Solid outlook for Dicker, but market drags: Newport

Market conditions will remain challenging, demand for ultra books and touch screen laptops is lack lustre, and so far Windows 8 is a pup according to a new report into the financial performance of Dicker Data by Newport Capital.

However solid management at the large local distributor will likely deliver higher gross profits and flat ebitda this year off the back of stronger gross margins even with a small revenue decline.

Newport Capital reviewed the company’s first half performance and noted “operating profits were also down mainly due to the increase in employee related expenses. The main driver of the increase in staff related expenses were provisions for annual and long service leave (up $172k) and sales commissions (up $180k).

On the outlook for Dicker, and the market the report noted, “Overall market conditions are expected to remain challenging. Microsoft’s Windows 8 operating system failed to give a boost to PC sales in the first half of the financial year. Demand for ultra books – high end laptops – and laptops with touch screens has been lacklustre. As new and better models come to market and price points come down a bit in these product categories, demand is expected to pick up.”

However, Newport cautioned that any rebound in market conditions was still some way off, mostly likely out into 2014.  “The approaching federal elections in this September are also expected to create some level of uncertainty which could cause organisations to postpone decisions on capital investment projects. Therefore, we forecast a slight drop in revenues for FY2013 and a rebound in sales for FY2014.”

Dicker’s expansion of its warehouse is a sign of the increased confidence of management and in the past such expansions have heralded an increase in profitability, according to the Newport. It also suggested that its recent financing deal with Macquarie Bank will add to gross margins although the impact was difficult to quantify as terms were not disclosed.

“The new Macquarie facility will enhance Dicker Data’s ability to take advantage of the early settlement discounts (ESD) available from HP. This alone should add another few tens of basis points to gross margins. Although, this will be somewhat offset by the additional interest payments, net impact on the bottom line is expected to be positive.”

Finally, the analysts referenced, but declined to comment on a recent CRN story about Ingram Micro running the ruler over Dicker data, however they noted, “... it is worthwhile noting that as the largest independent player in the market Dicker Data can be an attractive acquisition target to strategic buyers that are looking to enter the Australian market or to bulk up their local operations.”