Dicker, which sells exclusively to resellers, is Australia’s largest distributor of IT products, and the longest-established Australian-owned business in its field.
IT hardware wholesaler Dicker Data Limited (DDR) was either hugely under-priced on its stockmarket debut in January 2011, or investors have warmed to its business model wholeheartedly.
Whichever the reason, Dicker Data, which floated at 20 cents a share, has moved in a lovely trajectory to $1.52 – but could be poised to move even higher, as it absorbs a transformative acquisition.
In February, Dicker Data bought competitor Express Data, the dominant player in the enterprise networking market in Australia and New Zealand, for $65.5 million.
Express Data brought with it a comprehensive selection of software and hardware products from a blue-chip vendor base that has very little overlap with Dicker Data’s existing vendor portfolio. Express Data’s background is in networking, security, data centre, communications and collaboration infrastructure, and software licensing and cloud, which will complement Dicker Data’s strengths in servers, desktop and notebooks. Express Data’s major partnership is with Cisco, which generates half of its revenue: this is a nice strategic fit for Dicker Data and its strong HP connection.
The deal was a difficult one to get across the line. Dicker Data took on a $140 million debt to fund the Express Data purchase: a credit line of $130 million had been agreed to with Westpac Bank, which included a $65.5 million cash advance in the form of a bridging facility. The company also has a $25 million Macquarie Bank facility, used for HP purchases.
Dicker Data also secured a loan of $10 million from Investec to provide overhead during the integration period, which began on Monday with the completion of the takeover.
The company took the funding path because it did not want to issue dilutive equity. But David Dicker has said that the company will issue shares within 18 months, to pay off the $65.5 million debt to Westpac. (Only 6% of the stock is traded on the ASX: David Dicker and his ex-wife, Fiona Tudor-Brown – also a director – hold the majority of the company.)
Dicker, which sells exclusively to resellers, is Australia’s largest distributor of IT products, and the longest-established Australian-owned business in its field. The company’s vendors include Hewlett-Packard, Lenovo, Microsoft, Toshiba, Samsung, Fujitsu, ASUS and other major brands.
There is a big name missing from that list: last week, Dicker Data and Apple agreed not to continue with a multi-million dollar distribution partnership that Dicker inherited through its recent acquisition of Express Data and Express Online. Dicker Data chairman and CEO, David Dicker, told the IT trade press the company decided not to carry on the partnership with Apple after looking at the figures and concluding that it would lose money if it did.
But Dicker Data has other giants, HP and Microsoft, firmly on-board. HP is the company’s biggest vendor: last year, Dicker Data gained access to HP’s printers and supplies products, and now sells the full HP range. HP provides 60% of the company’s revenue.
In February, the company was appointed authorised distributor for the entire Microsoft products and services range, the company’s first direct relationship with a software vendor. Microsoft sees Dicker Data as a “trusted supplier to the small-to-medium-sized business (SMB) market and the perfect partner for its push into that market.
In the FY13 year, revenue was down by less than 1%, to $451 million, but net profit rose by 11.7%, to $9.2 million. Earnings per share (EPS) increased by 11.1%, to 7.28 cents a share, which enabled the dividend to be lifted by 16% to 6.25 cents a share, fully franked.
The half-year to 31 December saw revenue rise by 5.2% to $224.6 million, but the company said the increase was mainly attributable to education orders shipping in December – instead of January in the previous corresponding period – and the extension of the HP agreement at the beginning of the financial year to include the full range of HP printing and supply products. This more than offset declining revenues from some of Dicker’s traditional PC vendors, including HP.
Interim net profit rose by 12.8% to $3.7 million, helped by an increase in gross margin, which was driven by the higher revenue enabling DDR to meet or exceed vendor rebate targets. The interim dividend surged to 2.75 cents a share, fully franked, versus 1 cent at December 2012.
Dicker’s strategy has been to offset the expected continued decline in the PC market by moving into products that tap into the drive by business to use off-premise IT capabilities, for example datacentre and ‘cloud computing’ strategies. This involves Dicker focusing on higher-margin product groups like servers, storage and networking products. The acquisition of Express Data – and its Express Online arm – was a major plank in this strategy.
It is difficult to get a valuation handle on Dicker Data, because the Express Data acquisition will more than double its revenue, to somewhere around $1 billion. How that flows down to EPS and DPS remains to be seen: the few analysts that cover the stock are yet to come out with upgraded forecasts. Suffice to say, however, the deal is a game-changer for Dicker Data.
