DDR - Dicker Data

[barney]

Average purchase price of $1.70

Yes, Klogg. I must have bought just a bit earlier, my average price is $1.63

Just bounced across this thread courtesy of @peter2 post ….. Well done gentlemen … nice little earner

 

[galumay]

Was this price explosion instigated by any corporate development in late 2018?

I dont think so. I have learnt generally not to try to understand why an irrational market prices things the way it does on a short term basis!

If I was inclined to think about an explanation I suspect the business was 'hidden' due to its very high proportion of founder ownership, which precludes it appearing on the ASX indices.

Once noticed/discovered the high yield, payed quarterly has lead a number of brokers and analysts to push DDR pretty hard to clients, so that may be a partial explanation.

There has also been some muted suggestions of takeover potential, not sure if thats adding some fuel to the fire.

 

[Klogg]

@Klogg or @galumay After staying in a tight range for all of 2018 price has bolted higher from $3 to $7. Was this price explosion instigated by any corporate development in late 2018?

Much like @galumay, I don't actually know. But if I were a betting man, I would suggest something like this:

- The business has achieved greater efficiencies, increasing the very slim NPAT margin they currently take. I believe this will increase once they move into the new facility (a year or two away)
- At the same time, they've managed to increase revenues substantially
- In addition, they've increased working capital. Whenever they do this, there is usually a boost to revenues, as you're adding more vendors or products
- All of these compounded to a 20%+ first quarter, and 40%+ NPAT. Although the company didn't say as much, I suspect this will continue over the year.

Only the 1st quarter result has really been announced. The rest I'm reading into, through a combination of understanding the accounts and directors buying at about $5 (over 20 times trailing earnings). Something substantial must be happening for directors to be buying at that multiple.

As I say though, this is a guess. I could be wrong.

 

[peter2]

Thanks, I was unaware of any significant event also. I sold my last DDR holding in Sept18 (market dip) and unfortunately didn't re-buy Feb19.

 

[Klogg]

Thanks, I was unaware of any significant event also. I sold my last DDR holding in Sept18 (market dip) and unfortunately didn't re-buy Feb19.

Our approaches are quite different, but FWIW I offloaded a small portion of my holding today. 33 times trailing earnings (~ 3% yield) is quite expensive, even if they do achieve a 40%+ NPAT this year.

Surprisingly, my sell order for 10,000 units was filled almost immediately, even though there were no visible buy orders at the price when I put my order in. (I know very little about market depth and the working of exchanges)

 

[leyy]

Yeah, it's done very well. Average purchase price of $1.70 here - bought a bit back when they took over Express Data and the stock tanked on a bad HY.

If only I bought more than I did...


And an interesting bit of info: if you bought $10k worth in Jan 2011, here's the return:
View attachment 96216

52% CAGR is just insane.

Hi Klogg,

Well done and it must of been very tempting to sell the stock along the way.

I was interested in that little calculation you did, is that from a particular website or app?

Cheers
Leyy

 

[Klogg]

Hi Klogg,

Well done and it must of been very tempting to sell the stock along the way.

I was interested in that little calculation you did, is that from a particular website or app?

Cheers
Leyy

I used Sharesight. I believe there's a free tier.

In there, there's a button called "Share Checker" or similar. You enter the stock code and theoretical purchase date and it tells you the return until now.

 

[galumay]

but FWIW I offloaded a small portion of my holding today. 33 times trailing earnings (~ 3% yield) is quite expensive, even if they do achieve a 40%+ NPAT this year.

I also decided to lighten my postition. The disconnect between value and price had just got to the point where I was no longer comfortable holding such a huge position in my portfolio.

I sold 15,000 to get my position size down to something less scary, still my biggest position but to sell more the tax implications get a bit scary. Like you I had no trouble moving them, i sold in 3 parcels just to be sure, but they were gobbled up very quickly. Averaged about $7.27.

Now I have to go and do some real work and try to find a new home for the capital!

 

[Klogg]

Now I have to go and do some real work and try to find a new home for the capital!

That's the worst part of all!

 

[galumay]

DDR released their HY report today, (they run a calender year), given the strength of the result for the half I may come to regret offloading a significant part of my holding! Smashed their guidance and are about 25% ahead of guidance at this stage.

When you look at the growth in this business over the last 5 years you have to wonder why people are paying insane multiples of things like revenue & sales for so called growth businesses.

 

[Klogg]

DDR released their HY report today, (they run a calender year), given the strength of the result for the half I may come to regret offloading a significant part of my holding! Smashed their guidance and are about 25% ahead of guidance at this stage.

When you look at the growth in this business over the last 5 years you have to wonder why people are paying insane multiples of things like revenue & sales for so called growth businesses.

I'm already regretting my sale. I broke the rule - "Buy right, hold tight". I look years in advance when buying things, but sell due to overvaluation on the current state. Cognitive dissonance at its finest.

 

[tinhat]

I'm already regretting my sale. I broke the rule - "Buy right, hold tight". I look years in advance when buying things, but sell due to overvaluation on the current state. Cognitive dissonance at its finest.

Don't beat yourself up. If in doubt, sell out. Nothing wrong with preserving profits. You can always buy back in but you might find better opportunities elsewhere in the mean time. The problem is the volatility in the share price. How likely is it to beat the July high anytime soon? Looking at the chart I suspect that may not happen for some time.

 

[galumay]

I'm already regretting my sale. I broke the rule - "Buy right, hold tight". I look years in advance when buying things, but sell due to overvaluation on the current state. Cognitive dissonance at its finest.

I generally do the same, but at some point when the price is so far ahead of any sane valuation, I think there is a case for taking some off the table. Also at some point postion size becomes an issue, while i dont normally do any rebalancing or allocation nonsense, my DDR had become such a large part of my total wealth that it was effecting my peace of mind.

Looking at the chart I suspect that may not happen for some time.

Probably talking to the wrong people there tinhat!! I dont believe the squiggly line of history informs or indicates anything about the future.

 

[Klogg]

I generally do the same, but at some point when the price is so far ahead of any sane valuation, I think there is a case for taking some off the table. Also at some point postion size becomes an issue, while i dont normally do any rebalancing or allocation nonsense, my DDR had become such a large part of my total wealth that it was effecting my peace of mind.



Probably talking to the wrong people there tinhat!! I dont believe the squiggly line of history informs or indicates anything about the future.

DDR before selling was roughly 13% of the whole, so it was far off becoming a problem. With the remaining 75% stake I kept, it's now roughly about 9% (there's been some price movement in other holdings).

I was sleeping better when I held more of it. I understand the industry, management and company. Shame I now have to pay tax on what I sold, only to buy it again slightly cheaper (if I decide to buy it).

But thanks @tinhat and @galumay for the responses.

 

[Klogg]

Don't beat yourself up. If in doubt, sell out. Nothing wrong with preserving profits. You can always buy back in but you might find better opportunities elsewhere in the mean time. The problem is the volatility in the share price. How likely is it to beat the July high anytime soon? Looking at the chart I suspect that may not happen for some time.

I think it was craft who suggested that unrealised gains are like an interest free loan from the ATO. Let it compound at much as possible, rather than pay tax.

That continues to hold true.

 

[galumay]

Like me, you kept a significant amount, so thats a good thing!

 

[craft]

I'm already regretting my sale. I broke the rule - "Buy right, hold tight". I look years in advance when buying things, but sell due to overvaluation on the current state. Cognitive dissonance at its finest.

Hi @Klogg

When I use the mantra, “buy right” it means buy good businesses at prices that make sense.

“Hold tight” to me means hold through thick or thin so long as the business is trending in the right direction. The thick is sometimes the hardest to deal with, you know the earnings are elevated and you know the price multiple is high. Your run of the mill business contraction which is just a normal part of a healthy business could easily see the price down 50%.+ What do you do??? I coined the term hold tight for myself in relation to this point because I worked out that for me, holding was the best solution so long as the business fundamentals stayed intact. It’s not easy sitting through retracements, especially if you eventually work out at a lower price that things are heading south with the business, but then paying tax and buying back isn’t easy either, especially if you get whipsawed.

I had plenty of premature sales as I strengthen my holding discipline. Sometimes switching into something else, another good business at a lower valuation is a potential solution – If you do this don’t just look at the sell in isolation but what you replaced it with as part of evaluating the total decision.

I will always remember seeing a Charlie Munger clip where he said if you can’t handle a 50% retracement you have no right being an equity investor. It sort of helps me when things move from thick to thin whilst I’m still on the ride.

Nice to communicate with you again.

 

[Klogg]

Hi @Klogg

When I use the mantra, “buy right” it means buy good businesses at prices that make sense.

“Hold tight” to me means hold through thick or thin so long as the business is trending in the right direction. The thick is sometimes the hardest to deal with, you know the earnings are elevated and you know the price multiple is high. Your run of the mill business contraction which is just a normal part of a healthy business could easily see the price down 50%.+ What do you do??? I coined the term hold tight for myself in relation to this point because I worked out that for me, holding was the best solution so long as the business fundamentals stayed intact. It’s not easy sitting through retracements, especially if you eventually work out at a lower price that things are heading south with the business, but then paying tax and buying back isn’t easy either, especially if you get whipsawed.

I had plenty of premature sales as I strengthen my holding discipline. Sometimes switching into something else, another good business at a lower valuation is a potential solution – If you do this don’t just look at the sell in isolation but what you replaced it with as part of evaluating the total decision.

I will always remember seeing a Charlie Munger clip where he said if you can’t handle a 50% retracement you have no right being an equity investor. It sort of helps me when things move from thick to thin whilst I’m still on the ride.

Nice to communicate with you again.

I've always taken that statement to mean buy quality (at the right price) and hold it. In this case, the price wasn't tanking, but rising. However, there's a margin improvement that seems permanent, so one could argue it has more to rise, or is of higher value than I initially thought.

My problem with swapping out a company for another, is you need to be trading for significantly more value to make up for the tax bill you're incurring. I do think I bought more value for the same dollar, but that's a tougher decision after tax.


On price falls - I have a large concentration (now at least 50%) in one holding at the moment. It has dropped approx. 50% from peak. That hurts. But if I view it from a cash flow basis, it does not. I think I know the Munger clip you're alluding to, where he states he and Warren have experienced 50% (or more) drawdowns 3 times (maybe more). Having that in mind does help.


Broadly speaking, it's quite amusing how things have panned out. Over the last 9 years, I went from trying to identify quality (and failed at that), moving to quantitatively cheap things, then back to my own version of quality - things with an identifiable competitive advantage. It takes a long time to embed that way of thinking... and I'm only part of the way there.

Great to have you back on the forums!

 

[galumay]

Good discussion Craft & Klogg, I really have nothing to add - being nowhere near in the league of you guys. One thing that helped with my decision to reduce my exposure to DDR was that I have finally taken a massive tax loss on my SGH holding, so that removed most of the tax issue!

I do know that the few times I have sold down my winners, when I go back and check I am worse off with where I moved the capital. (mind you, the time I didn't do it was SGH at nearly $8!!)

My big improvement as an investor has been the ability to overcome the desire for activity. For some reason my reaction to significant drawdowns has never been an issue, it must be something in my inate personality/psychology.

Anyway, having said I have nothing to add, i better shut up!

 

[Dona Ferentes]

An interesting discussion above which, with some hindsight looking at graphs, shows the run up finished (Aug) when the posts did ! Well done!!

.................Earnings ........................................Return on Equity ........................

DDR seems to have come through these Covid times pretty well and has recently had cap raise and SPP at $6.70. Funds going to
• Partially fund Dicker Data’s new distribution centre
• Provide funds for further investment in Dicker Data’s DDFS product
• Provide balance sheet flexibility and broaden Dicker Data’s share register, increasing free-float to above 30% and potentially improving trading liquidity

In fact it is seeing a strong, short term demand tailwind related to Covid-19. The company said “it has seen strong Q120 performance with record monthly revenue achieved in March 2020.” The DDFS offering is aimed at creating long-term renewable contract-based revenues. Investment will finance instalment based products.

Some words around possible future performance can be found at
https://arichlife.com.au/dicker-data-ltd-asx-ddr-raises-capital-at-6-70-per-share/

Looking out longer term, the company will be financing some of its own customers through Dicker Data Financial Solutions (DDFS), which is risky, and moving to a bigger distribution centre, which will reduce its strong operating leverage over its current physical assets, at least temporarily. On top of that, I think IT spend will reduce overall as Australia copes with recession. So over the next 2-3 years, I’m not overly bullish the business.
But in the short term it is a beneficiary of the pandemic, with good management and a long term history of solid growth. It is also exposed primarily to Australia and NZ, both of have avoided [a covid-19 disaster]

But oh, the PE, that's pretty high. The aim seems to be to take advantage of current turmoil to enhance their position. Don't achieve the growth and the downside becomes pretty apparent, and quickly.

(don't hold)