Nick Scali, you’ve done it again

By Trevor Hoey. Published at Aug 15, 2016, in Features

While investors tend to get excited about high profile retailer, JB Hi-Fi (JBH), it is unlikely that the group will match the much smaller Nick Scali (NCK) at an earnings growth level after NCK delivered a quality result last week which featured earnings per share growth of 32%.

To provide some context, JB Hi-Fi is trading on a fiscal 2016 PE multiple of 19 relative to consensus forecasts which point to earnings per share growth of 5.1%.

NCK is trading on a far more conservative multiple with double-digit earnings per share growth forecast in fiscal 2017 compared with consensus estimates of 6.2% for JB Hi-Fi.

Consensus forecasts are subject to fluctuation and investors should note that earnings estimates and price targets may not necessarily be realised and as such should not provide the basis for any investment decision.

However, while the relative performances of JBH and NCK perhaps poses the question as to whether it is time to look for an emerging smaller player in the consumer discretionary space, it is worth looking at Nick Scali’s performance to get a feel for the business and its scope for future growth.

Shares in furniture and bedding retailer Nick Scali (NCK) spiked last week after the company delivered a record net profit of $26.2 million, ahead of management’s guidance ($24 million-$26 million) and Macquarie Wealth Management’s estimate of $25.2 million.

The company’s share price increased from $4.80 on the day prior to the announcement of the result to an all-time high of $5.69 before closing at $5.67 on Friday. This represents an increase of 18%.

It should be noted that share prices are subject to fluctuation and investors should take a cautious approach to any investment in NCK and not base that decision solely on historical price movements.

The group’s operational statistics were extremely impressive with sales up 30% and same-store sales growth of 11.1%. The latter is important in the context of Nick Scali being a store rollout story.

As the business matures and there is less scope for store expansion there will be an increasing reliance on management’s ability to deliver organic growth.

That said, the company has consistently delivered on this front since listing on the ASX in 2006 with management traditionally under promising and outperforming. As can be seen in the following table, Nick Scali’s outperformance hasn’t just been a function of top line growth, the company has demonstrated over the years that it can drive down costs while still growing the business.

Nick Scali charts

Management’s astute performance over the last five years combined with the expectation that Nick Scali’s can sustain robust double-digit growth in coming years underpinned significant increases in earnings per share forecasts off a relatively high level by Macquarie Wealth Management.

The broker increased fiscal 2017 and 2018 earnings per share forecasts by 3.4% and 8.6% respectively while increasing the 12 month price target by 9.7% to $6.09, implying a premium of circa 10% to Friday’s closing price.

In providing guidance, management warned investors not to expect the outstanding profit growth of more than 50% in fiscal 2017 given that this was assisted by an accelerated store rollout strategy.

However, the company will continue to open stores in Australia in fiscal 2017 while targeting the opening of 3 to 4 stores in New Zealand in fiscal 2018.

Management has maintained its long-term network target at 75 stores in Australia and New Zealand. Currently the group has 47 stores, indicating there is still significant scope to grow the business.

Macquarie Wealth Management has an outperform recommendation on Nick Scali, and its fiscal 2017 forecasts imply a PE multiple of 16 relative to Friday’s closing price.

Where to invest $1,000 right now

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

Publishers Notice

The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.

Australian ASX Small Cap stocks | Why is Australia’s leading small cap publication

Founded seven years ago, is Australia’s leading and longest standing website for investor and finance news, education and expert opinion.

Published by StocksDigital, Finfeed was created to report daily on the comings and goings of ASX listed stocks in the small cap market.

As the first digital publication dedicated specifically to this space, Finfeed soon became the most trusted publication in the market, quickly garnering over two million page views – a number that continues to rise. provides its readers with informative articles that tackle the latest in market moving #ASX small cap news, plus exclusive content you won’t find anywhere else. It is aimed at those with an interest in investing, market education, company performance, start-ups and much more. is the only media organisation operating under the strength of a Financial Services License and is backed by leading journalists and analysts all with brands of their own.

The website aims to inform, educate and entertain with content that drills down into the heart of financial matters.

Finfeed is a leading source of investor and market information, with everything investors need to know about how to invest written in a way that anyone can understand. 

Over the years, the website has expanded beyond exclusively reporting on small caps, to profile Australia’s leading ASX listed small, mid and large caps as well as some of the country’s most successful CEOs and business leaders to find out what makes them tick.

Every day you will find fresh content covering:

Fast Facts

Over 4,000 articles published

Over 2.3 Million Page Views and counting

Over 10,000 followers on social media

Subscriber list growing by 2% monthly

Thanks for subscribing!