Nick Scali poised for acquisitions, say analysts

Nick Scali CEO Anthony Scali. Picture: Hollie Adams

An explosion of sales and a higher share price for furniture retailer Nick Scali has positioned the company to make acquisitions as COVID-19 continues to disrupt the market.

The retailer, which has seen its price almost treble from its March pre-corona level of $3, was previously thought to be on the acquisition prowl, with DataRoom last month writing that the company could be looking to expand its exposure to the more affordable end of the furniture market.

Well-placed sources say Nick Scali, now valued at $705m, has considered whether to buy Greenlit Brands’ Fantastic Furniture, potentially through an equity raising. In a note, analysts from Citi said Nick Scali’s guidance for the first half of the 2021 financial year — net profit growth of 50-60 per cent — was “conservative”. They say the company is likely to grow earnings because of increased demand for renovations due to the government’s HomeBuilder grant, restrictions on travel and leisure activities, and its newly-launched online sales channel.

The company’s net cash balance of $29m positions it to make acquisitions that “drive synergies or new growth opportunities”, Citi says, and increase its $75m property portfolio. Macquarie analysts agree, saying “sector consolidation remains a possibility”, but note cost savings such as $3.9m in JobKeeper payments and $2.3m of rental relief are unlikely to persist.

Nick Scali recently announced a full-year profit of $42.1m, unchanged from the previous year, with a dividend of 22.5c. Its shares closed 43c lower to $8.28.

Meanwhile, pressure on Scentre to raise capital to combat rising vacancy rates and falling rents is growing.

Scentre, which owns 42 Westfield Australian centres, reported in its full year results that its net debt is $12.9bn.