Nick Scali Ltd. – Value Analysis (ASX:NCK) : October 5, 2017

Capitalcube gives Nick Scali Ltd. a score of 88.

Our analysis is based on comparing Nick Scali Ltd. with the following peers – Otsuka Kagu, Ltd., Independence Group NL and Celestial Asia Securities Holdings Ltd. (8186-JP, IGO-AU and 1049-HK).

Investment Outlook

Nick Scali Ltd. has a fundamental score of 88 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • With respect to peers, relative outperformance over the last year is in contrast to the more recent underperformance.
  • It currently trades at a Price/Book ratio of (7.25).
  • We classify NCK-AU as Harvesting because of the market’s relatively low growth expectations despite its relatively high returns.
  • NCK-AU has a successful operating model with relatively high net profit margins and asset turns.
  • The company’s year-on-year change in revenues and earnings are better than the median among its peer group.
  • NCK-AU‘s return on assets currently and over the past five years suggest that its relatively high operating returns are sustainable.
  • The company’s relatively high gross and pre-tax margins suggest a differentiated product portfolio and tight control on operating costs relative to peers.
  • While NCK-AU‘s revenue growth in recent years has been above the peer median, the stock’s P/E ratio is less than the peer median suggesting that the company’s earnings may be peaking and the market expects a decline in its growth expectations.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • NCK-AU has the financial and operating capacity to borrow quickly.

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Leverage & Liquidity

NCK-AU has the financial and operating capacity to borrow quickly.

  • With debt at a relatively low 4.46% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 7.17%), and a well-cushioned interest coverage level of 84.40x, NCK-AU can probably borrow quickly. We classify the company as Quick & Able in terms of its capacity to raise additional debt.
  • Of the 3 chosen peers for the company, only 2 of the stocks have an outstanding debt balance. Companies with no debt include 8186-JP.

NCK-AU has maintained its Quick & Able profile from the prior year-end.

  • NCK-AU‘s interest coverage has declined 1.76 points from last year’s high but remains above its four-year average interest coverage of 68.18.
  • The decrease in its interest coverage to 84.40x from 86.16x (in 2016) was also accompanied by a decrease in its peer median during this period to 4.72x from 44.61x.
  • Interest coverage rose 38.13 points relative to peers.
  • NCK-AU‘s debt-EV has declined 1.00 percentage points from last year’s high and is now close to its four-year average debt-EV.
  • While its debt-EV decreased to 4.46% from 5.46% (in 2016), its peer median increased during this period to 7.17% from 2.73%.
  • Relative to peers, debt-EV fell 5.44 percentage points (and is now lower than its peer median).

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Otsuka Kagu, Ltd. 0 3.05 0 999
Independence Group NL 9.88 1.8 4.72 54.16
Celestial Asia Securities Holdings Ltd. 78.05 N/A -6.87 -2.92
Nick Scali Limited 4.46 1.54 84.4 193.04
Peer Median 7.17 1.8 4.72 123.6
Best In Class 4.46 3.05 84.4 999

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Company Profile

Nick Scali Ltd. engages in the retail and importation of household furniture and related accessories. Its products include lounges; occasional and dining chairs; dining and coffee tables; buffets and cabinets; rugs; and television & entertainment units. The company was founded by Nicodemo Domenico Scali in 1962 and is headquartered in Lidcombe, Australia.


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