Here’s why the Adairs (ASX:ADH) share price is rocketing 8% this morning

Australia’s bulky furniture market is estimated to be worth in excess of $8.3 billion.

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The Adairs Ltd (ASX: ADH) share price is rocketing in morning trade, up 8%.

Below we look at the acquisition announcement from the ASX home furnishings company that looks to be driving investor interest.

What acquisition was announced?

The Adairs share price is soaring after the company reported it is acquiring Aussie furniture retailer Focus on Furniture for an Enterprise Value (EV) of $80 million.

The debt free acquisition will see Adairs pay $74 million in cash alongside a $6 million share placement to Focus’ CEO, Rob Santalucia, who will remain at the helm of Focus.

Focus has 23 stores in Australia with revenue of more than $150 million in the 2021 financial year (FY21). The current management team will remain with Focus and the store network will operate independently of Adairs.

The Adairs share price may also be getting a boost from the company’s expectation that the acquisition will immediately lead to growth in EPS (earnings per share), forecasting that it will deliver “pro forma double-digit EPS accretion in FY23”, its first full year of ownership.

Commenting on the acquisition, Adairs’ CEO Mark Ronan said:

Focus builds out our product offering in the key area of home furniture and increases the exposure we have to that market by almost three times. The Adairs Group now comprises a highly profitable and aligned portfolio of brands with significant growth potential targeting the middle market in the home category in Australia and New Zealand.

The acquisition will be earnings per share accretive from day one and we see strong growth opportunities that have the potential to drive sales of $250 million plus over the next 5 years.

The company stated that its dividend payout policy would remain at the existing 65–80% of net profit after tax (NPAT) following the acquisition.

Adairs share price snapshot

The Adairs share price has gained 14% over the past 12 months, just edging out the 12% gains posted by the All Ordinaries Index (ASX: XAO) in that same period.

Over the past month Adairs shares are down 3%.

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The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended ADAIRS FPO. The Motley Fool Australia owns shares of and has recommended ADAIRS FPO. 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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