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.

I attended the DDR AGM in Kurnell yesterday and wanted to share my takeaways while they’re fresh.

David Dicker, CEO was not there in person, zoomed in on video instead as he’d received a death threat if he turned up due to share price being down (a brave but anonymous warrior in Elon’s Twitter army I suspect). This was initially met with a few chuckles from the audience but seems it was legit, the police turned up but there were no scuffles, shots fired or arrests that I noticed.

David took the opportunity to emphasis that he had not wanted to sell any shares and only did so under the obligation of a highly unfavourable divorce judgement.

So timing was seemingly out of his hands too?

Presentation

This went for about an hour – led by David, followed by Exec Directors Mary the CFO and Vlad the COO.

Overarching theme was that business conditions are tough across ANZ at the moment, which doesn’t bode well for the remainder of 1H 24.

Vlad made the point that DDR has historically taken market share in up and downturns but this usually is faster in downturns.

They seem to think about the business like owners (because they are) so a little unorthodox in some of their presentation / thinking but mostly in a good way.

Moat seems to be largely cultural and defensible (operating efficiency is a big feature can't really be a moat as this can be copied by competitors).

CFO

Cycling difficult comps – specifically they were a big beneficiary of Covid IT demand in FY21, then impacted by supply chain issues in FY22. These resulted in a big pcp for Mar-23 Qtr when a lot of the high demand, then low supply from FY22 worked its way through, a lot of which got invoiced in Q1 23. This made Q1 24 Revenue hard to comp on a like for like basis.

My take is that they are confident that better times are coming but probably not in Q2, hopefully H2.

Dividend policy to pay out 100% of NPAT on a quarterly basis to fund the F1 ambitions of all shareholders will not be changing while David remains alive / a shareholder.

COO

NZ is seen as a big opportunity in terms of both market share (they are 2^nd) and margin as they work through the acquisitions they made there.

They are looking to sign ANZ vendor and partnership agreements as opposed to being siloed to leverage the strength of the Aussie business to expand the NZ arm.

That said, the NZ economy is doing it tougher than here.

Digital is a larger piece, growing steadily, higher margin and expected to continue for the foreseeable.

Official business

The unorthodox Rem Report got a 2nd strike but the spill was easily defeated.

Given David's attitude towards it, I expect this to be a feature - lots of strikes but no spills to protest but not punish the board / Rem & Nom committee.

Site Tour

Did a site tour afterwards.

The CFO led us through with the head of property mgmt. and about 15 other shareholders, fund managers (I only recognised the Hayborough guys) and punters / brokers?

Kurnell is an Impressive set up, very modern, lots of capacity, and DA being sought to add another adjacent 30k sq feet (in addition to the 22 + 17 = 39k sq foot facilities they have currently operational but not fully utilised.

Disc: Held

COO Vladimir Mitnovetski has purchased $180,500 of shares on market this week. Encouraging sign that the market reaction might be overdone.

Q1-FY24-Market-Update.PDF

Dicker Data released a dividend announcement this morning.

Dividend of 11c per share for Q1 (They pay dividends every quarter and report on a calender year basis).

This compares to dividends of 10c per share in Q1FY23 but still down from 13c in Q1FY22.

Given that DDR have a policy of paying out 100% of NPAT as a dividend, I expect NPAT to be around $19.8m for Q1FY24. Although I'm sure they will release a market update in the coming days.

Disc: Held IRL and on Strawman

Interesting point from Wesfarmers's strategy day (re Officeworks) which has impacts for DDR and DTL.

"With the rise of AI, management noted that AI-enabled personal computers will be hitting the market in the next few months, and both Officeworks and its suppliers are of the view that this will lead to a major replacement cycle over the coming years."

David Dicker now claiming his ex-wife’s shares

David Dicker may be the Australian business magnate whose antipodean absence and general low profile we most rue.

The Dicker Data founder and CEO – who looks more like Colonel Sanders with every passing year – upped sticks and moved to the liberal utopia that is Dubai in 2019 because Australia was (even then) an “authoritarian shithole”.

He’s dumped stock to fund the purchase of a private jet. He signs all his disclosure forms from Apartment 702 of Dubai’s pricey Kempinski Hotel. And his main passion these days seems to be getting his Rodin motorcars into Formula 1,which he tried and failed to do last year.

If only for the colourful copy, we should pay him more attention. And what better way to start than with his second, recent divorce and the spot of capital reallocation it’s forced.

David Dicker is a permanent resident of Dubai’s Kempinski Hotel. 

At his eponymous ASX-listed hardware distributor Dicker Data, Dicker last week sold 18.3 million shares, citing a divorce settlement. The sale, which presumably netted ex-wife Delwyn Dicker some $200 million, was secured via a Barrenjoey block trade at $10.90 a pop, and represented some 10.2 per cent of the company’s issued capital.

Dicker still owns, his most recent 3Ys suggest, most of Dicker Data. But shareholders needn’t fear any more sales, given he has a six-month escrow on his remaining holdings.

But what are those?

His filings say Dicker speaks for 97 million shares. That includes a “relevant interest” in 55 million shares long held by his other ex-wife. Nonetheless, Dicker Data co-founder and director Fiona Brown “does not enjoy any power to vote in respect of the shares unless she becomes CEO of the company”, by virtue of a bloc agreement entered into in 2010.

The 3Y notices also refer to sections of the Corporations Act that define “relevant interest” as having the right to both vote and sell shares, suggesting Dicker sees Brown’s shares as his in every way that counts.

While the bloc agreement is almost 15 years old, reference to it in Dicker’s director interest statements is relatively recent, having first been made in June last year. And Brown, who files her own notices, doesn’t seem on board.

Three of her 3Ys, the last of which was lodged in December, state that: “Ms Brown considers that the bloc agreement is of historical relevance only [and has] ceased to be legally binding on the parties”. As a result, the 3Y notices explain, she doesn’t include Dicker’s shares in her relevant interests, and doesn’t think he has any relevant interest in hers.

This bloc agreement was discussed in Dicker Data’s prospectus. As described, it bound Dicker Data’s non-CEO founder (that is, Brown) to follow the voting recommendations of its CEO founder (that is, Dicker), while also giving both Dicker and Brown first right of refusal on the other’s share sales and transfers.

Brown clearly views the whole thing as “historical” and thus moot. And Dicker, evidently, disagrees, and told this newspaper last year that if he lost control of Dicker Data he’d “probably leave”.

This is no quibbling dispute. It affects shares worth $592 million, or a bit less than a third of the company. Dicker Data’s annual reports, including the most recent released in February, have long counted Brown as a separate, significant shareholder. And yet, recently, and as he completes his second divorce, Dicker has started prominently telling shareholders all his ex-wife’s shares might as well be his!

We asked Dicker Data if the dispute over who has a relevant interest in the shares had been resolved, and whether Dicker’s escrow applies to the shares actually owned by Brown. We didn’t hear back.

The last annual report also reveals Dicker was, in FY23, a debtor to the company he founded. For example, Dicker Data Financial provided Dicker with $524,968.91 at “arms length commercial rates”, which he had repaid by January 24 this year.

Brown’s transactions with the company were on the other side of the ledger. She advanced Dicker Data a short-arm loan of $20 million at some point during 2023, for which she was paid “commercial market” interest of $398,213.92.

Do you think Dicker could have just asked her for the cash and kept it off the company’s books? Suppose, for as long as he’s claiming her shares, and she disagrees, that’s not really an option.

Director buying ~80k worth of shares on market at $10.8

Big drop for Dicker Data this morning with the announcement that David Dicker has sold over 10% of the shares on issue for the company. This is similar drop to the last time this happened although this time the reason given is due to a divorce settlement. Last time he was spending on money toys such as his goal of entering a team in F1 that was ultimately knocked back.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02781655-2A1510016

Dicker Data released their FY23 results a few days ago. From their presentation:

I thought the result was pretty good considering FY22 was a disappointing year. Overall gross margins finished at 9.7% which is the highest in 5 years.

Revenue reporting will change from this report onwards due to a difference in revenue recognition. Above shows how revenue would have been reported in FY22 under the new reporting standard.

Overall a good result in a sector with some good tailwinds. The increase in computing needed to drive the AI sector will benefit DDR going forward. Also the windows refresh cycle will begin soon with Windows 10 losing support later this year.

Disc: Held IRL and on Strawman.

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 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?

Vlad on Ausbiz this week. Sounds bullish.

https://ausbiz.com.au/media/cloud-services-and-cybersecurity-drive-success-for-dicker-data?videoId=30684

Potential Hyperscaler Headwinds

A bit about the industry

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.

Potential Headwinds – Hyperscaler Disruption

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.

Into the future

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. 

• Revenue: 3,104.4 - up 25%
• EBITDA: 129.8 - up 9.3%
• * Operating profit before tax: 106.9 - up 0.8%
• NPAT: 73.4 - down 0.3%
• Dividend for march was slashed down to 2.5c from 15c

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:

• Profit remained flat when compared against a massive previous period, but still considered strong by the company
• With Hills security and IT division (now the DAS), the company has returned the acquired portfolio to growth four months after taking ownership. Revenue, profitability on positive trajectory for that area of the business
• Dicker Data NZ is now fully operational from its CBD office and distribution facility
• Cybersecurity continues to be an area of growth for the company, particularly following high-profile attacks on Australian companies in recent months. Company is well positioned to assist its partner network. (nice tailwind for the DAS)
• Q4 outlook: demand strong, increased complexity driving more opportunity in partner community.
• Capital raise/warehouse expansion - has been costed up and will be complete approx end of June 2023, they expect it will come under the estimated cost. Surplus funds will be used to increase balance sheet flexibility and support long-term growth objectives.

Q3 Revenue $775.5m - +19% increase on previous comparative period

• Revenue for Sep 2022 vs Sep 2021 increased by 29.9% (2,234.9 vs 1,720.4 the previous year)
• Net operating profit before tax only increased by 0.1% (76.7m vs 76.6m the previous year)
• YTD gross profit margin finalised at 9.0%, in line with guidance.
• Overall profitability has been impacted by costs associated with rising interest rates, freight costs and increased depreciation and amortisation as a result of recent acquisitions.
• Salary costs increased on the prior corresponding period but have remained stable at 4.8% of revenue

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.

Dicker Data released their Interim Financial report for HY

General stuff

• Revenue $1459.4m up $390.2m - up 36.5% from FY21.
• Excluding Exeed and Hills underlying revenue grew by 16.8%
• Operating expenses increased by $19.5m - up 38.2% including 1.6m in one-off acquisition and integration costs. Largest increase in expenses was due to salary costs with staffing additions through the acquisitions: salary related expenses up $14.7m - 33.1%
• Total operating expenses slight improvement down to 4.7% from 4.8% the previous year
• The Hills acquisition, purchase price at $21.3m, brought in $18m in revenue in 2 months.
• Supply shortage forecast to continue into 2023, back order book of $393m
• Cash from operating activities down from $38.738m to $35.136m
• Profit $128m - up 28.5% from FY21
• Margin decrease from 9.3% to 8.8% due to increased freight costs, expectation of normalisation to 9% within the year.

Region breakdown

• $204.1m growth - up 20.7% in Australia.
• $186.4m in NZ - up 226.6%.

Sector breakdown

• Hardware and virtual service sales - $1085m - up 35%.
• Software sales - $365.5m - up 41.7%
• Services - $6.5m - up 34.1%

Some stuff that stood out to me

• It is looking like the acquisitions are integrating pretty quickly and giving decent chunks of revenue
• Adding Hills has given DDR the opportunity to sell cybersecurity to their existing networks
• There was a mention of contraction of perpetual software sales over transition to recurring revenue models

Disc: Held IRL and in Strawman

CEO David Dicker issued a statement clarifying his sale last week of 2,740,000 shares should not be interpreted as a indication that his role or interests in the company have changed.

The statement confirms he still owns 33.6% of total Dicker Data shares issued.

My view is that this is a fair statement and the price chnages has been driven by recommendations as discussed in other straws.

The current price isn't particularly cheap but I think it's a high quality company with a consistent track record of impressive execution.

I hold in RL and will probably buy a little more at the current price.