In my opinion, and probably what @madamswer is alluding to,...

First 5 Last

Share
Profile

Follow
MarsC

4,290 Posts.

467

07/02/18

16:38

Post #: 30894028
Share

Originally posted by jg123456 ↑

Hi @madamswer

Good post. As always, really appreciate your thoughts. My comments were about the interim result being good, your comments seem more directed to the potential challenges in the near/medium term. From previous exchanges, we agree that NCK's operating leverage is a double-edged sword, and we haven't seen the downside play out for quite some time ... but surely we will.

What's pleasing is how relatively well prepared NCK seems to be for the downturn. These interims further evidence that. eg,
- the continued reduction in operating costs,
- the improved margins (including the GMs, I could not make the conference call, but suspect that mgmt did try to recycle much of the currency benefit back into prices, so at least some of the GM improvement may be sustainable),
- the push to own more sites,
- the smart HomeCo initiative, and
- the expansion into NZ which while very early seems encouraging and offers some diversification benefit.

I was surprised by the size of the dividend increase too. It does look a little at odds with the 2H FY18 outlook guidance. That said, I'm not sure how much of the weak H2 guidance is due to mgmt's view of sales order volatility/weakness in H2, and how much is due to the costs from new stores with limited offsetting sales benefit. The latter seems to be mainly a timing issue (temporary), while the former might suggest a slowing on consumer spending (a little more concerning). Did the conference call throw any light on that? Mgmt's optimism re: FY19 suggests the latter - ie, the timing of new stores openings factor.

I agree it's not obvious where they would expand too geographically after NZ. An alternative with lower risk, and perhaps more upside, is to consider range/product expansion thru the existing network, rather than entering new geographies. Another reason to welcome large dividend increases - less cash sloshing around that mgmt feel the need to "invest"! GLAH

Expand

In my opinion, and probably what @madamswer is alluding to, overseas expansion is almost as likely to be value destroying (will consume more capital, then what it ultimately generates) as attempting to grow domestically, at above industry rates, after store saturation is achieved.

NCK Price at posting: $6.90 Sentiment: None Disclosure: Not Held
2 Upvote

0 Great analysis

Reply

Top Stories

SNX

Sierra Nevada raises $2M for silver exploration at Blackhawk

Week 42 Wrap: HotCopper's top picks; new ASX 200 record; world yawns at war

NVU

Nanoveu surges 10% after benchmark testing for new AI chip begins

MKT

The ASX can overlook its Telecomm small-caps. Here’s one diversified brand with an international footprint

MTH

Mithril's drilling in Mexico picks up silver at 997g/t, gold at 28g/t

IRX

InhaleRX snags $38.5M in funding from VC biotech funder Clendon

TLG

Talga Group wins key permit for flagship graphite mine in Sweden

SWP

Swoop lobs $18M offer at microcap telecom Vonex – in which it holds 19.9%

What's causing the cost-of-living crisis, and how to navigate it

M4M

Macro, Norden set up transport solutions initiative for West Pilbara