Furniture importer and retailer Nick Scali (ASX:NCK) was established more than 50 years ago by the Scali family and listed in 2004. They raised $40 million in the IPO and have never raised any equity capital since.
During its listed life, earnings per share (EPS) has grown from $0.09 to $0.93, an annual growth rate of 14% over 18 years. The share price has increased from $1.00 to $10.09 (at yesterday’s close 09/02/22) and they have paid out $4.275 in total dividends. $10,000 invested into the IPO and held, would have yielded over $130,000 in profits or an annual compounded return of 17% per annum.
This demonstrates how investors can accumulate large amounts of wealth by investing in high quality companies, and then remaining patient despite the gyrations caused by pandemics, property cycles, exchange rates and share market sentiment.
Nick Scali has been a very well run business for a long period of time. It currently has a Quality score of 89 which reflects the very healthy state of the business both now and over time.
In financial year 2021, Nick Scali, like many retailers, saw revenue grow at record rates as people were restricted regarding travel and going out, so they diverted their spending to sprucing up their homes. But unlike many other retailers, Nick Scali’s revenue growth continued into 2022 and further growth is forecast for 2023 following a record first half.
However, a direct comparison is not entirely fair as Nick Scali’s revenue growth was not all organic. It includes revenue from Plush-Think Sofas which they acquired in November 2021. Plush added another 45 furniture stores to the 62 under the Nick Scali brand.
Source: Nick Scali, 1H FY23 Company Presentation, 6/2/23
The acquisition was funded through debt and existing cash. The purchase price of $103 million represented an EBITDA multiple of 3.8 which was not expensive.
Unlike many acquisitions this one is looking like it will add significant value to Nick Scali shareholders. They have already managed to strip out $20 million in running costs, which are synergy benefits that go straight to the bottom line, as well as paying off $17 million in debt.
On Monday (06/02/22), Nick Scali released their financial year 2023…
