A little-known ASX tech share is ripe for the picking currently, according to one analyst.
Totus Capital investment analyst Tim Warner conceded Dicker Data Ltd (ASX: DDR) is not a fashionable tech business — but that's the appeal.
"Dicker Data is not the high-flying glamorous tech company that continuously burns cash with the future 'promise' of one day being profitable," he posted on Livewire.
"It is quite the opposite. Dicker Data has been in business since 1978 (yes, that is before the first PC was even released)… Since listing on the ASX in 2011, revenues have grown circa 7 times to $2 billion, and profits by circa 13 times."
The company is a distributor of hardware and software. It acts as the "middleman" between big global vendors and Australian technology retailers.
Dicker leads the distribution game in Australia with a 29% market share, according to Warner.
This ASX tech share jumped from a COVID-19 crash low of $4.40 in March 2020 to more than $12 in February.
"With the COVID-19 induced work from home phenomena, the demand for hardware and software from businesses to facilitate their employees to work from home surged through the first half of 2020," said Warner.
Shares are trading at a 30% discount
However, the stock price has come off the boil in recent months as it's been swept up in the general sell-off of ASX tech shares. Dicker Data was selling at $10.48 at market close on Thursday.
Totus Capital has jumped on this opportunity, buying more Dicker shares.
"At current, there is a period of flux in the perception of Dicker Data's business value, due to the uncertainties around being a perceived COVID beneficiary as well as its supply chain suffering from global chip shortages," he said.
"However, we believe this is creating an opportunity to buy a high quality business at an attractive price."
Why Dicker Data shares are attractive
Warner listed 5 reasons why the distributor has excellent prospects: long-term past success, high return on equity, owner-operator culture, industry growth and an irresistible valuation.
Dicker Data has recorded 19% revenue growth per year and 26% profit before tax growth for the decade since June 2010, he said.
The Motley Fool reported last week that AIM chief investment officer Charlie Aitken thought return on capital is the best measure of business performance.
Dicker passes this test well, according to Warner.
"Dicker has consistently generated high returns on equity, averaging 38% over the last 10 years," he said.
"DDR benefits from typical scale economies, allowing it to compete on price with other global distributors such as Ingram Micro and Synnex Corporation (NYSE: SNX). However, it differentiates against its competitors through its value-added service, driven by its technical expertise and performance-based culture."
The co-founders, chief executive David Dicker and ex-wife Fiona Brown, are still on the board with substantial ownership. The other directors also have holdings that add up to about $14 million.
"A testament to their conviction in the long-term success of the business is that the key management personnel have not been issued shares or options — and have built their equity stakes by buying shares on-market (buying as recently as April 2021 at levels above $10 per share)."
At the time of Warner's commentary earlier this week, Dicker Data shares were going for $9.40.
"You are buying a high-quality business on a forward PE multiple of less than 25 times that has a proven track record of success," he said.
"You will get paid a 4% fully franked dividend whilst you back a shareholder-aligned management team to capitalise on multiple industry tailwinds."