Small Caps | Sep 17 2024
Analysts see value in Dicker Data shares based on second quarter momentum and potential upside to PC sales.
-First half miss for Dicker Data, but gathering momentum
-Profit disappointment and elevated inventory explained
-Upside from PC refresh cycle and AI-related features
By Mark Woodruff
Post the August reporting season, analysts suggest investors overlook Dicker Data's ((DDR)) slight first half profit 'miss' and instead focus on gathering sales momentum in the second quarter along with upcoming benefits from the PC refresh cycle with additional tailwinds from the new generation of PC's designed to handle AI and machine learning tasks more efficiently.
The share price is currently range-trading around $9.00, not far above the 52-week low of $8.68 having peaked at $12.76 in February this year, and at $16.00 during the post-covid run-up.
Sales in the second quarter lifted by 9% on the prior quarter while gross margins remained strong. As this was noticeably better than UBS's 2% growth forecast, this broker has upgrade its rating to Buy from Neutral.
First half pre-tax profit of $50.8m still marked a -7% year-on-year decline and missed the consensus forecast by -6% largely due to higher employee and interest costs.
Higher rates and higher debt saw interest costs rise by 28% to $12.1m.
More positively, with the gross margin percentage holding its ground in the second quarter, analysts believe management is not discounting product to generate sales.
Jarden sees upside risk to its own earnings forecasts given management's ability to grow second quarter revenue by 8.6% year-on-year despite facing macroeconomic headwinds and tough comparisons after losing the Autodesk distribution agreement.
Goldman Sachs also highlights the loss of the Dahua distribution arrangement in the first half but expects additional incremental revenue leading into the end of 2024 due to the signing of new vendors such as Adobe in Software.
Existing key product vendors include the likes of Microsoft, Samsung, LG, and Hewlett Packard.
Dicker Data is a wholesale distributer of computer hardware, software, cloud, access control, surveillance, and technologies in Australia and New Zealand.
The New Zealand business more than offset macro weaknesses with market share gains and demand for cloud and cybersecurity, though small-to-medium business (SMB) demand remained subdued, Petra Capital highlights.
Apart from the potential upside from the refresh cycle and AI computers, the analysts note improving SMB engagement, receding macro headwinds benefiting the company's broader hardware portfolio, as well as AI filtering through the rest of the ecosystem, with servers and software key beneficiaries.
Current valuation and management's record suggest upside
Given long-term structural tailwinds, shares of Dicker Data represent good value, Jarden's opines.
The current relative valuation has de-rated with the next-twelve-month P/E ratio now less than 21x times on the broker's estimate, when the shares have traded at a significant premium over the last two years.
Petra Capital's pre-tax profit margin estimate of 5.1% (of net sales) could prove conservative if revenue and associated operating leverage exceed the analyst's current expectations, with PC sales considered the key catalyst.
This broker expects management's track record of above-system sales and EPS growth will continue over the medium-term.
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