In recent years, growth companies, especially those in the technology sector, experienced a tremendous run in the share market. A wide variety of technology themes pop up and they all sound promising. However, not all themes are realised in the near future. When the theme fails to work out, investors suffer great losses. To avoid this big risk but enjoy the technology boom, we invest in Dicker Data as we believe it will continue to perform.
Dicker Data (ASX: DDR) is Australian technology hardware, software and cloud distributor with over 41 years of experience. Dicker Data distributes a wide portfolio of products from the world’s leading technology vendors, including Cisco, Citrix, Dell Technologies, Hewlett Packard Enterprise, HP, Lenovo, Microsoft and other Tier 1 global brands. As the leading Australian distributor for many of these vendors, Dicker Data is dedicated to helping partners deliver industry-leading solutions built on the world’s best technologies.
Growth from tech boom
Technology offers many disruptive methods to support our life and business operations. With technology advancement, a wide variety of technology themes are introduced to investors. They include artificial intelligence, blockchain, the Internet of things, 5G etc. Not only investors but even global CEOs also keep track of the fundamental impact of these technologies on their organisations. Investing in the right theme is rewarding. Yet it is not an easy task.
Fortunately, most of the technology adoption requires hardware support. Dicker Data distributes a wide range of hardware products from world-leading vendors. Dicker Data enjoys the rise of technology adoption. For example, the home office demand rose sharply due to the Covid-19 lockdown and work from home schemes. Dicker Data took the opportunity and continued strong revenue growth.
Generally speaking, distributors are not good businesses because of the low bargaining power with suppliers. Their services usually are very standardised and their only advantage is the low-cost operation. However, Dicker Data adds value to both suppliers and customers through technical support and a great web interface. Dicker Data has over 40% of its staff as product specialists handling technical support for customers. A great web interface with high-quality services in ordering, order tracking and invoicing helps suppliers manage inventories. The value-adding services allow the company to win market share from its main competitors.
Dicker Data is a high-quality business not only from an operational perspective but also from a capital management perspective. The company has a strong track record delivering a strong return on equity of over 35% in the last 10 years through effective debt management and competitive advantages.
It is not an easy talk to try to predict which technology theme will work out in the future. However, as long as businesses and customers are required to upgrade their hardware to adopt new technology, we believe Dicker Data is a long-term investment in the current technology boom.
Till next week, happy investing.
Michael and Kenny