The Nick Scali Limited (ASX: NCK) share price leapt 21% this morning following stronger than expected sales. Despite the closure of stores during lockdown, sales orders have grown 7% over the second half to date and 20.4% over the quarter to date.

As a result of continued strong sales despite the coronavirus pandemic, the Nick Scali share price has more than doubled from its March low of $3.08 and is now trading at $7. 

What does Nick Scali do? 

Nick Scali is a furniture retailer which has been trading in Australia for over 50 years. Expanding into New Zealand in 2017, Nick Scali imports over 5,000 containers of furniture per year. Prior to the pandemic, the company sold predominantly through physical stores, but has launched an enhanced digital offering as a result of the lockdown. 

What did Nick Scali report?

Nick Scali forecast strong profit growth in the second half, with net profit after tax (NPAT) expected to be up 15% to 20% on 2H FY19. Full year revenue is expected to be in the range of $260 million to $263 million. The retailer is expecting full year underlying NPAT of $39 million to $40 million. 

The retailer closed showrooms on 30 March 2020, and began reopening in April, with all stores open by the end of the month. Since reopening, all showrooms have traded strongly with positive sales order growth. Nick Scali responded to store closures by improving its digital offering, allowing customers to purchase its entire range of products online. 

What is the outlook for Nick Scali?

Nick Scali experienced a significant decline in sales orders during the period of store closures. This means that around $9 million to $11 million of sales were unable to be recorded in the current half of the financial year. Nonetheless, profits are set to increase in 2H FY20 compared to 2H FY19. This is thanks to a range of cost reduction initiatives across marketing, employment, and property, alongside government assistance. 

The company saw a significant rebound in customer activity in May and the first half of June. Sales orders over May and June are expected to be up 54% on the prior corresponding period. This surge has been driven by the easing of government restrictions and a reallocation of consumer spending toward furnishings and homewares. 

Nick Scali has benefitted from people spending more time at home. As a result, many consumers are choosing to upgrade their domestic environments with new furniture and accessories. Given the current increase in sales orders, Nick Scali expects sales growth of 30% in Q1 FY21, which will underwrite profit growth for 1H FY21. 

More reading

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Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Brokers are still finding stocks to upgrade on the ASX even as the S&P/ASX 200 Index (Index:^AXJO) reattempts to break above 6,000.

That level is a psychologically important mark for the ASX, and if successful, will be a bullish development for our market.

The ASX 200 jumped 1% in morning trade to 5,998 points as investors brushed aside their COVID-19 fears and focused on the big jump in retail sales for May.

Shopping for a good buy

This positive sentiment partially explains the 6.3% jump in the Premier Investments Limited (ASX: PMV) share price to $17.35 at the time of writing.

The other reason why the stationery and clothing retailer is outperforming is because Macquarie Group Ltd (ASX: MQG) upgraded the stock.

The broker changed its recommendation on Premier to “outperform” from “neutral” with a $20.11 price target.

The bullish turn comes on the back of the surge in online sales across the sector due to the coronavirus lockdown.

“Online trends within PMV’s portfolio highlight strength within the key brands despite the recent setback of physical store shutdowns,” said Macquarie.

The group’s cost base is also likely to fall, which will pad margins. Premier is pushing shopping mall landlords to cut rents and is eligible for wage subsidies in Australia and some of the other countries it operates in.

However, as Macquarie highlights, quantifying wage subsidies, like JobKeeper, is difficult. There is also a risk that Premier’s aggressive move to force rental cuts can backfire.

Seeking a bargain

Another stock that’s outperforming today is the SEEK Limited (ASX: SEK) share price, which rallied 4.5% to $21.74 at the time of writing.

The jump comes as UBS upgraded the online jobs classifieds group to “buy” from “neutral” today and upped its price target to $23 from $15.25 a share.

There are four driving the broker’s decision. First, UBS thinks the worst for the jobs market is over with its weekly trackers showing sustained improvement in job volumes.

Next, Seek is recommencing its dynamic pricing for recruiters and corporates from next month, which could see yield growth reaccelerate.

Further, the broker thinks the group’s recent temporary cuts to operating costs could be in place for the longer-term.

Finally, UBS economists have revised up their forecast peak in Australian unemployment to 8% from 10%.

There is also an additional factor why investors should buy the stock. Seek’s valuation stands favourably when compared to peers like REA Group Limited (ASX: REA) and Carsales.Com Ltd (ASX: CAR).

More reading

• Brokers name 3 ASX 200 shares to buy today
• ASX 200 up 0.9%: Big four banks rebound, Appen hits record high
• Is the Downer EDI share price in the buy zone?
• ASX tech shares: 2 exciting small caps to watch closely
• Top fund manager reveals some of the best ASX shares to own

Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited and Premier Investments Limited. The Motley Fool Australia has recommended carsales.com Limited, REA Group Limited, and SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Australia’s top brokers have been busy adjusting their estimates and recommendations again, leading to the release of a large number of broker notes this week.

Three broker buy ratings that have caught my eye are summarised below. Here’s why brokers think these ASX shares are in the buy zone:

Afterpay Ltd (ASX: APT)

According to a note out of Ord Minnett, its analysts have retained their buy rating and lifted their price target materially on this payments company’s shares to $64.70. The broker has been looking through recent data and has made positive revisions. It now believes Afterpay could report almost 10 million active customers by the end of FY 2020. This will be more than double the 4.6 million active customers it had at the end of FY 2019. While it is a high risk option due to its valuation, I agree that Afterpay is a buy.

SEEK Limited (ASX: SEK)

A note out of UBS reveals that its analysts have upgraded this job listings company’s shares to a buy rating with a $23.00 price target. UBS made the move on the belief that the worst is now behind the company and that job volumes have started their recovery. The broker also notes that SEEK’s shares look good value in comparison to other online listings companies. I agree with UBS and feel SEEK would be a great buy and hold investment.

Woodside Petroleum Limited (ASX: WPL)

Analysts at Goldman Sachs have reaffirmed their buy rating and $33.85 price target on this energy producer’s shares. According to the note, the broker believes that Woodside is well-positioned in this low oil price environment due to its low cost operations and its strong balance sheet. Based on its last close price, Goldman’s price target implies potential upside of 55.6% for its shares over the next 12 months. I think this could certainly make it worth considering.

More reading

• Brokers just upgraded these ASX 200 stocks to “buy” today
• ASX tech shares: 2 exciting small caps to watch closely
• Why Adairs, Nick Scali, SEEK, & Splitit shares are storming higher
• 3 quality ASX shares to buy now to get rich later
• Why a2 Milk, Afterpay, and Pushpay shares just hit record highs

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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