The others he liked based on criteria of being in asx100 and having issued and not withdrawn guidance despite covid:
Arena REIT (ARF)
ReadyTech Holdings (RDY)
NCK: Not Held
1. Nick Scali (NCK)
I have written favourably on the furniture retailer many times over the past decade for The Switzer Report. The well-run company continues to grow in good and bad markets.
Remarkably, Nick Scali is trading at a record high in the midst of a pandemic when some of its stores are shut and Victorian consumers cannot leave their homes to buy discretionary items.
The company reported underlying after-tax net profit of $42.1 million for FY20, beating guidance of $39-$40 million and matching the FY19 result. The final dividend rose 12%.
That’s an outstanding result given Nick Scali lost an estimated $9-$11 million in sales orders during temporary store closures in late March and April. Like many retailers, it has had supply-chain complications during COVID-19, reduced trading hours when stores re-opened, and it deferred two store openings. Yet earnings were unchanged over the year.
Retail bears learned a painful lesson with Nick Scali. Some consumers who still had a job spent money earmarked for travel on furniture. Others used their superannuation withdrawals to buy a new couch and pamper themselves.
Nick Scali sales orders soared more than 70% in May and June (on a comparable store basis against the same period in FY19) creating a record work pipeline.
Cost management was key. The retailer was eligible for JobKeeper wage subsidies (controversially, in light of its profits), achieved rental reductions from 85% of its landlords, and cut advertising spending. The company is well-positioned for a stronger retail recovery in 2021.
Nick Scali says profit for the first half of FY21 will be at least 50-60% higher compared to the same time in FY20. As most companies withdraw guidance, the company expects soaring profit growth (albeit because of a lower base in the first half of FY20 due to the Coronavirus).
A share price that has more than doubled since the March low reflects the company’s performance and outlook. Nick Scali is due for a share-price pullback or consolidation, but I have long thought it one the market’s best-run, highest-quality small-caps. The latest results, in a pandemic no less, confirm that.
Any sustained price weakness in Nick Scali would be a buying opportunity.
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