NCK FY24--a more uncertain future?

 NCK FY24—more uncertain future

A year ago NCK appeared a simple story. The latest result plus acquisition changed that to some degree.

The ROE fell from an average of 52.7% over the last 8 years, to 32% this year. If we exclude the equity raising for the UK acquisition, I estimate an ROE of 40%. We can say the fall due to the UK has some time to run and is understandable but the rest of the fall is potentially due to a few reasons, poor macro causing returns to fall, the volatility in demand post-C19 and associated supply line issues still resolving themselves and that the acquisition of Plush has much lower returns or finally a deterioration in the core NCK franchise.

Specifically, my issue is the average sales and PBT per store on the core ANZ business. Sales are at several-year lows and PBT is close to multi-year lows. Cyclical or structural? I would like to see this as a base result to build off not an ongoing rate or continuing to decline.

The NCK result was close to my revenue and NPAT estimates of 1%. GM good. Inventory levels are fine and the cash reconciliation is good.

The biggest disappointment on the call was the lack of store rollout with basically no growth (+1). AS stated that the lack of large-format retail centres was slowing site expansion. He believes that this is a temporary phenomenon and impacts the 2000m2 NCK more than the 1300m2 Plush stores.

However, as I worked through the delivered numbers on a per-store revenue and ebit numbers I noticed some volatility that led to uncertainty. The volatility in the ANZ stores come from the two sources, one being the C19 backlog being cleared and the comps that come from this and also the dilation due to the Plush acquisition. Both are significant negatives in this result. Of course, if I had examined the numbers beforehand this would have been plain to me, but now estimates are reality.

What does that mean? Hopefully that on a per store basis that this is the bottom of the cycle. The ability to pinpoint the size of the issue given the mix change and volumes around the post-C19 issues makes it quite tricky. We also need to see store count pick-up in ANZ. My working assumption is that 2024 is a base for per-store revenues and ebit per store and a steady improvement occurs from here. No big bounce.

The Uk is too early to assess what is going on but I have made assumptions that the UK succeeds and the numbers ultimately modestly lag the returns we are seeing in Australia, so it is a “poor man's” Australia regarding profitability, being EBIT and revenues per store. On these assumptions, it will be an outstanding investment. We have a long way to go here and need to see more data regarding the revenue per store and ebit per store evolution. If NCK starts to indicate an increase in stores that would be very bullish.

As for valuation at this stage would still add around the placement price--$13.25. It is FV value around these levels --$14.50. I attach my work in progress, note it could change as I play around with it. Note the volatility I was referring to.



 







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