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Updated Valuation Feb 2024 based on 46c EPS and 9% growth rate for next 5 years with PE of 22. (PE of 22 is in bottom decile of its trailing 5 year history.)
Why do I own it?
# Mid cap and market leader which provides IT hardware and software from most major brands to predominantly commercial and government customers across Australia and NZ
# Has 10 years of 19% p.a. earnings growth
# Has approx.1/3 market share of their stated domestic market so there is still room to take some share. Have mentioned possible international expansion also.
# Founder led by David Dicker who is still Chair and CEO. Between he and his ex wife (amicable!) who is also on the Board they hold around 65% of the company.
# Unusual but successful approach of using debt to fuel growth and paying most of earnings out each year as dividends. David Dicker takes no salary - only dividends, so very aligned with other owners.
# Consistently high ROE / ROCE of over 30%
# Significant MOS at current price of $8.00 in August 2023 at only half the previous growth rate
# They can deliver double digit revenue and earnings growth for 5 + years so the return should exceed my 15% p.a. + target
# Assuming growth is maintained for another few years they will probably enter the ASX200 providing indexing tailwinds to the share price.
# Probably has structural tailwinds as Australia keeps growing and spending more on IT and in particular cyber and security products that have been a source of good growth in recent years.
What to watch
# High debt to equity - its an unusual approach but has worked historically - needs to be watched carefully though as do audits.
# Low net profit margin of 2.5%. This is probably a moat though as given their large volume it will be tough for competitors to undercut them. Want to see it stay in the 2 to 3% range.
# Key man risk around David Dicker - they do have a strong culture and strong bench under him so hopefully just a short term reaction if he does exit for some reason.
Net Profit of $82.1m and a really good story on the impact of AI on the business were the key takeaways for me from today’s results call. The pc refresh cycle that Vlad flagged last call is still be touted but now in the second half of calendar 24. Still holding IRL and hoping to get a good entry point for Strawman portfolio.
Dicker Data announced a final dividend for FY23 of 15c per share for the December quarter. Total dividends for FY23 came in at 45c per share.
Given that DDR have a 100% NPAT payout policy, we can assume that EPS will be around 45c per share or around $81m NPAT (compared to FY22 NPAT of $73.4m).
Disc: Held IRL and on Strawman.
Assumed 3 scenarios of growth from 15% - 7% per year for next 5 years. Share count 212.6m by FY28 Discounted back to today and 3% net margins giving me valuation $12.31
I came across this blog post by Tomasz Tunguz, a venture capitalist, estimating software spending growth for 2024:
His analysis is based on a Gartner report . It is mainly concerned with cloud spending but breaks out some subcategories of IT spending.
Dicker Data released an encouraging update last week which showed an 8% increase in revenue compared to the prior corresponding period.
If the forecasts are correct this is promising for Dicker Data sales growth going forward. Although software only makes up a small percentage of their revenue I would assume it is higher margin (but I couldn’t confirm what this is from a brief search.)
Also worth noting is that hardware, which is the bulk of DDR’s revenue, is also forecast to grow modestly after two grim years.
This is all speculative, obviously, but my thinking is that IT spending has been constrained recently but that can't continue forever.
Disc: Held IRL
Dicker Data released an update for their Q3 performance yesterday (Note they report on a calendar year basis).
I thought this was a pretty good result considering the issues they have been having in the past few years with supply chain and also the decreasing gross margin.
The newest segment DAS has been a good contributor to the growth in Revenue and Profit.
They mentioned that YTD gross margin has come in around 9.6% which is a good turnaround from it being sub 9% in FY22. This has been a result of increased gross margins in their NZ segment of the business.
The next few years will be interesting as they have mentioned that there will be a new refresh cycle for Microsoft devices with Microsoft stopping support for Windows 10 devices in October 2025. Management predict that there the current downturn in PC demand will bottom out in the current half and accelerate towards the end of next year.
Full Announcement Here
Disc: Held IRL and on Strawman.
I just got off the call for the HY update and feel very positive about the next couple of years given the way Vlad broke down the business performance by segment. As previously noted there was a marked decline on the PC side of the business (which makes sense given the covid boom), but this was offset by big jumps in areas with better margins ie software and DAS.
The upcoming retirement of Windows10 support by Microsoft and the next refresh cycle to support compute power required for AI adoption - ongoing digital tranformation, cybersecurity focus etc - looks like some very nice tail winds.
I feel like I'm missing something with Dicker Data's half year results.
The vibe here on SM seems positive, and the share price jumped. But the results strike me as poor. Rev of $1596, which included $73m from new DAS business/acquisition. If we take out the acquisition boost, we get 4.5% pa organic growth. And they said that this period showed a normalising of supply and included a catch up in backlogged orders. Without those backlogged orders there wouldn't have been much growth at all.
Given software grew 21%, and it's roughly a quarter of revenue, there must have been a decline in revenue from other parts of the business.
There's also a lot of attention given to the new DAS business, which concerns me given it makes up less than 5% of total revenue.
Given they grew 25% in 2022, feels like growth is falling off a cliff. If so, I can't see how 20x PE is warranted.
What are other strawpeople predicting for growth over the coming 1-5 years?
Dicker Data released some unaudited results today:
Company said that the increase in revenue was partly due to an increased demand for networking and storage products, software and the new DAS business (access and surveillance) which offset a decrease in demand for personal computing devices. The decrease was attributed to an increase in hybrid working environments.
Pleasingly, gross margins improved back to above 9%, finishing at 9.4% which was up from 8.8% from pcp.
DDR also mentioned that there were signs that the supply chain was normalising which had impacted them with large amounts of backorders in previous periods having been completed this half.
Audited results will be out Aug 30.
Full announcement here
Disc: Held IRL and on Strawman.
Vlad on Ausbiz this week. Sounds bullish.
https://ausbiz.com.au/media/cloud-services-and-cybersecurity-drive-success-for-dicker-data?videoId=30684
The shares have hit a level of support around $7.80 multiple times over the past couple of years, with the price holding each time. We saw that yesterday too, with a brief overshoot below those levels followed by a good close, and today we seem to have some follow through as well.
Generally bullish portends, though the ceveat is that the more times a support level is tested, the more likely it will eventually break as well :)
Dicker Data released a market update this morning. From their release:
Overall a good improvement compared to info they released towards the end of last FY. Gross margins improving back to above 9% having dropped below for the previous few quarters.
Dividend is expected to be 10c per share (down from 13c PCP). Most likely the decrease is related to an increase in share count given they did a raise last year. Dividend policy unchanged at paying out 100% of NPAT.
Will maintain my valuation for now until we get some more information but seems like the business is stabilising after a disappointing FY22.
Full Announcement here
I do also note that CEO Vlad Mitnovetski purchased 20000 shares last week.
Disc: Held IRL and on Strawman
As someone who works in this space, I thought I’d leave some food for thought on changes that may impact all technology distributers (or 'disties' as they're called in the industry).
Disties such as Dicker act as an intermediary between technology resellers and IP owners / technology manufacturers. They transact with major retailers such as JB-HIFI who provide a B2C and B2B motion; and resellers such as SoftwareOne, NTT, Insight and D#3 who primarily support a B2B motion.
If a business goes to their reseller to buy some Adobe or Citrix licenses, or perhaps some laptops etc, the reseller then goes to a distie to buy the IP (software licence / subscription) or technology. Sometimes the reseller goes direct to the IP owner / technology manufacturer, but this is dictated by the IP owner / technology manufacturers GTM strategy.
One of the main reasons why IP owners / manufacturers may want to use disties and resellers is to get better and quicker access to the market without having to heavily invest in local sales operations.
There are numerous other disties in Australia but some of the major ones include: Aquion, Ingram Micro, Nextgen and Tech Data.
For B2B software transactions the market has long been used to a model supported by a small number of resellers who deal directly with software publishers or via disties. The customer is forced to buy from a reseller if they want access to enterprise agreements and volume discounts for large purchases, or access to charity / educational discounts and so forth.
Hyperscaler marketplaces may disrupt this motion. Hyperscalers are the big cloud suppliers such as Amazon (with Amazon Web Services or AWS) and Microsoft (with Azure). Both these companies have launched their own online marketplaces which sell subscriptions to applications that are designed to run on the platforms that Amazon / Microsoft host.
The marketplaces however can also support technology transactions – and just think about it, Amazon is a world leader in provide e-commerce experience excellence. What Amazon and Microsoft are doing is engaging with other IP owners to get them to sell their software as a subscription through their marketplaces (i.e., they’re becoming disties). They can pit the IP owners against each other to drive adoption – e.g., if NitroPDF are onboarded to Amazon’s marketplace, it motivates Adobe to get onboarded too.
What Amazon and Microsoft do is sell multi-year pre-commit agreements that are heavily discounted e.g., pay $5m up front to get $6m credit over 3 years. This is offered on a ’use it or lose it basis’. This pool of funds can be spent on both cloud services provided by the hyperscaler as well as subscriptions available on the marketplace. This means that if a business is mid-way through their agreement term and they are tracking under the spend forecast e.g. it looks like they won’t spend that $6m, they could look to spend that money on subscriptions from other providers through the marketplace, to ensure that they don’t waste their pre-pay. This then could take money away from the distie.
It's very early days on this front and it’s difficult at this stage to assess the magnitude of this risk and what it will mean for companies like Dicker, but as software publishers continue to move to SaaS models and start to transition away from using disties and resellers, companies like Dicker will be impacted.
The good news is that distributing software is only a portion of Dicker’s business and this potential headwind does not appear to be particularly disruptive at this stage. One of the reasons that disties and resellers exist is that like good travel agents, they advocate on behalf of the customer to get the best technology solution for the best price. So many companies will still want to continue to work with resellers and the disties because it minimises the number of vendor relationships that procurement teams need to manage and it provides customers peace of mind that they have a partner advocating for them both in terms of technology fit and hunting discounts. Oh, and don’t forget that cost savings is a procurement KPI and can mean the difference between going on that holiday or not when it comes to bonus time. So it’s important to not understate the power that resellers and disties have here when they’ve been able to demonstrate a strong track record of delivering cost savings to their customer’s procurement counterparts.
For this reason, we may even see a blended model emerge where disties and / or resellers clip the ticket or receive rebates on transactions through the hyperscalers where they have been supporting the presales process on behalf of the IP owner.
It will be interesting to see how the hyperscaler marketplaces start to disrupt these traditional technology supply chain motions.
I’ll be sure to provide further updates as I learn more and would be glad to share my experience if there are any questions people may have about how these businesses operate.
Disclosure: I hold Dicker in RL and on Strawman
*Edited due to some typos
Inside Ownership Ordinary Shares % DDR Issued Net Value at $8.31
David Dicker 58,000,000 32.2% $481.98m
Fiona Brown 55,753,261 30.96% $463.31m
Vladimir Mitnovetski 846,096 0.47% $7.03m
Mary Stocjcevski 314,501 ~ $2.62m
Ian Welch 78,000 ~ $648K
Leanne Ralph 10,271 ~ $85K
Kim Stewart-Smith 4,941 ~ $41K
Total 115,007,070 63.86% $955.71m
Summary Dicker Data Director On-Market Buying Feb 2023
Vladimir Mitnovetski
· 28 February 2023
Direct 25,000 shares average price $8.074 ($201,850)
Indirect 5,000 shares price $8.00 per share ($40,050)
Mary Stocjcevski
· 28 February 2023
Indirect 7,000 shares price $8.00 per share ($56,000)
Ian Welch
· 28 February 2023
Direct 10,000 shares price $7.90 per share ($79,000)
Summary Directors
David Dicker - is the co-founder of the Company and has been a Director of the Company since its inception in 1978.
Fiona Brown (David Dicker ex-wife) is the co-founder of Dicker Data and currently serves as Non-Executive Director of the Company. Fiona has been involved with the business since it started in 1978 and has been a Director of the Company since 1983
Vladimir Mitnovetski (Vlad) Executive Director and Chief Operating Officer. Vlad joined the Company in 2010 in his role as Category Manager. Vlad holds a bachelor of business degree from University of Technology and a masters degree in Advanced Marketing and Management from the University of New South Wales. Vlad was appointed to the position of Chief Operating Officer on 8th September 2014.
Mary Stocjcevski Executive Director and Chief Finanical Officer. Mary joined Dicker Data as Financial Controller in 1999. Prior to joining Dicker Data Mary had over 15 years’ experience in accounting and taxation. Mary holds a Bachelor of Commerce Degree with a major in Accounting from the University of New South Wales. Has been a Director since 31 August 2010.
Ian Welch joined Dicker Data in March 2013 as General Manager – IT before he was appointed Chief Information Officer on 6th August 2015, with role expanding to Director of Operations in 2020 taking on responsibility for overall warehouse logistics and business operations. Prior to officially joining Dicker Data Ian spent more than 15 years consulting to Dicker Data in various roles. During this period Ian had been instrumental in establishing and maintaining the IT Systems for Dicker Data and as a result has a deep understanding of the business and all related processes. Ian started his career as an IT Professional working as consultant to businesses in various sectors. A large proportion of these were in the logistics space which have allowed Ian to develop a fundamental understanding of such operations. Ian is also an Executive Director of the Company and was appointed 6th August 2015.
Leanne Ralph was appointed as an independent Non-Executive Director on 13 December 2019. Prior to her appointment Leanne was the founder and Director of Boardworx Australia Pty Ltd, a provider of outsourced Company secretarial services, until its sale in 2017. Leanne is a highly experienced governance professional with over 15 years in this field, having held the role of Company Secretary for a number of ASX-listed entities across a diverse range of industries.
Kim Stewart-Smith was appointed as an independent Non-Executive Director on 29 March 2021. Prior to her appointment Kim spent 20 years in senior roles in Professional Services Firms and is currently running her own Business Advisory and Chartered Accounting firm. She was also founder and Director of business advisory at chartered accounting firm Altus Financial.
Mutliple directors buying on market yesterday, totalling nearly $400k, with Vlad doing a good chunk of that.
Good sign of some value, though the price has moved up a bit since the purchases were reported.
DDR Acquisitions/ Land Purchase
· February 2022 Hills Security and IT Division $19.35m - largest distributor of physical security products in the Australian market https://www.asx.com.au/asxpdf/20220221/pdf/4565x601gdk7ny.pdf
· July 2021 Exeed Group $68m - is a leading distributor of key technology brands including Apple, HP, Hewlett Packard Enterprise and Microsoft, with a focus on both the commercial and retail sectors. Exeed carries a number of exclusive distributorships in New Zealand including Motorola, Ruckus and Webroot. The business employs a total of 119 staff, with 95 based in New Zealand and 24 in Australia. https://www.asx.com.au/asxpdf/20210730/pdf/44yvv0w3nfbjdg.pdf
· February 2016 Purchase additional adjacent land in Kurnell - $18m for additional 17.2 hectares of land adjacent to current facility. (Sale of 230 Captain Cook Dr, Kurnell $36m August 2019 https://www.asx.com.au/asxpdf/20190801/pdf/4474ckh41hb5t2.pdf ) https://www.asx.com.au/asxpdf/20160225/pdf/435bf97pl50hj3.pdf
· February 2014 Express Data Holdings $65.5m - acquisition includes both the Australian and New Zealand operations and Express Online. Express Data offers a comprehensive selection of software and hardware products from a blue-chip vendor base which has very little overlap with Dicker Data’s existing vendor portfolio https://www.asx.com.au/asxpdf/20140211/pdf/42mn0zdx8h5bj5.pdf
Capital Raises
· August 2022 Raised $71.8m - $50m Institutional, $21.8m SPP Retail
· May 2020 – Raised $65m - $50m Institutional, $15m SPP Retail
· August 2015 - Raised $45.5m - $40.25m Institutional , $5.25m SPP retail
· March 2015 - Raised $40m Corporate Bond offering https://www.asx.com.au/asxpdf/20150316/pdf/42x98gn9sv5jvf.pdf
· January 2011 - IPO Raised $1m
In small print the operating profit before tax excluding one-off costs of 2.1m relating to hills acquisition and restructure costs.
“As a result of increased costs, in particular increased salary and finance costs. Continued disruption in the supply chain and the requirement to hold higher levels of inventory resulted in increased drawn debt throughout the year further, impacted by increasing interest rates. Additional operating costs were also incurred whilst the company was integrating the acquired Exeed and Hills businesses throughout the year.
The company has focused on consolidating and servicing the customer and vendor relationships it gained through these recent acquisitions and has yet to realised many significant cost synergies it strived for continued top line growth.”
Share price took a shellacking
Finally got the chance to read through the whole update, here's some highlights:
Q3 Revenue $775.5m - +19% increase on previous comparative period
There wasn’t much of a profit increase, but to be perfectly honest I was expecting this update to be a lot worse. I think DDR will do fine in the long term, I just expect to see a lot of not going anywhere particularly exciting in the next year.
After raising $50m from institutional investors, Dicker Data opened a share purchase plan for retail investors with the aim of raising a further $10m. Subsequently $21.8m in new shares were applied for and DDR opted against a scale back.
I'm always interested in the numbers behind the capital raising and DDR obliged providing further info in their release. There were 14,111 eligible shareholders who could apply. Of that number only 9.7% (1373) actually did so at an average of $15,856 (maximum allowable of $30k). The share price at times did hover slightly below the issue price of $10.30 and is currently still doing so. An extra $70m sures up the balance sheet with storm clouds on the horizon given the current macro thematic which one would think will be putting further pressure on the share price in the near term. There has been a continuation of director buying so internally there still appears to be a lot of confidence in the business still.
Disclosure; I hold IRL but did not partake in the SPP as it has grown to be my largest holding so held off due to weighting
They want to increase warehouse space by 70% so they've gone to the market
I'm assuming this is to attempt to mitigate supply chain issues with logistics given they will probably need to hold onto stock for longer, but ouch dilution.
Dicker Data released their Interim Financial report for HY
General stuff
Region breakdown
Sector breakdown
Some stuff that stood out to me
Disc: Held IRL and in Strawman
Dicker Data released a Q1 update this afternoon (they report on a calendar year basis). From their release:
My Takeaway:
A pretty good quarter from DDR with good organic growth coupled with a full quarter contribution from Exeed (compared to FY21 Q1). I think this was needed given the decreasing margins that management have stated. I expect NPBT margins to be around 3.6% which is similar to FY19.
If revenue growth stays at 50% compared to FY21 then NPBT growth would come in around 23%. I see shares at around fair value at the moment trading at a PE of around 28x so I will maintain my valuation of $12.75. Was also good to see directors buying in the last few weeks.
Disc: Held IRL and on Strawman.
Dicker Data released their FY21 results today (they report on a yearly basis). From their release:
Another solid year of business for a DDR. I think this slide in particular outlines what a high quality company this is:
At the current share price ($14.15) they are on a PE of around 33x. Historically shares have traded at a PE of between 10 and 20 however since 2020 there has been some multiple expansion and shares have traded between 20x and 40x.
I have updated my valuation based on their latest results. If the PE got down to 20x ($8.50) I would likely back up the truck.
Disc: Held IRL and on Strawman
Dicker Data has gone into a trading halt today pending announcement of an acquisition.
You tend to shudder when some companies do things like that but you'd have to back David Dicker in to know what he's doing. The bloke just keeps putting runs on the board over a very long period.
[Not held]
DDR just 'keeps on keeping on'... Today they provided their 3rd quarter update
Highlights as follow:-
With two months contribution from Exeed Group business, total revenue YTD to September 2021 was $1,720.4m, an increase of 16.1% on the prior corresponding period (PCP)
Still one of my best income & dividend stocks
https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02441323-2A1333575?access_token=83ff96335c2d45a094df02a206a39ff4
According to this article, a Motley Fool sell recommendation caused the share price drop after the results
EDIT~New attachment
Distribution Amount AUD 0.10500000
Ex Date Friday February 12, 2021
Record Date Monday February 15, 2021
Payment Date Monday March 1,
2021 DRP election date Tuesday February 16, 2021 17:00:00
Disc: Long time happy holder
Since I have owned these share from back at $2- DDR has, as nearly all analysts say, been way to highly priced. But they keep delivering, esp with the div which is why I fisrt bought them
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.
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.]