Dell Computers: ‘A recovery story going back to their basic model.’

ALEC HOGG: Max Koep is the head of equities at Deutsche Securities and joins us now to have a look at Dell Computers. Max, it is a company that has dominated the supply of computers around the world, and possible because it has gone with a different business model. But is it sustainable? Is it a stock - which you can now buy on the JSE - that you would invest in?

MAX KOEP: Evening, Alec. Yes, I think so. I think Dell came and really revolutionised the distribution of the PC distribution world, and has really now a recover story. It's been through a tough period the last two years; I think it lost a bit of its edge. Michael Dell, the founder of the business, has come back into the operations and we believe will drive the efficiencies that were so important for it to dominate that market a few years ago. We think he is going to be able to deliver on that. So this is really about a recovery story going back to their basic model, and grabbing the market share that they lost in the last two years.

ALEC HOGG: What about China, though? Surely, with everything else coming out of China, it must also be a risk to Dell?

MAX KOEP: No, absolutely. This is not a new risk facing this industry, Alec. Certainly probably one of the areas they are most concerned about, and it will be one of their main competitors. But they have been round for a good 20 years - certainly not a new entrant that's going to come and take market share. They are very aware of how efficient the Chinese can be, and believe they have the model to compete.

ALEC HOGG: And IT spending generally under pressure because of the great recession.

MAX KOEP: Absolutely. I think obviously one of the areas we are starting to see - certainly Deutsche starting to upgrade some of our longer-term GDP forecasts, and I think on the back of that you would start to argue that we think IT spend is going to follow that trend and start to increase. Another reason why we like the story.

ALEC HOGG: You are always good about giving us a target range for acquisition share price. What do you see in Dell?

MAX KOEP: Well, our analyst has got a price of $22. It's currently around $15, Alec, so it's north of 40% upside. So a healthy return expected in the next 12 months.

ALEC HOGG: So if you think the rand is going to weaken, you've got maybe a $7/share improvement in the share price. Buy it through the JSE and you'll get both benefits.

MAX KOEP: Correct.

ALEC HOGG: Max Koep is with Deutsche Securities.

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