News that IT hardware distributor Dicker Data Ltd (ASX: DDR) has signed new distribution deals with internet-of-things solution providers Buddy Platofrm Ltd (ASX: BUD) and CCP Technologies Ltd (ASX: CT1) has sent the shares of all three higher today.
Dicker Data is Australia and New Zealand's largest independent distributor of IT hardware with a network of more than 5,000 business partners.
It already distributes the hardware of major IT hardware manufacturers like Hewlett Packard, Cisco, Microsoft, Samsung, Toshiba and Lenovo, with its shift into cloud and internet-of-things related hardware offering additional growth opportunities for a business commonly mistaken as just a dividend play.
The internet-of-things (IoT) is generally regarded as the next great technological trend after cloud computing (online data storage) and as such companies earning revenues in the IoT space may have the opportunity to grow over the long term.
Shares in IoT micro-cap CCP Technologies are up 10% to 2.1 cents on today's news, while the more established Buddy Platforms has put on 4.3% to sell for 36.5 cents per share. Neither turn an operating profit though and on that basis will probably only interest less sophisticated retail investors.
Dicker Data though remains an attractive business for serious investors focused on income and growth.
It has an impressive track record of profit growth and is lead by an experienced management team (including its founder) that appears focused on its competitive position, cost management, and shareholder returns.
Dicker Data also has a tailwind as the demand for IT hardware continues to climb in line with the growth of the wider digital economy.
At $2.80 the valuation remains just about reasonable, with a generous 6% dividend yield and forecasts for a pre tax profit of $40 million over 2017.
Moreover, it should be in a position to grow profit in the low-to-mid-single digits again over 2018. It it's able to grow earnings per share to 17+ cents in 2018 it would trade on 16.5x forward earnings at $2.80. This is probably around fair value given the unpredictability of operations over the 12 months ahead, while over the longer term Dicker Data could still offer market-beating total returns for today's investors.
