FY19 net profit was ahead of Citi’s estimates. Downside risk to earnings is envisaged for FY20 as sales momentum has turned negative and the higher store base means upside from roll-outs is likely to be smaller.
Downward pressure on gross margins is also emerging from the weaker Australian dollar. Citi forecasts first half like-for-like sales to decline by -2.5%. These declines are likely to moderate to -1% in the second half on the assumption that the housing market starts to improve.
Sell rating maintained. Target is raised to $5.97 from $5.35.
Target price is $5.97.Current Price is $6.48. Difference: ($0.51) – (brackets indicate current price is over target). If NCK meets the Citi target it will return approximately -9% (excluding dividends, fees and charges – negative figures indicate an expected loss).