Small Caps | 10:45 AM
Strong trading momentum, accelerating data centre investment and growing AI-related demand strengthen broker confidence in Dicker Data. Second-half supply and demand risks are also noted.
- Dicker Data’s trading update exceeds expectations
- Data centre refresh cycle expands, AI provides further boost
- Potential for business demand weakness & OEM supply headwinds
- Near-term risk reward profile has improved, Morgan Stanley suggests
By Mark Woodruff
Shares in specialist hardware distributor and SME services provider Dicker Data ((DDR)) have responded positively to last week’s AGM commentary, which included discussion of FY25 results, a trading update and an outlook statement.
Following the release of strong FY25 results in February, UBS suggested the company was at the beginning of a multi-year growth phase, underpinned by data centre upgrades and AI-related opportunities.
Now, after a trading update covering the first four months of 2026, the broker notes revenue growth exceeded management's expectations, driven by stronger-than-anticipated demand across endpoints, software and data centre refresh activity.
UBS believes the update reinforces the strength of current trading conditions and highlights continued momentum across Dicker Data's key growth segments.
Software, End-point Solutions and Advanced Solutions are the company's largest reporting divisions by gross sales, representing respectively circa 30%, 30%, and 21% of the total.
Looking ahead, the broker expects strong forward order momentum through May and June, together with normal seasonal patterns, to support a robust finish to the first half (to be reported in late August).
It’s anticipated second-half growth will be driven by ongoing demand for data centre refresh projects, along with software and AI-related revenue streams, although hardware sales volume growth is expected to moderate against more challenging comparables with the second half of FY25.
Driven by margin improvement on the sale of existing inventory during the period, unaudited net operating profit (PBT) was $47.3m, a 45.5% rise versus the corresponding four-month period a year earlier, tracking ahead of Macquarie's FY26 forecast.
The PBT margin rose to 3.7% from 2.9%, benefiting from the sale of lower-cost inventory. As higher-priced inventory is replenished through the second half, margins are expected to come under pressure and normalise from current levels, UBS explains.
Macquarie adds vendor price increases are supporting gross profit margins.
Management noted the profit result was further supported by the company’s disciplined approach to the enterprise segment of the market during the period.
The business
One of management's key strategic priorities for FY26 is to capture the data centre refresh cycle as businesses prepare to upgrade ageing infrastructure.
The company also aims to scale AI-enabled infrastructure demand across enterprise, mid-market and Neocloud providers.
AI demand, driven primarily by data centres rather than end-user devices, represents incremental growth on top of existing infrastructure needs.
While enterprises and cloud providers still need the usual servers, networking, and storage, AI adds an entirely new layer of requirements.
Across the A&NZ region, Dicker Data offers a broad range of hardware, software, cloud services, cybersecurity, and emerging technology products on behalf of over 70 global and local vendors.
The company sells exclusively to a network of thousands of IT resellers and integrators (over 10,000 active partners) rather than to end-users.
This channel-focused model, combined with value-added services (like pre-sales engineering and training), has positioned Dicker Data as a leading value-added distributor in the A&NZ Information Technology markets.
While global distributors like Ingram Micro compete for bulk deals with Harvey Norman ((HVN)) and JB Hi-Fi ((JBH)), Dicker Data aims to help smaller businesses migrate to the cloud, strengthen their cybersecurity, and access a broader suite of IT solutions.
By working through resellers, the company has traditionally focused on small and medium-sized businesses (SMBs), providing tailored support rather than chasing large-volume retail contracts.
Broker views
Highlighting a very strong first four months of 2026, Morgan Stanley now sees growth visibility extending well into the second half.
This broker believes Dicker Data is tactically well positioned despite broader market uncertainty, supported by a positive near-term outlook and structural upside from the ongoing data centre refresh cycle.
UBS also expects underlying revenue demand to remain robust, even as management flags second-half supply chain and pricing changes that could increase costs and weigh on unit demand.
This broker also expects low-margin AI work to maintain momentum into the second half.
Macquarie acknowledges trading momentum from the second half of 2025 has continued into the first half of 2026, though this broker remains cautious given potential business demand weakness and OEM supply headwinds.
While supply constraints have not yet emerged, it’s felt risks are greater in the second half than the first.
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