IT, security and audio visual distribution company Dicker Data recently reported its update for Q1 FY 2022 and held its AGM.
At the AGM, one of the key thematics was that the company has “Increased inventory holdings and continued technology portfolio diversification has resulted in near capacity utilisation of the new warehouse in just over 12 months.” This is reflected in a whopping $91.5 million increase in working capital requirements, as the company looks to proactively manage supply chain and logistical constraints associated with chip shortages and inflation.
Dicker Data did not give guidance at the AGM, but did highlight focus areas for FY 2022. Notably, the company is expecting to see some “growth across our entire product portfolio that supports the work from anywhere movement. Furthermore, the release of Windows 11 and the ongoing concerns around cybersecurity will drive device refresh and growth in our software portfolio.” Furthermore, the company is also expecting healthy demand for some of its physical security products and vide conferencing equipment due to some workplaces upgrading premises.
Personally, I still believe it’s possible that the company will see some softer quarters in the coming year, as the generational boom in IT demand related to the pandemic subsides.
Turning to the quarterly results, it is important to note that the acquired Exeed did not contribute to the prior corresponding period and so the revenue growth of 50% on the same quarter last year is not organic in nature.
In the second half last year (to December 2021, since Dicker Data operates on a calendar year), the company made a net profit before tax of $59.16m on being a NPBT margin of 4.2%.
In Q1 FY 2022, the company made NPBT of $23.8 million, on revenue of $673.6 million, being an NPBT margin of just over 3.5%. The company said that “supply chain disruptions have continued and together with the introduction of the retail business in NZ, gross margins finalised lower for the quarter at 8.6% as a result.” This is the lowest gross margin result since 2015, and below the normal range of 9% to 9.5%.
Happily, the company said that “Despite lower margins for the quarter, the Company expects to see margins finalising around 9.0% for the full year ending 31 December 2022.” I asked why they believed margins would improved and received the reply that New Zealand margins were lower than expected due to higher than expected distribution of the [lower margin] Apple products into the consumer market and that since Q2 is a much bigger commercial quarter, the lower margin Apple consumer business should have less of an impact on gross margins.
I also queried whether Q4 FY2022 should be considered an outlier quarter, and the company responded that “Generally our Q2 and Q4 are strongest quarters and normally offer strong profitability outcome.” Therefore, while Q1 FY 2022 was below the quarterly run rate in the immediately preceding quarter, this may have been at least partially impacted by the natural rhythm of the business.
Overall I thought that the quarterly report was reasonably good and I remain a happy shareholder.
The Dicker Data dividend was 13 cents for the quarter and I believe annualising this gives us a reasonable guide to what we could probably expect to receive for the full year, at a minimum. If this dividend is maintained for the full year we would get a dividend payment of 52 cents.
I generally have previously stated that I think Dicker Data is attractively priced on a yield of about 4%, though arguably, inflation and higher interest rates should see my increase my yield expectation somewhat. If I move my forward yield requirement to about 4.5%, then I would be looking for a Dicker Data share price of about $11.50 and my current thinking that I might look to invest more in the company if it traded at around those levels.
Zooming out, I am perfectly content to continue to hold my core Dicker Data shareholding. I also take some comfort from the fact that the COO and CFO, both of whom I admire, bought some shares on market, in the last few months.
The author holds shares in Dicker Data and will not sell any for at least 2 days after publication of this article. This article should not form the basis of an investment decision. It is an investment diary valuable only for the cognitive process it demonstrates. We do not provide financial advice, and any commentary is general in nature. Please read our disclaimer.
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