Expanding Into Cybersecurity And AI Will Shape A Promising Future

Key Takeaways

• Strategic focus on cybersecurity and AI could drive higher-margin sales and significantly impact future earnings.
  
• Increased inventory levels indicate readiness for future PC sales growth, potentially boosting overall revenue.
  
• Economic challenges and strategic shifts could pressure Dicker Data's revenue, profitability, and stability amid rising costs, vendor loss, and reduced SME spending.

Catalysts

Engages in the wholesale distribution of computer hardware, software, cloud, access control, surveillance, and technologies in Australia and New Zealand.

• The addition of new vendors and growth in segments like software despite a challenging market environment indicate the potential for increased revenue from new partnerships and product offerings.
  
• Improvements in the New Zealand business's gross margins and continued focus on software sales could enhance net margins, leading to increased profitability from more efficient operations.
  
• Increasing inventory levels in anticipation of PC refresh cycles suggest potential future growth in PC sales, which may drive up overall revenue as demand increases.
  
• The company’s strategic focus on growth areas like cybersecurity and AI could significantly impact future earnings, as these sectors are expected to experience substantial growth and drive higher-margin sales.
  
• A strong balance sheet with renewed facilities for funding future growth ensures readiness to support increased market demand, potentially leading to enhanced earnings as market conditions improve.

Dicker Data Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dicker Data's revenue will grow by 21.7% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 3.5% today to 2.6% in 3 years time.
• Analysts expect earnings to reach A$108.5 million (and earnings per share of A$0.6) by about April 2028, up from A$78.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 22.2x on those 2028 earnings, up from 18.7x today. This future PE is lower than the current PE for the AU Electronic industry at 24.6x.
• Analysts expect the number of shares outstanding to grow by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.8%, as per the Simply Wall St company report.

Dicker Data Future Earnings Per Share Growth

Risks

• The challenging economic conditions in Australia have affected Dicker Data significantly due to its large market presence, which could impact future revenue growth.
  
• Dicker Data's pivot towards enterprise customers, which generally operate at lower margins, might pressure gross margins and impact profitability.
  
• Increased interest rates and resultant financing costs have negatively impacted PBT, which could continue to challenge earnings if rates do not decrease.
  
• The loss of a major vendor and increased incidence of bad debt write-offs indicate potential instability in revenue streams and increased operating expenses.
  
• Reliance on the small and medium business sector, which has reduced spending, may pose a risk to revenue stability and growth if economic recovery is delayed.

Valuation

• The analysts have a consensus price target of A$10.606 for Dicker Data based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$12.1, and the most bearish reporting a price target of just A$9.7.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$4.1 billion, earnings will come to A$108.5 million, and it would be trading on a PE ratio of 22.2x, assuming you use a discount rate of 7.8%.
• Given the current share price of A$8.13, the analyst price target of A$10.61 is 23.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.