Date of Data Capture: 19/8/2019
Name: NICK SCALI LIMITED (NCK)
Classification: Home Furnishings
Current Price: $6.82
Market Capitalisation: $552M
Forecast EBITDA Growth: 8.58%
Yield Estimate: 6.63%
Consensus Price Target: $6.23
# Covering Analysts: 3
Premium at Current Price: 8.65%
Price Target Trend (3-Month): Flat +1.47%
Signal Timeframe: Quarterly-Monthly-Weekly
Trend Bias: Up-Flat / Long-Medium
Focus: Dividend Income & Capital Growth
Set up Notes:
• NCK looks to be emerging from a 29-month consolidation, following a strong multi-year rally that peaked in early 2017, and here we find them winding higher with increasing momentum, backed by good performance and forecasting.
• Previous strong growth levelled off into steady gains over the last two years, but now has forecasts for rising sales, earnings and target prices, supporting an already strong yield play.
• Pricing broke through important $6.50 dynamic resistance earlier this month, after pulling back from higher resistance in June, setting up a new potential longer-term uptrend here with excellent signalling across multiple timeframes.
Support ($): 6.50, 6.00, 5.50 & 5.00.
Resistance ($): 7.00, 7.50 & clear.
Growth Focus: NICK SCALI LIMITED (NCK)
Our primary focus here is capital gain, we will select our stocks from the ASX Top 500 All Ordinaries Index.
Sometimes you have to be prepared to take a seat and wait for the right opportunity to come at the right time. We believe we have exactly that here with Nick Scali Ltd as the high performing furniture company finally begins to pad out its growth story and could provide plenty of reasons for investors to think ‘sofa, so good’.
Established 50 years ago and listing on the ASX in 2004, Nick Scali is a household furniture retailer, operating through name-branded stores and also under the Sofas2Go brand. The company has a total current store count of 62, having opened another 5 stores in Australia this year, as well as its second in New Zealand, after opening the first in 2017. The expansion is set to continue with a targeted store count numbering at 80-85 stores, as well as continuing to expand its product range.
Performance has been strong and steady with good long-term growth seen across sales, earnings and profits, whilst maintaining healthy margins. Despite the relatively softer gains seen in 2019, more robust growth is expected to return from 2020 and out to 2022, with stronger sales expected to drive earnings aggressively higher. Dividend yield is already significant and estimated at around 6.6%, though this is expected to move above 7% in the years ahead. It must be noted that the company trades at a premium to consensus price targets, with majority neutral sentiment, though these valuations have been marked up in the last month, something not seen since early 2018.
Technically the price has had a strong run over the last 15 years, going from $1 to just under $7 this month, though really the stock has been caught within a sideways consolidation since peaking at $7.50 in early 2017. Since that high we have seen the price rotate through two medium-term cycles, reaching as low as $5, before building a recovery base to break through linear resistance just 3 months ago. In the time since we have seen pricing successfully retest the resistance/support zones between $6.50 and $6.00 and now has good positive signalling across multiple timeframes.
Right now we see the stock setting up to test structural resistance at $7.00, and looks to be building momentum here with particular strength being shown through the medium and long-term timeframes. With good, broad-based strength and an attractive technical setup we think investors could soon be sitting pretty with Nick Scali.