Nick Scali Limited (ASX: NCK) shares have been halted as the company enters the UK market with an acquisition.
Nick Scali operates Nick Scali and Plush stores in Australia.
UK acquisition
Nick Scali is buying Anglia Home Furnishings, trading as Fabb Furniture, for £2 (A$3.82) and all of the secured debt owed by the business for £3.5 million (A$6.7 million).
The ASX share said it intends to pay £0.5 million (A$1 million) to exercise the option to exit the existing distribution centre arrangement. It’ll also provide a net working capital injection of up to £6 million (A$11.5 million).
This business was founded in 1979 and has a network of 21 stores across the UK, all located in out-of-town retail parks, mostly in a large-scale format.
What are Nick Scali’s plans?
This gives the furniture retailer entry into the “large and attractive” UK market. It allows the ASX share to expand its brand into the UK at scale at a relatively low cost.
It also opens up a “significant opportunity to drive profitable growth in the medium-term”.
Fab Furniture’s gross profit margin is estimated to be approximately 10 percentage points lower than UK competitors on a like for like basis, so there’s plenty of potential for an increase in profit.
Nick Scali believes the company can leverage its buying power, combined with its supply chain and logistics capabilities, to help improve margins, just like it has done with Plush.
Capital raising
Nick Scali is doing a $50 million capital raising, with a $46 million placement to institutional investors. It’s issuing new Nick Scali shares.
There will be a $4 million conditional placement to CEO and Managing Director Anthony Scali, subject to shareholder approval being sought at the company’s AGM (expected in October 2024).
The placement will be done at a share price of A$13.25, which is a 5.8% discount to the last closing price (yesterday).
It will also conduct a non-underwritten share purchase plan (SPP) to raise around A$10 million where regular investors can buy up to A$30,000 each.
All eligible Nick Scali directors intend to participate.
Final thoughts on Nick Scali shares
This seems like a logical, and good, move by the business. It has been thinking about expansion into the UK for a while, and this seems like a fairly cheap way to achieve the move.
The UK market is large, so there’s plenty of potential for earnings growth there. I think Nick Scali is more appealing as a result of this, though I’d prefer to invest when the market is fearful about retail spending.
