August was an eventful month for the Dicker Data Ltd (ASX: DDR) share price. Being in the midst of earnings season, this was to be expected for most ASX shares.
However, the IT wholesale distributor surprised the market with the announcement of its acquisition during the month.
September has been a quieter and less fruitful month for Dicker Data shareholders. Although, one fund manager suspects there could be good things to come.
Let’s delve deeper into what Sydney-based EGP Capital thinks of the IT distributor after August.
The more the merrier
Dicker Data was a substantial contributor to the returns of EGP Capital’s Concentrated Value Fund during August. In quantitative terms, the company’s share price gained ~9.6% during the course of the month. This helped the fund outperform its benchmark with a return of 6.7%.
While the share price appreciation by the end of the month was enviable, it was down from its peak. It appeared to be a case of ‘buy the rumour and sell the news’ for the Dicker Data share price after the release of the company’s interim financial results.
Prior to releasing its results, the company’s value had ballooned by approximately 35% since the beginning of August. This considerable rise in a short timeframe followed the announcement of Dicker Data’s Exeed acquisition.
Exeed is the second largest IT distributor in New Zealand with earnings before interest, tax, depreciation, and amortisation (EBITDA) of $15 million. This means that ASX-listed Dicker Data paid roughly 4.5 times EBITDA, with a total consideration of $68 million for the company.
In its August fund update, EGP Capital highlighted the opportunity for Dicker Data shareholders.
The acquired business will almost inevitably be meaningfully more profitable in the DDR stable, removal of duplicated costs and cross-selling opportunities virtually guarantee that.EGP Capital chief investment officer Tony Hansen
Despite this, the fund trimmed its holding in Dicker Data as it felt the share price reaction was outdone. However, Hansen went on to argue that the company is “priced for perfection” for a reason. That reason being Dicker Data’s excellent track record for delivery since its 2011 initial public offering (IPO).
Dicker Data short interest on the ASX
Another insightful point from EGP Capital was the impact of high insider ownership of Dicker Data shares.
Rightly noted, David Dicker and Fiona Brown own around 65.8% of shares on issue. As a result, the number of shares available to trade on the open market is far less. In turn, the short issue to marketable shares is around 4.6%.
EGP Capital considers the ~37 times price-to-earnings (P/E) ratio on ASX-listed Dicker Data lofty. Yet, the fund wouldn’t consider such a company to be a short target.