Nick Scali Limited boss buys more shares: Should you buy as well?

Anthony Scali, Managing Director of Nick Scali Limited (ASX: NCK), has increased his personal stake in the furniture retail business as part of a shareholding restructure.

Since the company listed its shares on the ASX, the Scali family has held a 50% stake in the business, whereby Anthony and his two siblings each held a 16.7% economic interest via Scali Consolidated. As part of a family sell-down however, Anthony has increased his own stake in the business to 27.3% while 18.4 million shares (or 23% of the total shares outstanding) have been sold to institutional investors.

There are two positive takeaways from this move:

Firstly, although the family will no longer have as much skin in the game, the MD himself has increased his own personal stake. There are any number of reasons why a company’s executive may want to sell his or her shares, but only one reason they want to buy – because they think they will be worth more in the future.

In a statement to the ASX this morning, Anthony Scali said: “Whilst the Scali Family Stake will reduce following completion of the Sell Down, I remain fully committed to NSL and believe that the new ownership structure results in a strong personal alignment of economic interests between myself and all other NSL shareholders.”

The second key takeaway is that the stock should become somewhat more liquid, which will be of benefit to shareholders. After all, there have been some days recently where less than 11,000 shares (less than $50,000 worth) have changed hands per day. This makes it difficult to buy or sell shares without moving the price too much.

Reaffirmed Guidance

Nick Scali also took the opportunity to reaffirm its full-year earnings guidance. It noted expectations of continued sales growth in the second-half (which is certainly encouraging, given that we’re nearly half-way through that period already), whilst saying it expects net profit after tax (NPAT) to be between $22 million and $24 million. The mid-point of that range would represent earnings growth of more than 34% compared to the 2015 financial year.

While there are certainly positive signs for the business, there are a number of factors investors do need to be aware of.

To begin with, given the nature of the group’s products, Nick Scali’s sales are largely aligned with the health of the housing sector. This has provided great tailwinds in recent years, but if there is a dip in demand for houses, then it could have a negative impact on Nick Scali’s results as well.

Investors also need to consider that Nick Scali is not immune from competition, with companies such as Harvey Norman Holdings Limited (ASX: HVN) also pushing for growth in the market. Of course, that isn’t to say that you should avoid buying Nick Scali shares, but it is certainly something to consider before you do.

BRAND NEW! Our Top Dividend Stock for 2016

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a juicy, fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. You can follow Ryan on Twitter @ASXvalueinvest.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.