%
  • The two founders David and Fiona own ~70% and Vlad (COO) buys more shares on any day ending in 'y'
  • New facility fragged for completing late 2020 which will nearly double their floor space

Now on to the side of the business where I need help.

  • The debt to equity ratio remained at 1.37x despite increasing their debt facility last year
  • The debt facility is held with Westpac and increased significantly from $130m to $180m to facilitate greater levels of receivables.
  • Interest rates aren't going anywhere any time soon, however, every investing book I have read tells me to avoid businesses with low gross margins that requires debt to function. Now DDR doesn't 'require' debt necessarily. They could reassess their 100% dividend payout policy however I'd likely be ushered out of the building to a chorus of 'shame, shame, shame' should I recommend that at DDR HQ.
  • Say profit decreases meaningfully this year due to a demand shortage, does Westpac (who are not the picture of perfection right now) still make the $180m available given how fickle DDR's cashflow is with this model?
  • Or, if recurring software revenue continues to grow circa 45%, do margins improve enough that all my doubts drift away?

Keen to have a chat through the forum with anyone who has a strong conviction either way on this.

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#Equity Raising
Last edited 3 months ago

07-May-2020:  Equity Raising   and   Investor Presentation

Equity Raising

Dicker Data Limited (ASX: DDR), today announces a fully underwritten institutional placement to raise $50 million (“Placement”) and a non-underwritten Share Purchase Plan (“SPP”) to raise up to an additional $5 million [at $6.70/share;  the SPP will be priced at $6.70/share or a 2% discount to the 5-day VWAP up to the SPP closing date - whichever is lower - details below.]

Proceeds of the equity raising will provide balance sheet flexibility and support the Company’s long-term growth objectives, including partially funding the construction of Dicker Data’s new distribution centre and continuing our investment in Dicker Data Financial Services (“DDFS”). 

In addition, the equity raising provides the opportunity to broaden and diversify Dicker Data’s share register, increase free-float to above 30% and potentially improve trading liquidity.

Dicker Data’s Chairman and CEO, David Dicker said, “the equity raising will be used to support Dicker Data’s long-term growth objectives, and ensure we remain well positioned as Australia’s leading value added technology distributor”.  
 
Market update

As previously announced in our Q120 update on 29 April, Dicker Data has not experienced any material adverse change to its overall sales pipeline or earnings as a result of the COVID-19 pandemic. 

The Company has seen strong Q120 performance with record monthly revenue achieved in March 2020. The Company is also pleased to announce strong performance for the month of April 2020, with total monthly revenue for April 2020 of $163.7m, up 37.7% on the comparative period last year. 

The surge in demand has been driven by significant mobilisation to remote working solutions, reinforcing IT distribution’s role as an essential component for business continuity.

 

  • [The announcement contains a table at this point titled, "An overview of the Company’s April 2020 and year to date revenue performance" ...which I can't replicate here - so click on the link above to access that.]

 

Whilst this performance provides a strong start for Q220 [Q2 of FY2020], at this stage it is too early to determine the market conditions for the second half of the year, and as such the Company cannot provide guidance in terms of expected growth for the year on an annualised basis.

Details of the Placement

Dicker Data is undertaking a fully underwritten Placement of new fully paid ordinary shares in Dicker Data (“New Shares”) to eligible institutional investors to raise $50 million.

The Placement will be conducted at a price of $6.70 per New Share (“Placement Price”), representing a 6.7% discount to the closing price of $7.18 per share on Wednesday, 6 May 2020.

Approximately 7.5 million new Dicker Data ordinary shares will be issued in connection with the Placement (equivalent to 4.6% of existing shares on issue).

New Shares issued under the Placement are expected to settle on 12 May 2020 and be issued, and commence trading on the following business day, 13 May 2020. New Shares issued under the Placement will rank equally with existing Dicker Data ordinary shares from the date of issue.

The Placement is fully underwritten by J.P. Morgan Securities Australia Limited. 
 
Details of the Share Purchase Plan (SPP)

Following completion of the Placement, Dicker Data will offer eligible Australian and New Zealand shareholders the opportunity to acquire up to $30,000 in New Shares via a SPP. The SPP will be capped at $5m, may be subject to scale backs and is not underwritten. 

The issue price for New Shares issued under the SPP will be the lower of the Placement price and a 2% discount to the 5-day Volume Weighted Average Price (“VWAP”) of Dicker Data shares up to, and including, the closing date of the SPP. 

No brokerage or transaction costs are payable for New Shares issued under the SPP and New Shares issued under the SPP will rank equally with existing shares from the date of issue. 

Full details of the SPP will be set out in the SPP Offer Booklet which is expected to be released to the ASX and dispatched to eligible shareholders on 14 May 2020.

 

[...click on the link above for the rest of the announcement - including key dates - the SPP offer opens and the SPP offer booklet will be dispatched on Thursday, 14 May 2020 and the SPP offer closes on Friday, 29 May 2020.]

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#Business/Trading Update
Last edited 3 months ago

29-Apr-2020:  Q1 FY20 Market Update

Dicker Data Limited (DDR), today provides an update on the Company’s Q120 results, interim dividends and operational trading update in the context of current COVID-19 situation.

Q1 Results

The Company achieved the following results for Q1 of FY2020:

  • Total Revenue:
    • 3 months to 31-Mar-2020:  $463.9 million, an increase of +19.9% over the pcp (3 months to 31-Mar-2019:  $386.9m)
  • Net Profit Before Tax:
    • 3 months to 31-Mar-2020:  $18.4 million, an increase of +36.3% over the pcp (3 months to 31-Mar-2019:  $13.5m)

Highlights:

  • Total revenue for the quarter was $463.9m, up 19.9%
  • Net profit before tax for the quarter was $18.4m, up 36.3%
  • Off the back of a significant mobilisation to remote working solutions during the quarter (which was experienced across many sectors including education) the Company had its highest ever revenue month in March 2020 
  • With increased sales operating cost leverage was achieved.  There were also some savings in finance costs as a result of the lower interest rate environment
  • The Company paid out the $40m Corporate Bond on 26 March 2020

Interim Dividends

In line with the Company’s dividend policy to pay out 100% of after-tax profits, the Company will retain the current dividend policy of paying quarterly dividends. To provide consistency and certainty for investors the Company proposes that each interim dividend will be at an equal rate.

The proposed rate for the interim dividends for FY20 will be 7.5 cents per share fully franked. This would bring total proposed dividend to be paid in the FY20 year to 35.5 cents per share, an increase of +31.5% from FY19 of 27.00 cents per share. This increase is despite the total dividend from FY19 including a one-off special dividend of 5.0 cps. 

Outlook

The Board of Directors recognise that with a strong start to FY20 in Q1, and to date there being no material change to our overall sales pipeline, the proposed interim dividend would be on the basis that there is no overall downturn experienced in H220. Should any of the circumstances change and the Board deems it prudent to alter the interim dividend amount, an update will be provided to the market. As we are in unprecedented times, at this stage it is too early to determine the market conditions for the second half of the year, and as such the Company will not be providing guidance in respect of annual earnings.   
 
Operational Trading Update

The Company provides the following business operational update in the context of the current COVID-19 pandemic and effect on operations:

  • The Company’s key priority during the last few months has been to ensure it remains fully operational at all times to provide continuity of service to our customers and be a reliable partner to our suppliers
  • Of highest priority has been safeguarding the wellbeing of all our staff and customers.  Following guidelines introduced by the State and Federal government a number of measures were introduced to ensure the safety of our staff:
    • All office-based staff that can perform their roles remotely have been working from home for over four weeks now and will continue to do so until government guidelines advise otherwise
    • Our warehouse remains fully operational, the safety and wellbeing of staff being addressed by introducing additional hygiene and sanitisation measures, thermal body temperature monitoring and with operational redundancy being addressed by introducing split shifts and extended hours
  • With many organisations enabling their workforces to work remotely we have seen a surge in demand for remote working solutions across both our hardware and software portfolios, highlighting IT distribution’s role as an essential component for business continuity
  • Whilst there were some supply constraints at the start of the quarter, this has been managed effectively and vigilantly by the Company having made some early stocking decisions in respect of hardware stock which ensured a significant amount of orders could be fulfilled
  • We are also starting to see supply open as factories become fully operational and expect to be able to complete balance of backorders in coming weeks
  • We are continuing active discussions with new and existing vendors regarding further expansion and emerging opportunities for our business portfolio. During the quarter we have onboarded the following new vendors:
    • Heimdal Security – cyber security software vendor
    • Blupeak – cabling and power solutions complementing a range of technologies in our portfolio
    • Veeam - backup solutions and cloud data management vendor

Annual General Meeting

On 20-March-2020, ASIC announced that due to the COVID-19 pandemic, any companies that are required to hold their AGM by 31-May-2020:

  • No action will be taken if the AGM is postponed to 2 months being the end of July 2020; or
  • Supports the holding of a virtual AGM using appropriate technology.

The Board has agreed that the most suitable course of action would be to postpone the AGM until July 2020, with a date yet to be confirmed.

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