Dicker Data has delivered another strong quarter of growth and reconfirmed its FY16 pre-tax profit guidance of $35.0m
The following table summarises Dicker Data’s (DDR) 1Q16 results.
| | 1Q16 | 1Q15 | Variance |
| Total revenue | 267.7 | 240.3 | 11.4% |
| Gross profit | 23.7 | 24.1 | -1.4% |
| EBITDA (underlying) | 9.1 | 8.9 | 2.0% |
| Profit before tax | 6.8 | 6.2 | 10.3% |
Source: Company report, FIIG Securities
- Revenue for the quarter was $267.7m, 11.4% higher than the comparative quarter last year partly as a result of new vendors introduced during 2015 and better performance from existing vendors.
- Gross profit was down 1.4% to $23.7m. The prior quarter benefited from higher than normal profit margins due to a number of significant vendor rebate gains and favourable investments in inventory
- EBITDA for the quarter was $9.1m, which is 2% higher than the underlying EBITDA from the comparative quarter last year
- Profit before tax of $6.8m is $1m ahead of DDR’s forecast
- Given 1Q is usually the slowest from a revenue perspective and Q2 the strongest, DDR has started the year strongly given it is already $1m ahead of its expectations
- The company has reconfirmed its pre-tax profit guidance of $35.0m for FY16
The following table details DDR’s financials, and forecasts FY16. FY16 revenue and NPBT are taken from the company’s own guidance, while the other figures are extrapolated based on the assumptions detailed below.
| Income statement ($m) | FY13 | FY14 | FY15 | FY16* |
| Total revenue | 451.6 | 662.8 | 1077.6 | 1185.4 |
| EBITDA | 17.4 | 20.7 | 43.2 | 46.6 |
| NPBT | 13.3 | 14.1 | 31.6 | 35.0 |
| Significant items | 0.0 | -6.3 | -2.2 | 0.0 |
| NPAT | 9.3 | 5.2 | 20.5 | 24.5 |
| Interest | 3.5 | 5.1 | 7.5 | 9.2 |
| Cash | 0.5 | 18.2 | 15.8 | 15.0 |
| Total debt | 62.9 | 118.4 | 128.8 | 155.8 |
| Credit stats | | | | |
| Net debt/EBITDA | 3.58x | 4.84x | 2.62x | 3.02x |
| EBITDA/interest | 5.04x | 4.02x | 5.73x | 5.07x |
Source: Company report, FIIG Securities
Forecasts for FY16 are based on the company’s guidance as well as the following assumptions:
- DDR expects revenue growth at just over 10% as a result of organic growth and full year contribution from new vendors and vendor alignments
- The unusually high margins achieved in FY15 are expected to revert to more historical levels in FY16
- Expected higher average borrowings costs given higher working capital requirements and an investment in new land to extend DDR’s premises at a cost of $18m. In October 2015, the company exchanged conditional contracts on the purchase of 17.2 hectares of land adjacent to the current warehouse facility in Kurnell NSW with the intention to develop to support DDR’s growth. The purchase will be funded by debt via the receivables facility
- Tax rate of 30%
Given DDR’s increased debt and the reduction of margins to more historic levels, it’s is expected the company’s credit metrics will deteriorate slightly over FY16. Leverage (net debt/EBITDA) of around 3.02x and interest coverage (EBITDA/interest) of 5.07x are however still comfortable levels.
Further, while the land purchase and the development will be debt funded, it is the company’s intention to sell and lease back its current property during the construction period. The property holds an independent valuation of $25m. So while debt levels will increase in the short term, it will reduce again once construction begins and the existing facility sold.
DDR has a history of accurately forecasting its performance. This is a function of its large, entrenched market position and understanding of its clients’ volume requirements, as well the relative stability of its margins. These factors lead to a stable business profile, and while its debt levels will rise slightly, mainly due to its property acquisition, they remain solid and will fall once its current facility is sold. Given these factors, DDR’s floating rate note appears to be broadly fair value compared to similar bonds. However PMP’s 2019 fixed rate bond appears more attractive given it is shorter dated and has a similarly lower risk profile due to its very low net debt.
DDR’s floating rate note is currently offered at an indicative 6.60% yield to maturity and is available to wholesale and retail investors with a minimum face value of AUD10,000.
Note: Current minimum upfront spend is $50,000.