Dicker Data’s unusual profile
High return on equity, high yield – and high debt – makes Dicker a challenging investment.
Australian technology floats have been rare in the past three years. Most initial public offerings (IPOs) have been for exploration companies and the majority are trading below their issue price. In a risk-averse market, investors have shunned information, biotechnology and clean technology floats.
The wholesale technology hardware distributor, Dicker Data, has had little fanfare since listing on ASX in January 2011, despite stellar earnings growth, a high return on equity and a share price that has more than doubled since listing, making it among the best-performed small IPOs.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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john oshea
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Looks like this guy delivered what he said he would. About $1.2bil of revenue including express data.
Express data may have had a bad year last year but I suspect it will make 15 millionish once incorporated based on the dicker track record so it was pretty close to 4 x PE price in my opinion. Not a bad way to get there. I think the high debt ratios are driven strongly by the price they are paying for debt, why would you pay down supplier provided debt when it is costing a meager 4% per annum. I note the express data debt is going to cost more and he plans to pay that debt down via capital raising.
Can’t wait until he opens up the share registry a little.
Very unusual company with a tight registry that needs a lot of reading to understand but definitely well managed.
marg nichols
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I’m much too conservative and of the age that its wise to be so!
Greg McLennan
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“David Dicker told the Australian Financial Review in May that he wants to lift ROE to 50 per cent this financial year and grow sales to $1 billion in the medium term.”
In other words, debt is going to remain pretty high.
It is a curious way to run a business. It is like a kid showing off to his mates by fooling around unnecessarily close to the edge of a precipice. Sure, everyone thinks you’re cool while you’re on the topside but slip off and your supporters are going to scaper.
ashley.little.581
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Exactly Greg Mc
Cheers
Andrew Legget
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Great analogy Greg. It was my thoughts exactly, debt is going to play a pretty significant part to the business plan.
It would appear a significant and difficult achievement to reach the revenue target he has set and then you add the ROE goal. This seems like a recipe for debt. Ambition in a company is good but it can also be the cause of a downfall. I’ll stick to High ROE and Low Debt businesses.
Andrew Legget
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The technology space seems like a good place to be looking following the trends as to how the world is going. Roger’s latest post seems to back that up with his reporting season findings.
However, in companies such as this i tend to get put off by the high debt. With a net gearing ratio of over 200% than it is not surprising that ROE is considerably high. If it wasn’t they would be in trouble. It seems that high debt will be a function of this company for a while and if you give me a choice between a company with no debt earning a high ROE and a company with lots of debt with a high ROE than i will go the first as it signals to me a big competitive advantage is driving it rather than debt, even if the latter has a decent interest coverage.
Still an interesting case study and really enjoying your posts Tony. Keep up the good work.
ashley.little.581
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Nice Work Tony
I looked at Dicker 18 Months ago and never swung at it.
I am still not going to swing at it.
It has done well but it is not exactly rocket science so a high ROE is not their forever.
Cheers