Nick Scali: An ASX 300 Share with Buffett-esque PotentialNick Scali: An ASX 300 Share with Buffett-esque Potential Introduction Analysts speculate that Nick Scali Limited (ASX: NCK), an ASX 300 index share specializing in furniture retail, has characteristics that could appeal to legendary investor Warren Buffett. This article examines the reasons why Nick Scali may be an attractive investment opportunity. Large Store Rollout Planned Nick Scali has ambitious plans to expand its store network both domestically and internationally. In Australia and New Zealand, the company aims to increase its store count from 64 to 86, while in the UK, it recently acquired Fabb Furniture and intends to establish the Nick Scali brand there. This aggressive growth strategy provides the potential for significant revenue and profit expansion. Excellent Return on Equity Nick Scali boasts an impressive return on equity (ROE) of over 50% in FY23, indicating that it is highly profitable for shareholders. This high ROE suggests that the company can effectively use retained earnings to generate additional profits, further supporting its growth plans. Attractive Valuation and Yield ASX retail shares typically trade at lower earnings multiples and offer higher dividend yields than other sectors. Nick Scali is currently trading at an estimated P/E of 15x for FY25 and 12x for FY26. Additionally, the company is expected to pay a gross dividend yield of 6.7% in FY25 and 7.8% in FY26. These metrics make Nick Scali an attractive investment for value-conscious investors seeking both growth and income. Similarities to Berkshire Hathaway’s Investments Buffett has a proven track record of investing in companies with strong brands, predictable cash flows, and a history of profitability. Nick Scali fits this mold, with its recognizable brand in the Australian furniture market, consistent financial performance, and plans for future growth. Additionally, Nick Scali’s acquisition of Fabb Furniture in the UK mirrors Berkshire Hathaway’s strategy of expanding into new markets. Conclusion While Warren Buffett may not personally invest in furniture retailers, Nick Scali Limited shares many of the characteristics that he typically seeks in investment targets. Its ambitious growth plans, excellent return on equity, attractive valuation, and dividend yield make it a compelling investment opportunity for shareholders looking for a quality ASX 300 share with significant upside potential.
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I think S&P/ASX 300 index (ASX: XKO) shares Nick Scali Limited (ASX: NCK) is one of the most exciting ASX retail shares out there. It could be the kind of company that legendary investor Warren Buffett would want to buy.
During his stewardship of Berkshire HathawayBuffett has shown an incredible ability to invest in the right companies at the right time, leading the investment house to become one of the largest companies in the United States and, indeed, the world.
The first question is whether Buffett would consider a furniture retailer like Nick Scali. Berkshire owns a number of furniture companies, including Star Furniture, RC Willey Home Furnishings and Jordan’s Furniture.
But there are a few things that make Nick Scali more interesting than your average furniture salesman.
Major store rollout planned
Nick Scali already has a significant national network of stores in Australia and New Zealand. The company aims to grow its Nick Scali store network from 64 stores in December 2023 to 86 stores in the long term.
The ASX 300 share also owns furniture chain Plush, which had 44 stores as of December 2023. In the long term, the company wants to grow to 90 to 100 stores.
Nick Scali has a long domestic growth period, which is a big plus.
The stock also recently completed the acquisition of a UK business trading as Fabb Furniture. Nick Scali paid just $3.82 for the business, which came with $6.7 million in secured debt. The furniture retailer also paid $1 million to exercise its option to exit its existing distribution centre arrangement. This will provide a net working capital injection of up to $11.5 million.
Nick Scali plans to further invest in its existing Fabb Furniture network and establish the Nick Scali brand in the UK. The strategy includes store refurbishments, rebranding, setting up a new distribution centre and opening new stores. There will be a transition to the Nick Scali product range and it will leverage its buying power and supply chain.
Given that the UK has more than twice the population of Australia, I think this ASX 300 share has a lot of growth potential there.
Excellent return on equity
One of the best profit measures is a company’s return on equity (ROE). This tells the market how much profit the company is making on the shareholders’ money it keeps.
A high ROE can indicate that it is an attractive business and that a good return can be achieved on the additional profit generated and retained in the company.
Nick Scali’s ROE of over 50% in FY23 suggests it is very profitable for shareholders. I believe that expanding the store network in Australia and hopefully the UK could deliver significant additional profits.
Attractive statistics
ASX retail shares typically trade at a relatively attractive earnings multiple compared to other sectors. This can lead to a cheap price/earnings ratio (P/E) and a good dividend yield if the company pays a dividend.
According to Commsec estimates, Nick Scali shares are trading at 15x estimated FY25 earnings and 12x estimated FY26 earnings.
Nick Scali is expected to pay a gross dividend yield of 6.7% in fiscal 2025 and 7.8% in fiscal 2026.
While the ASX 300 share is not as cheap as it could be, I think Nick Scali shares would appeal to Warren Buffett due to their quality, growth plans and lower share price, which is down 16% since April 2024.
