Safestyle UK Plc (LON:SFE) has announced results for the year ended 31 December 2018. Performance for the year is broadly in line with our forecasts with a better than expected year-end net cash position of £0.3m thanks to working capital management. Safestyle’s year has been dominated by the actions of an aggressive competitor that significantly impacted operations, resulting in a material fall in sales and profitability. The successful legal resolution of this action means the Group ended the year on a stable footing, with positive sales momentum building into FY19. With a challenging year now behind them, management have successfully completed the first of a three-phase turnaround plan aiming to stabilise the Group and return it to profitable growth. The shares currently trade on an FY19 PE ratio of 15.1x falling to 9.0x in FY20. Safestyle remains a simple and focused business with well invested infrastructure. We believe the investment case is compelling, should management execute the turnaround to plan.
: As previously reported, significant disruption caused by an aggressive new market entrant impacted sales and profitability in the period. Revenue of £116.4m is down 26.6% YOY, with the volume of frames installed down 30.7% to 184k offset by an increase in average price of 6.2% to £646. Average order value of £3,319 was up 2.7%. Gross profit of £26.7m is down 48.1% YOY with gross margin falling 950 basis points to 22.9%. This resulted in an underlying EBITDA loss of £6.5m. The year-end net cash position of £0.3m is ahead of the £4.5m of debt we forecast due to working capital management.
Turnaround plan: Management have successfully completed the first phase of its turnaround plan, with the Group stabilised following legal resolution to the aggressive competitive behaviour it faced, and debt funding secured.
Forecasts: We leave our FY19 forecasts largely unchanged, with increased finance costs resulting from the new debt facility driving a small downgrade to PBT. We have also introduced FY20 forecasts today assuming PBT will grow by c.69% to £7.8m from the £4.6m forecast in FY19.
Valuation: Based on last nights close the shares currently trade on an FY19 P/E of 15.1x falling to 9.0x in FY20. Safestyle remains in turnaround mode as the business is returned to profitability. We are encouraged by the step change in trading seen in the final two months of FY18, with this positive momentum continuing into FY19. Safestyle has well invested production facilities and its Digital Transformation plan is modernising the groups practices and should deliver operational efficiencies as well as valuable real time management information. We believe the investment case is compelling, should management execute the turnaround to plan. Price 70.4p
