There are many young companies on AIM that have never managed to achieve a profit, but there are other companies that have been highly profitable in the past and then slumped into loss.
Sometimes it is just a blip, but it can be a difficult task to return some of these businesses to profit and even more difficult to achieve the level of profit seen in the past.
Safestyle UK (SFE)
Safestyle (LON:SFE) had been a highly profitable and cash generative business since flotation, offering an attractive yield to investors. However, the fragility of this type of business was highlighted when an executive left to start up a rival called SafeGlaze and agents followed. After litigation SafeGlaze was closed and agents have returned.
As in many of these cases, it was new management that came in and stabilised the business. They initially had to sort out the litigation, which was not cheap, and put the business on a firm footing. A 2017 underlying pre-tax profit of £15.1 million was turned into a loss of £8.7 million as revenues slumped from £158.6 million to £116.4 million.
The next stage of the turnaround plan is to rebuild the workforce and grow revenues and profit. Safestyle is expected to return to profit this year based on the changes already made.
There is no doubt that good progress has been made since the new chief executive started last May. This is a business that can be highly cash generative in the good times. If Safestyle can achieve the 2020 pre-tax profit forecast of £7.8 million, the shares would be trading on 10 times prospective 2020 earnings. Given the uncertain economic conditions and risks, the share price fully reflects the shorter-term potential.
Safestyle UK PLC (LON:SFE) have been manufacturing and installing affordable, high quality, energy efficient and secure windows and doors for homeowners across England and Wales for over 20 years.