A month ago, we discussed one of our portfolio holdings, Dicker Data Ltd (ASX: DDR). DDR is primarily an IT hardware distributor, partnering with over 70 of the world’s leading hardware vendors. The Company recently opened its new national distribution facility at Kurnell NSW which we toured last week alongside fellow investors.
In this blog, we talk about 2 incremental things we learnt about the Company: (a) the wide range of products that they sell and (b) the quality of management’s thinking regarding site & warehouse design.
Wide range of hardware products
As mentioned in our last blog, DDR is a prime beneficiary of rising technology consumption. Walking around the warehouse and talking to the staff provided us insight into exactly how DDR is benefiting from this technology boom.
Let’s take the rising competition among streaming sites as an example. You may be aware that Netflix, Stan, Disney Plus, Amazon Prime, Foxtel/Binge and Apple TV are battling it out to win over your monthly TV streaming budget. Demand for streaming is increasing, and as a result DDR is distributing more laptops and monitors to retailers than ever.
However, the other side of the story is that old-fashioned movie theatres have also been increasing their investments to maintain their competitiveness against the home cinema. For example, cinema operator Hoyts recently replaced their projectors with digital screens to provide a better viewing experience. DDR distributes a large number of these screens.
So DDR is benefitting both from the rise of home streaming, but also the decline of cinemas as the latter spends money to reinvent themselves!
Site & warehouse design
DDR spent a total of $74m to build their new warehouse. Obviously with such a large sum comes an expectation from investors that this is money well spent and one that will set the business up for the foreseeable future. On this front, we think management have delivered.
First, the new site sits at 29,000 sqm, increasing their capacity by 80% versus their old site. Critically, DDR has an option to expand its warehouse capacity by an additional 20,000 sqm when demand catches up. This means that the Kurnell site should support roughly a decade of steady growth in DDR’s Australian business.
Second, we queried management as to why there was no visible automation within their warehouse. Our question originated from our previous tours of warehouses run by some of Australia’s pre-eminent consumer staple retailers that were filled with collaborative robots zipping around alongside human workers.
DDR management responded that since the Company deals with products of vastly different sizes, it would not be a good use of investor capital to install automated systems which are compatible with their entire product range.
Conclusion
Last week’s site visit was a valuable opportunity for us to understand DDR in more detail. We remain confident in the long-term investment thesis laid out in our last DDR blog.
Till next week, happy investing.
Michael & Kenny
