@travelightor, I agree fully with your commentary about the...

@travelightor,

I agree fully with your commentary about the financial logic of NCK going into bedding; by my experience, bedding is a fragmented, yet un-competitive segment of furniture retailing.

And this move addresses one of the key observations I make whenever I enter a Nick Scali store: that the floor density of display units is sparse. I understand that - aesthetically - minimalist store layout is preferred to clutter, but Nick Scali stores have always struck me as having ample room to occupy a few more display items before the store real estate becomes fully utilised. (I have often seen some arbitrary coffee table or cabinet standing, isolated, 5 metres away from the its closest adjacent furniture setting.)

(Go into a Harvey Norman, or just about any other furniture store, and you can barely see the floor tiles/carpets for all the stuff on display... for Nick Scali, if you talk too loudly, your voice echoes in those cavernous and minimalist stores.)

I have always thought about the sort of adjacency product range they could introduce to make better use of floor space; now I know.

I suspect strongly that the bedding idea will be a success; for starters, the lease expenses associated with it are technically zero.


Where I'm less inclined to buy into your thinking is on valuation: I think the stock is appropriately valued given where we are in the earnings cycle for NCK. And, sure it may be cheaper than CSL, REH, ARB, RWC, BRG but, while NCK is a good retailer, as a pedigree business, it is no CSL, REH, ARB, REH or BRG. Besides, the game of wealth creation requires buying stocks at below fundamental value; and not just to buy the least expensive of a peer group which are being valued by the market above their fundamental value.


But where I think you are - somewhat out of character for someone who seems to apply lucid and cogent thinker to a robust analytical framework - quite wide of the mark is in your argument of:

"If one were to buy NCK now, over the next 13 months, he/she could receive approximately $0.64 dividends ($0.24 FY18 final + $0.16 FY19 interim + $0.24 FY19 final) or possibly more if NCK increases next year's dividends, at the current price of $6.78, this is a forward 13-month yield of 9.4% fully franked."

Sure, while that is arithmetically correct, I'm not sure that it means very much; all you have done is taken a somewhat arbitrary time-frame of 13 months, and derived some sort of "yield" which, ostensibly, is intended as a reference point for other annualised investment return measures of an income nature (eg. bonds, cash).

Trouble is, as I said,there is nothing magical about 13-months (other than it it one month more than 12 months, which happens to be the convention [*] over which investment returns are measure by financial markets).

Because, really, I could have said that I am going to get 40c in dividends over 7 months, which is a 5.9% yield over just 7 months (which annualises at 10.1%); or more pointedly, I am going to get 24c for a holding period of just a few weeks (annualise that!)


Flaky logic, when it emanates from 95% of HotCopper members, is not worthy of remark, nor a dressing down (because you'd spend your life remarking and dressing down), but when some flaky logic is presented by a considered poster, then I think it will naturally raise eyebrows.

Sorry.


[*] And if you think, philosophically, about the notion of "12 months", well, that is really a quite random, quite arbitrary period of time, and - in the context of being an owner of a business for the purposes of wealth creation - a totally meaningless one.