Why the Nick Scali (ASX:NCK) share price is going gangbusters

Talk of a new acquisition is putting investors at the head of the table.

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The Nick Scali Limited (ASX: NCK) share price is the spot of green amongst the sea of red today.

At the time of writing, shares in the household furniture retailer are selling for $11.52 – up 4.39%. The All Ordinaries Index (ASX: XAO), meanwhile, is down 0.95%.

The company comes into focus after it confirmed it was in discussions to buy Plush Sofas. Nick Scali entered a trading pause prior to the announcement.

Let’s take a closer look at today’s news.

Nick Scali wants a new Plush Sofa

In a statement to the ASX, Nick Scali confirmed it was in “non-exclusive discussions” with Greenlit Brands to acquire the Plush Sofas brand.

The Australian newspaper reported before the trading pause that the furniture company would spend up to $100 million on the purchase. Plush generates around $20 million in annual turnover, according to the report.

In its statement, Nick Scali Limited stressed the lack of certainty around the ongoing discussions and said no binding agreement has yet been reached.

It also said if any transaction should proceed, the company would pay for it “with a combination of cash on hand and debt”.

Investors clearly believe the deal would be of value to the company, judging by the Nick Scali share price.

Nick Scali share price snapshot

Over the past 12 months, the Nick Scali share price has increased 75%.

In its half-year financial report, the company declared revenue of $171 million – a record for the company and an increase of 24.4% on the prior corresponding period (pcp).

Earnings before interest, tax, depreciation and amortisation (EBITDA) rocketed 94.2% on the pcp to $60.2 million and underlying net profit after tax (NPAT) was up almost 90% to $40.5 million.

The company paid an interim dividend of 40 cents per share on the results.  Nick Scali management said a surge in demand during the pandemic drove the strong results.

The company paid back half the amount of JobKeeper payments it received on the back of sustained public pressure. The federal government’s wage subsidy program was intended to help businesses that would suffer financially because of the novel coronavirus.

Nick Scali Limited has a market capitalisation of $933 million.

Should you invest $1,000 in Nick Scali right now?

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The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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