This afternoon IT hardware distributor Dicker Data Ltd (ASX: DDR) reported a full year net profit of $26.94 million on revenues of $1,306 million. The profit and revenue were up 5.1% and 9.9% over the prior year. Excluding the impact of differing tax rates net profit before tax was up 9.9% to $40.2 million.
The company will pay a record final dividend of 4.8 cents per share (cps) to kick off 2018.
Over 2017 it paid a total of 16.4cps on earnings of 16.8cps which reflects its ambition to pay out almost 100% of cash profits to investors in dividends. Assuming it can pay out at least 12 cents per share in dividends on top of its final dividend payment it should offer today's investors a yield of 5.8% plus the tax effective benefits of franking credits. Potentially more if it can edge dividends higher in 2018.
It seems the founder-led company has declined to provide any revenue or profit guidance for 2018, which reflects the fact this is a high-quality company run by a management team that own a substantial amount of shares.
The best companies nearly always meet or beat guidance, whereas the low-quality companies to be avoided tend to consistently miss guidance provided by management teams with little skin in the game. The lack of guidance then should not be taken by investors as a negative given management is focused on growing the business before the short-term share price.
The report also flagged it was not disclosing "further developments in the likely operations of the company….as the directors believe it would be likely to result in unreasonable prejudice to the company".
Dicker Data also has a consistent track record of steady revenue, profit and dividend growth, of course the past is no sure guide guide to the future as the business operates on slim margins in a competitive environment, but investors will hope for higher dividends in 2018.
The profit growth lagged the revenue growth as gross profit margins dropped 30 basis points to 9% compared to 2017's 9.3% and gross profit margins remain a key driver of shareholder returns. Salary costs grew over the year as the group invests in building its network although they remained flat as a percentage of total sales at 4.5%.
The company has $55 million in drawn debt facilities with Westpac Banking Corp (ASX: WBC), which largely reflects its working capital requirements as payables and receivables ebb and flow for a hardware distribution business. Over the year net average debt reportedly reduced.
On an operational basis Dicker Data added 18 new vendors (IT hardware partners) over the year and management flagged that it continues to see growth opportunities in the cloud hardware space.
Investors tend to shun uncertainty and the share price could be volatile over the short term. At $2.88 it trades on 17.5x trailing earnings with much depending on whether the group can deliver growth in 2018. The market looks to be factoring in mid-single-digit growth and given the digital economy tailwinds supporting the business it's probably around fair value for now.
