Safestyle UK current run rate in line with Zeus’ FY22 forecasts

Epwin Group

Safestyle UK plc (LON:SFE) FY21 results are in line with Zeus’ upgraded forecasts showing a very strong performance in challenging circumstances. Revenue increased 26.6% yoy (FY20: £113.2m) and 13.5% against the pre-pandemic FY19 £126.2m. Adj PBT of £7.6m (FY20: £4.8m loss) reflects the completion of the turnaround and is £16.4m better than the loss in FY18. Trading in recent weeks is in line with pre-cyber-attack levels indicating its short-term impact. Our understanding is that the current run rate is in line with previous Zeus forecasts. The order book is at record levels underpinning a solid outlook for the year. The balance sheet is strong, it has £12.1m of net cash, providing significant strategic opportunity either through acquisitions or capital returns. Valuation based on FY23 forecasts is compelling at 7.0x earnings and 2.0x rolling EV/EBITDA.

FY22 outlook underpinned by record order book

¨ FY21 in line with upgraded forecasts: Today’s results are in line with forecasts that had been upgraded in January. Zeus Operating profit forecast increased 7.4% in £8.6m (prev. £8.0m) with the actual performance reported in FY21 of £9.2m. Higher interest costs meant profit before tax was marginally ahead at £7.6m against the forecast of £7.5m, but again this had been upgraded by 8.6%, from £6.9m in January.

¨ Changes to forecasts: Demand has remained robust during Q1 and with the strength in average frame selling price seen in H2 21 this leads to an increase in revenue estimates. FY22 estimate increases 6.3% to £154.5m (prev. £145.3m) and FY23 by 4.9% to £167.3m (prev. £159.5m). However, on-going cost input inflation combined with higher operating costs leaves profit forecasts broadly unchanged. The only other significant change is the increase in the taxation to reflect changes in the corporate tax rate. (Full details of changes to forecasts can be found on page 2)

¨ Order book at historic levels and pricing firm: There remain significant headwinds facing the building products sector including cost input inflation, supply chain issues and, most importantly from a demand perspective, the cost-of-living crisis. However, the strength of Safestyle UK’s order book, currently at historical highs, provides reassurance the business can smooth any reduction in short term demand. Installations remain 36% below FY16 levels whilst average price is c. 40% above. Price per frame increased c. 12% in FY21 as managing discounts and list prices allowed Safestyle to off-set cost input inflation.

¨ Current run rate in line with Zeus’ previous FY22 forecasts: Management stated that the impact from the cyber-attack would be significant, in terms of the impact in H1, but that it would also prove short lived. Our understanding is that the run rate during April is in line with the original Zeus estimate of c. £9.0m PBT.

¨ Valuation: The shares trade on 7.0x FY23 earnings, more than discounting concerns regarding the UK consumer. With a strong net cash position on its balance sheet Safestyle UK is in a good position to drive earnings through acquisition should the market stall materially over the coming months.

Summary financials

Price41.0p
Market Cap£56.8m
Shares in issue138.6m
12m Trading Range38p – 68p
Free float100%
Next EventAGM – 8 June 2022

Financial forecasts

Yr end Dec (£’m)2021A2022E2023E2024E
Revenue143.3154.5167.3177.3
yoy growth (%)26.67.88.36
EBITDA1511.617.718.6
EBIT9.25.811.912.9
Adj. PBT7.64.710.811.7
Adj. PAT6.43.98.49.1
EPS (p) basic adj.4.72.86.16.6
EPS (p) ful dil. Adj.4.52.75.86.3
DPS (p)00.71.51.6
Net cash12.113.420.627.6
P/E915.276.5
EV/EBITDA*33.721.5
Div yield (%)01.73.64
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