ScS (SCS) - Long-Term Hold for ISA - 7% Div

2020年1月20日

SCS Group PLC – SCS

Sector: - Consumer Cyclicals

How did I come across it: - I was also looking for firms that may benefit from the up tick in estate agent enquires and their outlook reported in the FT 16th January 2020 (Estate agents eye better times but Brexit could still dampen market). I then filtered for dividend stock with a low PE, dividend history, dividend yield above 5%. Since it could be going in my ISA. If people buy a house, they invariable need new furniture. I have bought from them in the past, service was good.

Company Background: - Incorporated in Oct 1996 (24 years), public since Jan 2015. SCS is engaged in the provision of upholstered furniture and flooring. Specialises in fabric and leather sofas, including brands Endurance and SiSi Italia; plus a range of third-party brands, including La-Z-Boy, G Plan and Parker Knoll. The Company operates 100 stores nationwide along with an online sale and also has approximately 10 distribution centres in the UK, plus concessions in House of Fraser (30 stores).

Ratios: - PE 9.7 (on future earnings), Dividend Yield 7%, Dividend Cover 1.6, Price change 4.45% 1 Yr, Operating Margin 4.4%. No debt. Market Cap £90M (Jan 2019). Relative strength 2.8% 1m 6.4% 6m and -5.38% 1yr, so has picked up.

Rough Technical: - In the last year it has traded between 210p and 265p, after the annual results (July 2019) the share price rose over 4 weeks to 260p and pulled back due to Brexit concerns, it now sits at 238p (Jan 2019). Since the UK general election (12th December 2019) it has risen 5%, but not the sort of rise that the house builders received (10-15%). Though it is in a similar industry.

Liquidity: - 41M shares issued, 25% are held with shareholders below 3% holdings, so roughly 10M active. The main shareholders holding 74% are Sun Capital 26%, Artemis 11%, M&G 8.6%, and 6 others above 3%. Average volume over 3 months is 135K (above my 120K threshold). In the past the type of institutions holding these big holdings dictate the dividend policy, hence the high dividend yield history.

Brokers Opinion: - 1 hold and 3 buy, with a target price at 235p (below the present 238p price) it depends how old this price target is though and if sales pick up after Brexit.

Spread: - 168bps

Beta: - 0.51, so not overly volatile compared to market, and not a high flyer, more steady away.

Accounts: - The board has said trading in line with expectations, this in my opinion is board speak for doing OK, but the industry is struggling. If this continues then I would expect a revision to dividend policy. Though this struggle in the past could be due to the uncertainty of Brexit putting off purchase decisions. Cash-flow generally over the last 5 years net cash-flow is around half operating net cash-flows, so the company has built up a cash pile of £50M. Sales have flat lined against inflation for the last 3 years (Brexit Uncertainty?) at around 317M (2019), Net Profit has been £9-10M for the last 3 years. Balance sheet is strong, with no debt. I couldn't find anything alarming in the accounts and financials indicating bankruptcy risk.

Main Risks: - Operating level, House of Fraser (was bought by Sports Direct (now Frasers)) so sales might be impacted. Economic outlook, though the uptick in estate agency enquires is a boost. Dividend cover, it's below 2 and failure to increase performance will affect it at some point.

Main Favourables: - Dividend Yield 7%, Reasonable PE 9.7, Share price isn’t too volatile. Trading above 200 and 50 day MA since 24th Dec ember 2019.We all need sofas and furniture.

Declaration: - No interest at the moment, looking at holding this long-term for dividend income. Aiming for a limit entry around 230-232p.
It’s no star or YOYO, but a Clydesdale horse – steady away.