Last edited 2 months ago
#Bear Case

Fund Manager Forager expect tough times ahead:

Full article here

"So far this year home prices are down 6%, with Sydney falling 8.2% and Melbourne off 6.6%. Credit access has been cut. A fresh supply of apartments has hit the market. And FOMO (fear of missing out) is quickly turning into FOGI (fear of getting in). So what happens when the buyers of Nick Scali’s $5,000 leather lounges see the value of their homes drop sharply? They will buy fewer leather lounges.

"We are already seeing this ‘wealth effect’ elsewhere. New car sales were down 7.4% last month and 6.1% over the last three months. And the share prices of car dealers have been savaged this year. Automotive Holdings (AHG), Autosports (ASG) and AP Eagers(APE) are, on average, down over 40%. Sure, buying a car is a bigger financial commitment than a leather lounge. But consumers will think twice about both as the purse strings tighten."

Last edited 2 weeks ago

06-Feb-2019:  NCK has this morning released their 1HFY19 results, see here - and declared an interim dividend of 25c fully franked, putting them on a dividend yield of 9.5% FF (over 13% when grossed up to include franking credits) based on their $5.16 share price at yesterday's market close.  Their previous dividend, paid in October, was 24c, so that's 49c/year.  However, they have a history of increasing dividends - every dividend has been larger than the one for the previous corresponding period (pcp) since 2012 - see here.

Same-store sales growth has been flat, but they have still managed to increase both revenue and earnings through their continued new store rollouts.  Despite Anthony Scali warning us (in the results conference call) 6 months ago that "this is probably as good as it gets" in terms of their industry leading gross margin, they have managed another small improvement to that already stunning number - up from 62.6% to 62.8%.  Revenue was up +10.3% and NPAT was up +8% (over the pcp).  EBITDA +7.5%.  EBIT +6.5%  EPS +8%.  Interim dividend up a whopping +56.3%, with no net debt.  It looks like Anthony has elected to return more cash to shareholders rather than engage in the M&A activity that had been rumoured.  They have increased their payout ratio to 80% now.  They rolled out a further 4 stores during the period, and the roll-out is continuing.  They are just getting started in NZ, with only 2 stores there so far. They successfully launched their Bedroom and bedding category on 26th December (2018) in 24 stores across Australia.  They have 55 stores currently, with a long term store network target of 80 stores across Australia and New Zealand.

For their full 21-page Half Year report, see here.

For their 11-page results presentation, see here.

They declined to provide specific guidance, saying only:  "As evidenced by H1, the company can achieve profit growth in periods of flat comparable sales through the expansion of the store network.  However, given the volatility in recent sales and global uncertainty, it is difficult to provide guidance around profitability for the full year to June 2019."

I hold NCK shares.