In Brief: Dicker Data, Light & Wonder, Codan

This story features DICKER DATA LIMITED, and other companies. For more info SHARE ANALYSIS: DDR

In Brief offers up some stock updates for companies positioned to grow into 2025.

-Higher-for-longer rates impact Dicker Data
-Light & Wonder licks the litigation wounds
-Codan positioned to grow via acquisitions

By Danielle Ecuyer

Quote of the Week comes from Absolute Strategy Research, run by David Bowers, who previously established the BofA survey, according to John Authers at Bloomberg:

“There is no alternative to US equities, according to our panel. They have adopted the most positive stance on US versus non-US equities since our survey began, with an implied probability of 63%. When we look by demographics, our European panellists are almost as positive (65%) on US versus non-US equities as North American-based panellists (68%). There has also been a loss of confidence in emerging markets versus developed markets, where the implied probability of the former outperforming the latter has fallen seven percentage points from 50% in the third quarter.”

Dicker Data: A Short-Term Hiccup

A more conservative outlook on global PC sales and an uptick in small- and medium-sized business insolvencies has led Petra Capital to downgrade EPS estimates for Dicker Data ((DDR)) for both 2024 and 2025.

In the absence of quarterly reports, the broker highlights a slower recovery in PC sales since the 1H2024 results reported in August and a “spike” in business insolvencies across A&NZ, to which the company is exposed, alongside a more cautious outlook for interest rate declines.

The more adverse macro economic backdrop has increased the impact relative to the analyst’s previous expectations via higher inventory levels, increased bad debts and sustained elevated interest rates.

Adjusting for these “headwinds,” Petra lowers EPS forecasts due to reduced sales growth and profit margins by -4% in 2024 and -9% in 2025, placing the analyst below consensus by -1% for 2024 but 4% above consensus for 2025.

The broker remains upbeat on the expected increase in IT spending and Dicker Data’s ability to “capitalise” on this growth, particularly in the small- and medium-sized business segment.

The stock remains Buy rated, with the target price lowered to $10.42 from $10.71.

Light & Wonder: Ending a Bumpy 2024

The gaming injunction on Dragon Train has impacted gaming momentum for Light & Wonder ((LNW)), though the company remains “consistently” the second player to Aristocrat Leisure ((ALL)), with casino operators continuing to embrace product/floor diversity and competition, reports Jarden.

Accounting for litigation costs, Jarden incorporates approximately -US$75m in fines and legal expenses into forecasts and expects the “noise” around Dragon Train to persist into 2025.

The broker subtly suggests management should reconsider developing Dragon Train 2.0 to avoid further litigation risks.

Looking ahead, Jarden has lowered December quarter gaming earnings forecasts while factoring in higher costs but acknowledges the strong pipeline of new game releases. Related segments such as video gaming terminals (VLTs) in Illinois and state lotteries in Quebec and Oregon are providing additional revenue streams.

Jarden raises the target price to $179 from $173 due to a lower AUDUSD exchange rate, offsetting earnings downgrades.

Rating remains Buy.

Codan eyes growth in 2025

Goldman Sachs has initiated coverage of Codan ((CDA)) with a Buy rating, describing it as a “high-quality” electronics company with several growth levers.

Codan manufactures and supplies electronic solutions for metal detection and communications, including high-frequency and land mobile systems for military uses and emergency response systems.

The company targets 10-15% organic revenue growth and profit margins of 30% for its communications segment over the next two to three years, which Goldman views as achievable due to recent acquisitions and expected US government spending of US$10bn-US$15bn on next-generation 911 emergency call upgrades.

In metal detection, Minelab is expected to achieve growth through market share expansion and broader industry growth, supported by increased distribution via both in-store and online platforms such as Walmart and Amazon, and expansion into India, South America, and Central America.

African sales have stabilised and returned to pre-covid levels, although Sudan’s civil unrest continues to impact distribution.

Strategically, Codan has benefited from acquisitions funded by cash flows. Goldman estimates approximately $400m was spent on seven acquisitions between FY21 and FY25, generating incremental earnings of $80m-$100m.

Net gearing remains low, providing flexibility for additional acquisitions.

Codan is Buy rated with a target price of $18.

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