08-May-2024: NCK-Change-of-Director's-Interest-Notice-Carole-Molyneux.PDF

Wow! We sometimes look at director buying and wonder whether it's a case of directors seeing value or just trying to signal to the market that the shares are cheap.

Carole Molyneux bought 25,000 NCK shares for $367,327.11 (average price of just over $14.69 each) yesterday (7th May). That is a decent purchase!

Interestingly, Ms Molyneux, pictured below, who has been a Nick Scali director since June 2014 (so almost 10 years) owned zero NCK shares prior to this purchase.

With this on-market purchase she has gone from zero to 25,000, so more than Bill Koeck and Kathy Parsons, and only behind Anthony Scali and John Ingram (Nick Scali's Chairman).

It's got to suck to be the only director who could NOT take part in this SPP (@ $13.25) because she held zero shares on the record date. I guess she's decided not to be caught out like that again.

Source: https://www.linkedin.com/in/carole-molyneux-richards-41276a/?originalSubdomain=au

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Just changing the subject for a minute - I've only ever seen Anthony Scali, the CEO & MD of NCK like this:

And I thought I'd found an earlier photo of Anthony today:

However that is Nicky Scali, Anthony Scali's brother, who was Director of Sales and Marketing @ Nick Scali Furniture from Nov 1991 - Apr 2016 (24.5 years) according to this: (25) Nicky Scali | LinkedIn.

I found the image here: https://rocketreach.co/nicky-scali-email_36690771

No word on what Nicky is doing with himself these days. It was in 2016 (around the time that Nicky left NCK) that siblings Nicky and Yvonne sold their 33% stake in NCK to Institutional Investors and to their brother Anthony Scali at a price of $3.80/share, or an implied total of $111 million. At the time (as a result of those purchases) Anthony increased his own stake from 16.7% to 27%. Nicky and Yvonne apparently held zero NCK shares after that sell out in 2016.

See here: Anthony Scali's siblings dust $75 million selling down (afr.com) [15-Feb-2017]

Less than 2 years later, in March 2018, Anthony Scali reduced his stake in Nick Scali to 13.63% after selling half of what he held to Chinese supplier, Jason Furniture (KUKA) @ $7.00/share, for a total of $77.2 million. See here: Scali sells half stake in $77 million deal (insideretail.com.au) [27-March-2018]

In September of the following year (2019), KUKA sold their 11 million NCK shares at $6.85/share ($75m) through broker UBS, so slightly less than what they paid for them. See here: Nick Scali's largest shareholder sells stake for $75m (afr.com) [3-Sep-2019]

Anthony Scali held 7.95% of NCK prior to this current CR, worth around $103 million, and he has purchased an additional $4m worth of NCK @ $13.25 as part of this CR, so he still has significant skin in the game, despite taking profits along the journey.

He's no dummy this fella.

Nick Scali's SPP is now open, from today. I've downloaded my application form from the email they sent to me and will apply for the full $30K at $13.25 each. Eligible shareholders can apply for a minimum of $1K and a max of $30K as per the application form details. See here: Announcement-and-Share-Purchase-Plan-Booklet.PDF

NCK has been trading at over $15 before yesterday's sell off and they're still over $14.50/share. I expect this one to be scaled back significantly because it will be heavily oversubscribed - they're only targeting a $10m raise through the SPP after raising $46m via the Insto Placement and issuing $4m of new shares to Anthony Scali, Nick's MD, all at the same price of $13.25/share - so $50m raised already, plus this additional $10m via the SPP. They may accept oversubscriptions and raise that $10m cap, but I wouldn't expect them to, they are usually fairly disciplined with these sort of things and will likely just raise the $10m as indicated, which will require a scale back if they receive more than $10m worth of valid aplications, which they will.

Because I expect a scale back, I am applying for more new NCK shares through the SPP than what I actually want, and if my application is not scaled back and I do actually receive the full $30K worth of new NCK shares, I can sell some on-market. I already trimmed my real-money portfolio position a little on April 26th (Friday) by selling into the closing single price auction (CSPA) at 4:01pm Sydney time, so I got $15.85/share for those (NCK's final closing price on the day). I'm not holding NCK in my Strawman portfolio.

I'd be wary of selling down too much of a NCK position now however, because recently I have noticed a strong trend with SPP scale backs of various companies scaling back SPPs on a pro rata basis - based on each shareholder's existing holding at the end of the SPP offer period, so the idea is it rewards those with larger positions at the expense of those with smaller positions. Often, those who hold less than a "minimum marketable parcel of shares" (currently regarded as $500 worth) get zero shares in scaled back SPPs and have their application money refunded to them in full. Not always, but often enough to take notice of this trend I think. This was in part a reaction to some people holding 1 share or a very small amount of shares in a bunch of different companies for the purpose of giving them access to SPPs if and when those companies announced them - and then the game plan with those people was usually to buy the max shares at a discount and then sell them on-market for more fairly soon after receiving them - so arbitrage (Arb) plays. These Arb players with tiny shareholdings are NOT loved by companies because (a) shareholders with very small positions cost the company money in terms of administration expenses - as share registries charge fees based on numbers of shareholders and may have to send out annual reports and other hard copy stuff to them from time to time, which all costs money, and (b) these arbitrage plays put additional selling pressure on the company's shares directly after the new shares are issued because of these people trying to close out their trades, which can lower the share price to levels below where it would otherwise have been trading - and makes the company look weaker than they should when they want their share price to remain strong to keep all their serious shareholders happy.

There is often some churn in shares after an SPP (and sometimes after placements) as people get comfortable around how many shares they now hold (so trims or top-ups to get to their required weighting) but companies would prefer not to have these Arb players dumping their shares at the same time and putting further downward pressure on the share price.

So it has become commonplace for SPP scale backs to now be based on how many shares each applicant already held - often on the closing date of the SPP - which means the more of your current position you sell down prior to the SPP closing, the less shares you MIGHT receive in the SPP. For this reason I have kept most of my original NCK position and will sell-down AFTER the SPP shares are allocated if I think my new weighting to NCK (with the SPP shares included, after they are issued) within that portfolio is too high.

19-June-2020:  Update on COVID-19, Trading, Dividend & Outlook

Market likes!  NCK up +21% at 1:30pm Sydney time.

Response to COVID-19, Trading Update, Dividend Update and Outlook  
 
Nick Scali Limited (ASX:NCK) today wishes to provide the following update on its operational and financial performance since temporarily closing its showrooms on 30 March 2020. 
 
Summary

• 4Q20 QTD written sales order growth of 20.4%*1
• 2H20 HTD written sales order growth of 7.0%*1
• 2H20 NPAT expected to be up 15% to 20% on 2H FY19
• FY20 revenue expected to be in the range of $260m to $263m
• FY20 underlying NPAT expected to be in the range of $39m to $40m*2
• Successful launch of digital sales channel 

 
*1: 4Q20 QTD is the period from 1 April 2020 to 14 June 2020, 2H20 HTD is the period from 1 January 2020 to 14 June 2020

*2: Underlying NPAT excludes the impact of the gain on sale of property, and the impact of the adoption of AASB 16. 

Response to COVID-19 
 
In response to the COVID-19 pandemic, Nick Scali implemented a range of measures across its showrooms to ensure a safe environment for staff, customers, and the community. Selected showrooms within the network began reopening on a test basis in April, and all showrooms within Nick Scali’s retail network were reopened by the end of April with the support of our landlord partners.  Since reopening, all showrooms have traded strongly and recorded positive sales order growth. 
 
Nick Scali’s New Zealand operations were impacted by government restrictions, which forced both the retail and distribution networks to temporarily close. Trading and deliveries have now resumed at all locations with solid operating performance recorded since reopening. 
 
Nick Scali responded to showroom closures by launching its digital offering, allowing customers the opportunity to purchase the entire range of Nick Scali products via digital channels. Whilst this initiative remains in the early stages of development, the Company is pleased with the growth it is demonstrating and sees further scope to invest in this capability.  

 Trading Update  
 
The significant decline in sales orders during the second half of March and the first half of April when the showroom network was affected by closures, meant that approximately $9m11m of sales were unable to be recorded in the current financial year.  However, due to the successful implementation of a range of cost reduction initiatives across marketing, employment and property, together with government assistance, profit for the second half will be up 15% to 20% on last year. 
 
Nick Scali has experienced a significant rebound in customer activity during May and the first half of June. Given the strong trading, the Company expects sales orders for the months of May and June to be up 54% on prior corresponding period, driven by the easing of government restrictions and a reallocation of discretionary consumer spending toward furnishings and homewares.  
 
Dividend Update 
 
On 23 March 2020 the Board decided to defer the payment of the 25c interim dividend until 2 October 2020. In light of strong recent trading and a significant increase in the sales order bank, the Board have decided to bring forward the payment of the previously deferred interim dividend to 29 June 2020. 
 
Outlook 
 
Given the nature of Nick Scali’s business model and the significant increase in sales orders during May and June, the Company anticipates sales revenue for Q1 FY21 to be approximately 30% up.  This is expected to underwrite profit growth for the first half of FY21. 
 
Management and the Board would particularly like to thank our staff for the flexibility and support they demonstrated during this difficult time. Nick Scali’s strong performance during the period of uncertainty was a testament to the hard work and commitment of our people. 

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Disclosure:  Unfortunately, I do NOT hold NCK shares.  I sold them on October 15th last year when they downgraded their profit guidance.  I had been a little worried about the Scali family selling half of their stake in NCK (in March 2018) to a major Chinese supplier of theirs - and then that same Chinese supplier - Jason Furniture (Hangzhou) Co Ltd - better known as Kuka - who had become NCK's largest shareholder - selling all of those shares (through UBS in Aug/Sept 2019) for $6.85/share, being slightly less than the $7/share that they had paid for the shares in March 2018.  Kuka had paid $77m for the stake, then sold it for $75m around eighteen months later.  The guidance downgrade one month after Kuka sold their entire stake in NCK was enough to make me uncomfortable to keep holding the shares.  So I sold - at $5.78/share.  NCK closed at $5.75 yesterday, but they're up over +20% today, and were trading at $6.95 at 1:50pm Sydney time this afternoon.  You can't pat ALL the fluffy dogs...

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.