Embattled window and door retailer Safestyle UK’s (SFE:AIM) woeful year continues. Shares in the company crashed 17.5% to 158p in early trading on Wednesday as the small cap cuts profit guidance for 2017, and 2018.

Issuing yet another profit warning, Yorkshire-based Safestyle bemoans a further weakening of demand since reporting half year results, says fourth quarter sales have been hit by snow disruption and predicts ‘very challenging’ market conditions for the New Year, in which ‘only modest growth in earnings over 2017’ can reasonably be expected.

FORECASTS GO OUT THE WINDOW

Full year underlying profit before tax (PBT), before restructuring costs and share based payment charges, will be ‘at least £15m’, says AIM-traded Safestyle, some £1.5m below previously downgraded market expectations and implying a sharp 27% year-on-year profits decline.

The UK homeowner market’s leading manufacturer and retailer of PVCu replacement windows and doors is among the casualties of a slump in consumer confidence, which is crimping discretionary spending on big ticket, housing-related projects.

In today’s unscheduled update, CEO Steve Birmingham (pictured) says that in the three months to 30 November, sales declined by 0.3% and 6.8% in value and volume terms respectively in a weakening wider market. ‘Whilst we believe we will have made significant market share gains in 2017, for the 11 month period to 30 November 2017 the Group's sales by value are 0.8% lower than for the same period in 2016,’ laments Safestyle.

_DSC5225_Steve_Birmingham

SNOWFALL BEHIND THE SHORTFALL

Disappointingly, Safestyle’s fourth quarter (Q4) performance has been impacted by the cold snap, installations delayed due to the snow, while margins have contracted due to higher lead generation costs in a more competitive landscape, as well as an increase in the proportion of sales made on extended credit terms.

Safestyle is cutting costs and seeking operational efficiencies which should support profitability levels in 2018, although ‘only modest growth in earnings over 2017’ is now likely in such exacting market conditions.

Crumbs of comfort are to be found in the comment Safestyle ‘continues to be highly cash generative and expects to have a strong cash balance of approximately £12m at the year end and a robust balance sheet. During the year we completed a major capital investment programme, which leaves the business very well invested for future trading and any upturn in demand. Furthermore, we remain fully committed to our progressive ordinary dividend policy.’

A winter landscape as the sun goes down beyond the hills.  A communications tower is on the hill top. (Yorkshire, England)

WHAT THE ANALYSTS ARE SAYING

‘The update says that management remains fully committed to its stated dividend policy,’ says Liberum Capital, still a buyer, yet trimming its price target from 227p to 200p this morning. ‘We are therefore confident that it will hold the dividend at the 2016 level (11.25p) until it can be raised once cover increases once again.’

Safestyle UK - DECEMBER 2017‘Safestyle indicates slightly weaker sales than hoped since the last formal update in September, and leads coming at a slightly higher cost of acquisition and lower margin,’ writes N+1 Singer.

‘This has been exacerbated in December by delays to their installation programme due to the snow, which will delay some business into Q1 next year,’ adds the broker, reducing its price target from 180p to 155p.

Forecasting £15m worth of taxable profit for 2017, downgraded from a previous £16m, Zeus Capital lowers its 2018 and 2019 PBT estimates from £17.5m and £18.8m respectively to £15.7m and £17.1m, with a flat 11.3p dividend shaded in for 2017 and 2018, hopefully rising to 11.6p in 2019.


Issue Date: 13 Dec 2017