Shares in replacement windows and doors retailer Safestyle UK (SFE:AIM) rallied 4.4% to 51.2p on Thursday as the company flagged a return to profit in the second half of 2020 and news of a stronger than expected start to 2021 stoked material upgrades.
Drawing confidence from a good start to 2021, Safestyle expects its 2021 financial performance will be ‘significantly ahead of market expectations’.
In fact, the Barnsley-based company’s healthy installation pipeline means it is on course to achieve ‘the highest level of profitability in Q1 for any quarter since 2017’.
RESILENT OPERATOR
Pandemic-disrupted results for 2020 were in-line with guidance given last month, with sales down 10.3% to £113.2 million, a creditable performance given the business was effectively shut between late March 2020 and the end of May.
Safestyle’s underlying loss before tax widened from £1.5 million to £4.8 million, though profitability was achieved either side of the first lockdown and the group returned to profitability in the second half; and this second half profit would have been bigger had management not taken a conscious decision to build the order book by investing in lead generation.
‘Having taken decisive action to support the business during the period, we saw a strong recovery in the second half of the year with good order intake growth and a step up in operational capacity, as customer demand remained robust,’ explained CEO Mike Gallacher.
With an £8.2 million placing in April strengthening the balance sheet, Safestyle was able to recapture its strong momentum in the second half, tapping into pent-up consumer demand to deliver double-digit sales growth of 15% while also growing the order book.
‘By the end of 2020, our order book was 83% larger than 2019’s closing position, which has given us a strong platform to maintain momentum at the beginning of the current financial year in spite of the external disruption,’ added Gallacher.
By deliberately building a bulging order book, his charge has been able to ‘entirely mitigate the disruption caused by the interruption in sales and canvass operations’ that came with the third national lockdown in the first quarter of 2021.
And though one-time income favourite Safestyle passed the dividend for 2020, Gallacher and the board expect to revisit its dividend policy later in the year, so long as it has ‘returned to a consistent delivery of profitability’.
THE ANALYSTS’ TAKE
‘Safestyle has started 2021 well with double-digit revenue growth in Q1 and profitability ahead of H2 2020,’ said Liberum Capital, noting the company has ‘benefitted from the actions taken to set up a strong starting position for 2021, and the margin improvement measures that have been gaining momentum for the last nine months.’
Upgrading its 2021 pre-tax profit forecast from £4 million to £6 million, the broker continues to see ‘significant recovery prospects, with the shares eventually trading over 100p as margins are further restored.’
Zeus Capital said Safestyle’s outlook statement ‘provides clear indication that FY21 has started more strongly than anticipated leading to a 50% increase PBT estimate to £6 million (£4 million) in the current year. The inherent confidence in today’s results statement suggests that there is a level of normality returning to the business.’
