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Is investing in a furniture retailer ahead of a recession a bad idea?

While stocks have climbed the proverbial wall of worry, most investors are anticipating a recession either later this year or in the first half of 2024….

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10 months ago

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While stocks have climbed the proverbial wall of worry, most investors are anticipating a recession either later this year or in the first half of 2024. Such is the extent of recessionary expectations, derivative investors are predicting at least three rate cuts from the U.S. Federal Reserve or just over 100 basis points of cuts to the Fed Funds rate.

Ahead of such an environment, and while interest rates remain high and consumers tighten their belts, it might seem crazy to be thinking about investing in a furniture retailer like Nick Scali (ASX:NCK).

Before presenting the bullish case for NCK, it’s worth remembering consumers face not only inflation in the cost of essential services, a diminution of savings built during the pandemic and from locking in ultra-low fixed-rate mortgages, and the end of government-funded financial support. 

With the COVID pandemic over, investment bank Barrenjoey has drawn similarities between the current withdrawal of government fiscal support for consumers and that in 2011, following the Global Financial Crisis. The difference, however, is the magnitude of the support more recently is larger and is being withdrawn more rapidly. By way of example, in the third quarter of calendar 2022, the Low-and-Middle-Income earner offset (LITMO) boosted household disposable income by approximately $11 billion after tax returns were lodged and refunds received. This cash injection of up to $1,500 per taxpayer has been terminated and will not support spending in the second half of 2023.

Will the end of government support impact retailers?

The potential impact on retailers’ share prices cannot be overstated. During 2011 Nick Scali’s share price fell 14 per cent. Limiting the period over which to measure the sell-off during that time, however, masks the more significant impact to investors in Nick Scali from the decline in consumer spending. Nick Scali’s share price actually peaked in October 2010 at $2.00 and fell 35 per cent to $1.29 in early 2012. The sell-off was a combination of a decline in earnings per share (EPS) and a de-rating of the price to earnings (P/E) ratio.

And it’s worth remembering that if EPS halves and the P/E ratio also halves, the share price declines 75 per cent.

A closer look at Nick Scali

Despite this a market is made of buyers and sellers. The buyers of Nick Scali shares point to the fact it offers a six per cent dividend yield and is trading on a FY24 P/E of less than 11 times EPS, which reflects negative growth of 40 per cent in FY23. Importantly, the current FY24 P/E (1yr forward) is at its lowest level since June 2009. Only during the depths of the GFC, in December 2008, did NCK’s P/E fall towards five times earnings, and nobody is expecting a financial crisis this time around.  

Meanwhile, the bulls note industry feedback suggesting the refurbishment of 40 of the Plush-branded stores in the next twelve months is better than expected. They note being vertically integrated helps preserve margins, while the company’s build-to-order (just in time) business model reduces the level of inventory required compared to competitors. It’s worth mentioning here the Scali family invented the build-to-order-and-wait-12-weeks-for-your-sofa in Australia.

More than five per cent of the company’s sales are sourced online, are high margin and growing. Meanwhile, as a measure of quality, NCK enjoys a return on equity (ROE) of more than 35 per cent, suggesting the company is capital-light, which also should help it take share during any downturn.

Meanwhile, 15 per cent of the company’s market cap is backed by property, and the balance sheet has limited debt giving it a debt-to-equity ratio of 54 per cent and a debt-to-asset (equity + debt) ratio of 15 per cent. It’s worth pointing out, however, NCK, like Adairs and Harvey Norman, is not in a net cash position.

The risk of deflation on retail product

Sentiment will always drive share prices in the short term, and investors might consider whether sentiment is bearish enough yet to be taken advantage of. The risk of deflation on retail products is occupying the minds of some analysts. During economic slowdowns, retailers must spend significantly on promotional activity and discounting products to maintain market shares and throughput. Consequently, retailers like NCK have been snubbed by investors rendering the stock ‘under-owned’, meaning investors are underweight. 

Meanwhile, some retailers face wage inflation, escalations to rent, as well as material annual increases in the cost of electricity, insurance and domestic freight. The impact of these hikes on a retailer’s cost base may not have been factored into analysts’ estimates of the cost of doing business (CODB). Typically, consensus estimates are produced by multiplying estimated sales by a forecast EBIT margin. But failing to accurately factor in rapid inflation for some inputs results in analysts underestimating the CODB. The consequence is a negative earnings surprise and a harsh share price reaction.

Over the long run, a well-managed (cost-outs?) quality company, one that leads its peers and progresses along its growth runway, will reward investors. Of course, the returns will be inversely related to the price paid. Investors, therefore, should now be calculating a conservative estimate for intrinsic value and assessing whether the share price represents value or waiting until it does.

Assuming a long-term return on equity (ROE) of 30 per cent, a payout ratio of 70 per cent, a required return of nine per cent, a constant 81 million shares on issue and FY24 beginning equity of $207 million, we estimate Nick Scali’s intrinsic value at $9.29. Changing any of the inputs however will increase or decrease this estimate.

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Analyst revamps MicroStrategy stock price target after Bitcoin buy

Here’s what could happen to MicroStrategy shares next.

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11 hours ago

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March 20, 2024

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How does Michael Saylor feel about bitcoin? We'll let him tell you in his own words.

"Bitcoin is a swarm of cyberhornets serving the goddess of wisdom, feeding on the fire of truth, exponentially growing ever smarter, faster, and stronger behind a wall of encrypted energy," the executive chairman and co-founder of MicroStrategy  (MSTR)  once said.

Too subtle? Still not sure how the former CEO of the software intelligence company feels about the world's largest cryptocurrency? 

Maybe this will help.

"Bitcoin is a bank in cyberspace, run by incorruptible software, offering a global, affordable, simple and secure savings account to billions of people that don't have the option or desire to run their own hedge fund," Saylor said.

Okay, so the guy really likes bitcoin. And on March 19, the first day of spring, MicroStrategy took a bigger bite out of bitcoin when the company said it had bought 9,245 bitcoins for $623 million between March 11 and March 18.

MicroStrategy said it a completed a $603.75 million convertible debt offering — its second in a week — to raise money to buy bitcoin.

The company now holds about $13.5 billion of bitcoin, which adds up to more than 1% of the 21 million bitcoin that will ever exist, according to CoinDesk.

An analyst adjusts his price target for MicroStrategy

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Committed to developing bitcoin network

MicroStrategy said in a regulatory filing that it had paid roughly $7.53 billion for its bitcoin stash, an average of $35,160 per coin.

The company's stock fell on Tuesday, while bitcoin posted its biggest single-day loss since November 2022. MicroStrategy was off slightly to $1,416 at last check on Wednesday and bitcoin was up 2.3% to $63.607.

Related: Analyst unveils Nvidia stock price 'line in the sand'

Phong Le, MicroStrategy’s president and CEO, told analysts during the company’s Feb. 6 fourth-quarter-earnings call that "we remain highly committed to our bitcoin strategy with a long-term focus.."

"We consider MicroStrategy to be the world's first bitcoin development company," he said. "We are a publicly traded operating company committed to the continued development of the bitcoin network through activities in the financial markets, advocacy, and technology innovation."

MicroStrategy earned $4.96 a share in the quarter, beating the FactSet consensus of a loss of 64 cents, and light years beyond the year-ago loss of $21.93 a share.

Revenue totaled $124.5 million, compared with FactSet's call for $133 million and the year-earlier tally of $132.6 million.

During the call, Saylor told analysts that "2024 is the year of birth of bitcoin as an institutional-grade asset class."

MicroStrategy, he said, completed the first 15 years of the bitcoin life cycle, back when it was largely unregulated and misunderstood. 

"The next 15 years, I would expect, will be a regulated, institutional, high-growth period of bitcoin, very, very different in many ways from the last 15 years," Saylor said.

Crypto's dark days

"Bitcoin itself is performing well for a number of reasons, but one reason is because it represents the digital transformation of capital," he added.

Of course, life with bitcoin wasn't always sunshine and roses. 

More Wall Street Analysts:

We take you back now to those less-than-thrilling days yesteryear, when covid-19 was on the rampage and the price of bitcoin fell 30% from March 8 to March 12 2020.

By the end of 2021, bitcoin had fallen nearly 30%. And 2023 saw the cryptocurrency sector wracked with bankruptcy and scandal, with the likes of FTX CEO Sam Bankman-Fried being convicted of fraud, conspiracy, and money laundering. 

SBF, as he has been known, is scheduled to be sentenced in Manhattan federal court on March 28. He faces a long stretch.

But bitcoin rose about 160% in 2023 and hit a record $73,750 on March 14.

Saylor recently said that his high hopes for bitcoin this year stemmed largely from the U.S. Securities and Exchange Commission approving spot bitcoin ETFs and the upcoming bitcoin halving, where when bitcoin's mining reward is split in half.

MicroStrategy is the first bitcoin development company, Saylor told analysts, but perhaps not for long. 

"We've published our playbook, and we're showing other companies how to do it," he said.

TD Cowen analyst Lance Vitanza cited MicroStrategy's latest bitcoin acquisition when he adjusted his price target for the company's shares on March 20.

The analyst cut the investment firm's price target on MicroStrategy to $1,450 from $1,560 and affirmed an outperform rating on the shares. 

He says the shares remain an attractive vehicle for investors looking to gain bitcoin exposure.

Related: Veteran fund manager picks favorite stocks for 2024

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FoxO6-mediated ApoC3 upregulation promotes hepatic steatosis and hyperlipidemia in aged rats fed a high-fat diet

“This discovery unveils a potential novel molecular target for therapeutic strategies against hepatic steatosis during the aging process […]” Credit:…

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14 hours ago

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March 20, 2024

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“This discovery unveils a potential novel molecular target for therapeutic strategies against hepatic steatosis during the aging process […]”

Credit: 2024 Kim et al.

“This discovery unveils a potential novel molecular target for therapeutic strategies against hepatic steatosis during the aging process […]”

BUFFALO, NY- March 20, 2024 – A new research paper was published in Aging (listed by MEDLINE/PubMed as “Aging (Albany NY)” and “Aging-US” by Web of Science) Volume 16, Issue 5, entitled, “FoxO6-mediated ApoC3 upregulation promotes hepatic steatosis and hyperlipidemia in aged rats fed a high-fat diet.”

FoxO6, an identified factor, induces hyperlipidemia and hepatic steatosis during aging by activating hepatic lipoprotein secretion and lipogenesis leading to increased ApoC3 concentrations in the bloodstream. However, the intricate mechanisms underlying hepatic steatosis induced by elevated FoxO6 under hyperglycemic conditions remain intricate and require further elucidation.

In this new study, researchers Dae Hyun Kim, Seulah Lee, Sang Gyun Noh, Jaewon Lee, and Hae Young Chung from Pusan National University aimed to delineate the regulatory pathway involving ApoC3 controlled by FoxO6 and its resultant functional impacts.

“[…] we employed a spectrum of models including liver cell cultures, aged rats subjected to HFD, transgenic mice overexpressing FoxO6 (FoxO6-Tg), and FoxO6 knockout mice (FoxO6-KO).”

Their findings indicate that FoxO6 triggered ApoC3-driven lipid accumulation in the livers of aged rats on an HFD and in FoxO6-Tg, consequently leading to hepatic steatosis and hyperglycemia. Conversely, the absence of FoxO6 attenuated the expression of genes involved in lipogenesis, resulting in diminished hepatic lipid accumulation and mitigated hyperlipidemia in murine models. Additionally, the upregulation of FoxO6 due to elevated glucose levels led to increased ApoC3 expression, consequently instigating cellular triglyceride mediated lipid accumulation. The transcriptional activation of FoxO6 induced by both the HFD and high glucose levels resulted in hepatic steatosis by upregulating ApoC3 and genes associated with gluconeogenesis in aged rats and liver cell cultures.

“Our conclusions indicate that the upregulation of ApoC3 by FoxO6 promotes the development of hyperlipidemia, hyperglycemia, and hepatic steatosis in vivo, and in vitro. Taken together, our findings underscore the significance of FoxO6 in driving hyperlipidemia and hepatic steatosis specifically under hyperglycemic states by enhancing the expression of ApoC3 in aged rats.”
 

Read the full paper: DOI: https://doi.org/10.18632/aging.205610 

Corresponding Author: Hae Young Chung

Corresponding Email: hyjung@pusan.ac.kr 

Keywords: HFD-feeding, aging, forkhead transcription factor O6, ApoC3, lipid accumulation, hepatic steatosis

Click here to sign up for free Altmetric alerts about this article.

 

About Aging:

Aging publishes research papers in all fields of aging research including but not limited, aging from yeast to mammals, cellular senescence, age-related diseases such as cancer and Alzheimer’s diseases and their prevention and treatment, anti-aging strategies and drug development and especially the role of signal transduction pathways such as mTOR in aging and potential approaches to modulate these signaling pathways to extend lifespan. The journal aims to promote treatment of age-related diseases by slowing down aging, validation of anti-aging drugs by treating age-related diseases, prevention of cancer by inhibiting aging. Cancer and COVID-19 are age-related diseases.

Aging is indexed by PubMed/Medline (abbreviated as “Aging (Albany NY)”), PubMed Central, Web of Science: Science Citation Index Expanded (abbreviated as “Aging‐US” and listed in the Cell Biology and Geriatrics & Gerontology categories), Scopus (abbreviated as “Aging” and listed in the Cell Biology and Aging categories), Biological Abstracts, BIOSIS Previews, EMBASE, META (Chan Zuckerberg Initiative) (2018-2022), and Dimensions (Digital Science).

Please visit our website at www.Aging-US.com​​ and connect with us:

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For media inquiries, please contact media@impactjournals.com.

 

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Journal

Aging-US

DOI

10.18632/aging.205610

Method of Research

Experimental study

Subject of Research

People

Article Title

FoxO6-mediated ApoC3 upregulation promotes hepatic steatosis and hyperlipidemia in aged rats fed a high-fat diet

Article Publication Date

3-Mar-2024

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ARPA-H appoints Etta Pisano to lead its Advancing Clinical Trials Readiness Initiative

The Advanced Research Projects Agency for Health (ARPA-H) has appointed Etta D. Pisano, MD, FACR, senior portfolio lead, to build the agency’s clinical…

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18 hours ago

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March 20, 2024

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The Advanced Research Projects Agency for Health (ARPA-H) has appointed Etta D. Pisano, MD, FACR, senior portfolio lead, to build the agency’s clinical trial portfolio and lead the ARPA-H Advancing Clinical Trials Readiness Initiative under ARPA-H Resilient Systems Mission Office Director Jennifer Roberts.

Credit: N/A

The Advanced Research Projects Agency for Health (ARPA-H) has appointed Etta D. Pisano, MD, FACR, senior portfolio lead, to build the agency’s clinical trial portfolio and lead the ARPA-H Advancing Clinical Trials Readiness Initiative under ARPA-H Resilient Systems Mission Office Director Jennifer Roberts.

The first radiologist to be appointed to such a role, Dr. Pisano is an internationally recognized expert in women’s health, breast cancer research, and the use of artificial intelligence in medical imaging applications.

“I am honored to be working for ARPA-H to identify and promote research that can improve healthcare quality, efficacy and delivery, and to improve patient care and access to clinical trials for all Americans, including women, rural residents, and the underserved,” said Dr. Pisano.

Dr. Pisano will continue to serve as study chair of the large-scale Tomosynthesis Mammographic Imaging Screening Trial (TMIST) for the ECOG-ACRIN Cancer Research Group (ECOG-ACRIN). TMIST is led by ECOG-ACRIN with funding from the National Cancer Institute, part of the National Institutes of Health. She will also continue to serve as the American College of Radiology® (ACR®) Chief Research Officer (CRO). Dr. Pisano previously served as the principal investigator of the landmark Digital Mammographic Imaging Screening Trial (DMIST).

The TMIST breast cancer screening study is among the fastest growing National Cancer Institute (NCI) trials of the COVID-19 era. Under Dr. Pisano’s leadership, TMIST is assembling one of the most diverse cancer screening trial populations ever. Approximately 21% of TMIST U.S. participants are Black—more than double the average rate for Black participation in NCI-funded clinical trials (9%).

With ARPA-H, Dr. Pisano will work to build underserved and minority participation in clinical trials—including identifying and onboarding rural facilities and those outside of large academic medical centers—such as emerging retail healthcare sites. 

These duties are also very consistent with the missions of ECOG-ACRIN and ACR, which include promoting the exploration and identification of next-generation technologies that can benefit patients and providers.

“This is a great opportunity for Etta, and I’m excited about the impact she will make on our approach to clinical trials,” said Mitchell D. Schnall, MD, PhD, group co-chair of ECOG-ACRIN.

About ECOG-ACRIN

The ECOG-ACRIN Cancer Research Group (ECOG-ACRIN) is an expansive membership-based scientific organization that designs and conducts cancer research involving adults who have or are at risk of developing cancer. The Group comprises nearly 1400 member institutions and 21,000 research professionals in the United States and around the world. ECOG-ACRIN is known for advancing precision medicine and biomarker research through its leadership of major national clinical trials integrating cutting-edge genomic approaches. Member researchers and advocates collaborate across more than 40 scientific committees to design studies spanning the cancer care spectrum, from early detection to management of advanced disease. ECOG-ACRIN is funded primarily by the National Cancer Institute, part of the National Institutes of Health. Visit ecog-acrin.org, and follow us on X @eaonc, Facebook, LinkedIn, and Instagram.

Media Contact: Diane Dragaud, Director of Communications, communications@ecog-acrin.org.

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