Nick Scali has been under pressure since a weak trading update in January with a soft consumer the primary issue, however, it’s found solid valuation support in recent months, in line with the overall sector. NCK is a classic interest rate-sensitive discretionary retailer. As a seller of high-ticket furniture, demand is closely linked to consumer confidence and housing activity, both of which have been under pressure following the three RBA rate hikes and dive in the property market following the latest budget. NCK is effectively a leveraged play on the RBA easing cycle, with earnings and the share price typically benefiting as monetary policy becomes more accommodative, and vice versa.
This is a quality business that is facing real economic headwinds, but this is when value presents itself. Earnings expectations are fairly muted for FY26 and FY27, leaving room for positive surprises, although we doubt management will be overly enthusiastic with the current trading conditions. We regard NCK as an excellent retailer to gain exposure to an improving inflation outlook, but we caution it’s a high-beta (volatile) stock.
- We initially can see NCK testing ~$18.50, or 15% higher – MM holds NCK in our Emerging Companies Portfolio.
MM is long and bullish towards NCK around $16
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