Dicker Data Financial Services

Yesterday, IT distributor Dicker Data Ltd (ASX:DDR) announced it is going to start providing financing. My initial reaction was negative.
  1. They are changing what has been a very successful strategy
  2. The company already uses debt to fund inventory and the new financing business will stretch the balance sheet further
  3. Return on capital and cash flow will deteriorate
  4. Dicker Data does not have skills and experience in this area
After thinking it through further I am now more positive about the move.
  1. The entire industry is transitioning from a capex to opex model so Dicker Data must adapt
  2. Dicker Data will be unique in providing direct financing and so unlike peers has the potential to deepen customer relationships
  3. Company management has a large collective shareholding and terrific track record
  4. The existing business is humming and the financial services division is likely to remain a small part of operations for some time
I decided to keep hold of my shares.

Comments

  1. Vlad buying on market at such a high multiple really confused me. He must be very confident about their future.

    I am keen to see if DDFS improves margin at all.

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    Replies
    1. I think there is a capital raise coming which would be a good thing at these prices imo. Margin may improve, but ROCE will probably decrease. I expect payout ratio will fall with the extent depending on capital structure.

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