Should I Buy Nick Scali Shares, Nick Scali Shares, NCK Share Price, NCK Shares,

Despite pessimism from analysts and investors on the fate of brick-and-mortar retailers, NCK shares have set record results and delivered breath-taking results. How has this been and achieved and Should I Buy Nick Scali Shares?

NCK Share Price

Why are NCK shares up in late 2021? Nick Scali investors have been reaping returns coming into October, with NCK shares up over 33% in October following the group’s major acquisition of Plush-Think Sofas announcement. The acquisition remains subject to closing conditions but is expected to be finalized in the fourth quarter of 2021. The acquisition is set to add over $160 million in revenues to the group, boosting sales 43%.

What are Nick Scali Shares Long term Returns? Over the past 10-years, it’s no surprise that NCK has delivered market-beating returns. Over 10-years investors are up 872.41%. Overall the returns have been 98.53%pa CAGR, of which 72.88% has arisen from capital gains and 25.65% attributed to dividends. NCK’s success has lead to it being one of the most talked-about ASX stocks in the past few years.

How much would I have made if I bought NCK at the bottom of the COVID crash? At the very bottom of the COVID crash on the 23rd of March 2020, NCK shares were worth 2.65. Investors would have made 432% in capital gains since then. The last time NCK shares were at this price was in 2014.

From the past ten years, NCK shares have had a negative return over a calendar year three times, or 30%. Averaged over the past ten years, the average return over a calendar year has been 29.32%.

Nick Scali Shares Fast Facts

  • Ticker Code: NCK
  • Company: Nick Scali Limited
  • Sector: Consumer Discretionary
  • Business: Furniture Retailing
  • Share Registry: Link Market Services
  • Competitors: Adairs Limited, Joyce Corporation, Harvey Norman

About NCK Shares

Nick Scali Furniture is one of Australia's largest retailers and importers of quality high-end furniture. The group is responsible for imports in excess of 5,000 containers of quality leather and fabric lounges as well as dining room and occasional furniture.

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Should I Buy Nick Scali Shares, Nick Scali Shares, NCK Share Price, NCK Shares,

Nick Scali Furniture was founded in 1962 by Nick D. Scali. Today the group is managed by CEO Anthony John Scali.

Across its network the group has a total of 61 Showrooms and six distribution centers.

  • Nick Scali Ltd's core brands include: Nick Scali Furniture, Nick Scali Online, Sofas2Go, and the soon-to-be finalized acquisition of Plush-Think Sofas.

What does the Plush-Think Sofas Acquisition Mean for NCK?

In early October NCK announced the binding agreement to acquire 100% Plush-Think Sofas for an enterprise value of $103 Million.

Plush is a leading Australian sofa retailer with 46 showrooms across Australian. The group brought in $160 Million in revenue and $27 Million in EBITDA in 2021.

Should I Buy Nick Scali Shares, Nick Scali Shares, NCK Share Price, NCK Shares,

Combined the NCK group would own 108 showrooms across ANZ and a combined revenue of $533 Million and EBITDA of $153 Million based on FY21 numbers. The groups will be highly complementary and allow for synergies boosting earnings potentials. The acquisition is expected to be EPS positive from the first full-year of ownership.

The sale of $103 Million will be facilitated by cash and debt facilities. With NCK's $106.8 Million in cash and cash equivalents the group has an ability to facilitate the sale in cash, although it is likely NCK will opt to keep a large cash reserve and increase its borrowings significantly.

The acquisition is set to be finalised in the final Quarter of 2021.

Should I Buy Nick Scali Shares: Dividend History

Nick Scali has grown its dividend proportional to its EPS growth. 2021 saw a record dividend for investors at 65 cents, being fully franked this represents a gross amount of 92.9 cents. Averaged over the last 12-month the NCK dividend represents a yield of 4.43% or a grossed-up 6.33%.

NCK has paid a dividend every year since its IPO in 2004, all of which have been fully-franked. The groups current payout ratio is 62%, they do not offer a DRIP.

NCK Shares: Investor Sentiment

You may ask yourself, what do other investors think of Nick Scali shares? After surveying 117 Investors about their current NCK shares sentiment: BUY-HOLD SELL, as well as their target price over the next 12-months here are the results;

Should I Buy Nick Scali Shares, Nick Scali Shares, NCK Share Price, NCK Shares,

The results from this survey show there seems to be a strong bullish investor sentiment on NCK shares.

Nick Scali Shares Fundamentals

Market Cap$1,112,940,000
Shares Issued81,000,000
ASX Rank289
PE13.21x
EPS$1.04
Volume 4W Avg366,898
VWAP$13.85
PEG7.4x
NTA per Share$1.37
ROE49.1%
ROA19.09%
Debt$33.662 Million
Equity$114.026 Million

Based on their current share price we can see NCK shares have a PE of 13.21x, which is well below the current inflated market average of 27.27x. A company with a low PE could be seen as undervalued or may have low investor sentiment.

PE 1-14: The company is undervalued/has low investor sentiment regarding growth

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NCK ASX Beta:

NCK currently has a beta of 1.27. Beta is a measure of a stock’s volatility in relation to the overall market. Higher Beta stocks are said to be riskier but provide better return potentials, Source: Investopedia.

NCK ASX Earnings, Debt, and NTA per Share:

We can see NCK shares currently have earnings per share of $1.04 , this gives it its undervalued PE of 13.21x. Another way of looking at this is 7.6% of their share price is backed by solid earnings.

Nick Scali group has just over $33 Million in debt. The group's debt remains relatively low and is well covered by earnings. We like companies with low-to-no debt. Their Net Tangible Assets per share is $1.37, which represents 9.97% of the share price.

Nick Scali Shares: Financials

Nick Scali (ASX: NCK) released its FY21 Annual Report in September. The group highlights:

  • Sales Revenues of $373.0m (Total Growth: +42% LFL Growth: +34%)
  • Gross Profit Margin 63.5% (Up from 62.7%)
  • Underlying NPAT $84.2m (Up 100%)
  • Total Dividend 65.0 cents per share
  • Store Network 61 Showrooms; Australia: 57 New Zealand: 4
  • Total written sales orders for Nick Scali New Zealand up 95% on FY20
  • Total written sales orders for Nick Scali Online totalled $18.3m, up $15.3m on FY20

Nick Scali managed to deliver record results this year and saw unprecedented consumer demand resulting from increased consumer savings and spending following on from COVID-19.

"The Company capitalising on an environment where consumers reallocated discretionary spending toward items for the home and unprecedented trading conditions were experienced across the whole store network"

NCK has delivered record levels of revenue and profit, with earnings per share more than doubling from 2020.

Despite increase freight and shipping costs, which we are seeing universally, NCK has managed to increase its profit margins to 63.5% through reduced price discounting.

Nick Scali Australia and New Zealand

During 2021 two new showrooms were opened in Australia and a further store in New Zealand, bring the NZ presence to four stores. Both the Australian and New Zealand businesses have shared strong results. But, New Zealand's growth has been a stand out with Total sales orders up 95% on FY20. NCK has a large focus on expanding both domestically and within New Zealand.

The New Zealand segment growth has been fuelled by the success of opening new stores with the trend expected to continue going forwards. In the first half of the new financial year (2022) the Company expects to open the fifth New Zealand store at Hastings.

2020FY21 New Stores2021Target
Australia5525773
New Zealand31413
Total5836186

Nick Scali Online

FY21 represented the first full year of operation for Nick Scali online. The segment realised sales orders of $18.3m in FY21. Representing a six-fold increase on FY20, although remembering the store wasn't operational for the entirety of FY20.

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For comparison Q4 2021 saw orders of $5.5M which was an 84% increase from 2020, which demonstrates material growth and success of the online platform.

Nick Scali online was accountable for full year revenues of $15.3m, with EBIT contribution of $8.8m.

NCK Shares: Income Statement

From 2020 to 2021, NCK saw a 42% increase in revenues. The main driver for revenue was like-for-like sales across the same stores. This has demonstrated a trend we are seeing across many of our retails in 2021 including JB Hi-Fi, Super Retail Group, and Harvey Norman.

We can largely put this down to ongoing lockdowns and border restrictions. We see that during the June 2020 Quarter the Australian Consumption of Goods and Services crashes across the board. With Australians spending less on goods and services the saving rates peak. This causes a flow-on effect as consumption returns in FY21.

Nick Scali Online has also contributed to the large growth rate, with online revenues up 14.4% from the previous financial year.

NCK's increased revenues have directly converted across to gross profits of $236.755 Million (up 43.8%). Despite massive increases across the board, NCK has still managed to keep expenses in check at $116.9 Million compared to $109 Million in 2020, representing only a minor increase of 7.2%

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Thanks to these increased margins Nick Scali has finished off the year with a total comprehensive income of $89,112, 000 an increase of 135.5% (2020: 37,831,000)

NCK Shares: Balance Sheet

Nick Scali has managed to grow its balance sheet strongly with both current and non-current assets up from 2020. Notably, we see a strong increase in cash in hand from $63 Million to 106.892 Million. The group has also increased inventories to $46.733 Million from $36.273 Million.

Strong inventories place the group well in recent shipping crunches. With the group importing a large amount of its furniture, ongoing shipping difficulties, and price hikes could leave the group vulnerable once inventories are reduced.

Although liabilities have increased, borrowings have remained relatively stable at around $34M compared to $33M in 2020. Nick Scali's improved balance sheet is largely thanks to retained earnings as the group did not raise capital in FY21.

How Much Cash On Hand Does NCK have? Nick Scali has $106,892,000 in Cash and Cash Equivalents up 69.6% from 2020.

How Much Debt does NCK have? Nick Scali has a total of $33.662 Million in borrowings, with interest payments of around $530,000 the group's debt is well covered by earnings.

Nick Scali Insider Ownership and Trading

We can see that the General public and Institutions own the majority of Super Retail Group shares. Insider ownership is extremely low at 0.5% especially considering the size of the mid-cap company.

We generally like companies with large insider ownership. Skin in the game helps ensure the management’s motives are in line with ours. For large-cap companies insider ownership will be lower, 3-5% would be decent in this case, whereas for mid and small-cap companies around 30% would be more favorable. In comparison NCK's 0.5% is disappointing.

Small insider ownership also leaves the group vulnerable to shareholder dilution in the event of a capital raise. Although below we do see that the CEO, Anthony Scali has maintained decent ownership through his private Pty Limited company.

NCK ASX Substantial Holders

EntityTotal SharesOwnership (%)
Scali Consolidated Pty Limited11,039,47413.63
Magellan Asset Management Limited4,950,4736.11
Commonwealth Bank of Australia4,057,9325.01

We can see that Scali Consolidated Pty Limited has maintained large ownership of the group. Prior to the IPO Scali Consolidated Pty Limited (ABN 63 002 410 559) was the only shareholder of the group. After the IPO Scali Consolidated has maintained a number of key assets related to the business, it is estimated that this private component brings in $4.92 million.

Scali Consolidated is the owner of an economic interest of NCK. Scali Consolidated is controlled by Mr Anthony Scali, who is the Managing Director of the Company. Scali Consolidated owns the land and buildings of a number of key Nick Scali locations, which NCK leases from Scali Consolidated.

NCK ASX Insider Transactions 2021

There have been a large number of Insider Transactions of NCK shares in 2021. Overall the number of Buy transactions has outweighed sales in terms of value. All transactions have been executed by institutions. No individual insiders have transacted in 2021.

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Should I Buy Nick Scali Shares: Future Prospects

COVID lockdowns have had a material impact on NCK with government mandated store closures in most regions at various points in the year, ranging from a few days to three months for all showrooms in Melbourne. With the future of lockdowns uncertain some short term volatility is to be expected across stores.

Lockdowns and uncertainty likely prompted the launch of Nick Scali online which went live in April 2020. The online segment has shown success and strong growth, as well as helping to promote awareness and interest for the Nick Scali brand.

The group opened three new showrooms during the year as they work towards reaching the goal of 86 across ANZ (currently 61). The New Zealand segment has shown strong growth in its infancy and is expected to continue to perform strongly going forwards. In the first half of the new financial year the Company expects to
open the fifth New Zealand store at Hastings.

Nick Scali Short Term Outlook

Trading continues to be impacted by government mandated lockdowns across both Australia and New Zealand. Whilst trading remains buoyant in regions where showrooms remain open, there is a high degree of uncertainty in the current retail environment, due to potential future lockdowns, and supply chain challenges.

Supply chain challenges have been caused by lockdowns in sourcing countries, and the continuing escalation of global shipping costs. The group has managed shipping costs so far by reducing discounting which has grown margins without sacrificing sales.

Nick Scali Long Term Outlook

The large focus for NCK will continue to be the development of new showrooms and the increase of the groups online penetration.

Should I Buy Nick Scali Shares: Prophet's Take

Nick Scali (ASX: NCK) has delivered excellent returns to shareholders, both over the long and short-term. Shareholders have realised a profit in the past 8/10 years, and those lucky enough to buy during COVID lows would have made 432% in capital gains. NCK's strong returns have been largely attributed to strong EPS and revenue growth.

Nearing the end of 2021 the group seems to be undervalued at a PE ratio of 13.21x, despite record revenues and sales. The imminent acquistion has rocketed the share price higher as the synergistic opportunity is set to materialise into a record number of stores and revenue and earnings for the group. The deal is also set to be profitable within the first year.

Despite a challenging retail environment with continued lockdowns NCK has responded well by launching its online component. The group continues to eye strong expansions, making us bullish on the future of Nick Scali.

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