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Safestyle UK “demand has been much stronger than anticipated” says Zeus Capital

Since the recommencement of Safestyle UK plc (LON:SFE) operations in May (14th) demand has been much stronger than anticipated. For the last eight weeks order intake has grown 23.2% with the order book at the end of June 45% higher than at the same point in 2019.  This has forced management to increase capacity further, whilst increasing lead generation spend and a shorter furlough period than we had assumed as workers came back earlier. The resulting additional costs incurred are likely to mean H1 profitability will be lower than we might previously have thought. Whilst hopeful that this will be offset in H2 as installations increase, we take a conservative view leaving revenue forecasts unchanged but increasing cost assumptions. Estimates in FY21 are left unchanged, and whilst visibility remains low as to where underlying demand might settle post the initial pent up demand post lockdown, the potential for government assistance to underpin a strong market over the next 18-24 months is high.       

  • Stronger than expected demand post the recommencement of operations bodes well: Consumer demand since Safestyle restarted operations has been exceptionally strong and ahead of expectations. The business entered the second half with a strong order book that is currently 45% up yoy with order intake increasing 23.2% in the two months since May. Whilst we expected a degree of pent up demand the figures indicated in today’s statement are stronger than we might have expected. Canvas had been an area of concern, considering current social distancing guidelines, but initial indications are that this has not been a problem with reception on the doorstep positive, no doubt helped by the number of people working from home.
  • Liquidity not an issue and fund raise has provided the means to take market share: The recent £8.5m fund raise alleviated short- and medium-term funding issues and importantly meant the company had the resources to invest in lead generation. This has certainly helped Safestyle take market share whilst the other two national players remained out of the market. We had been worried that funds earmarked for marketing were utilised to fund the business through the lockdown. The additional capital raised has alleviated these concerns and leaves the business well placed to invest in lead generation.  
  • Short term forecasts impacted by costs, not end market demand: Safestyle UK continues not to provide guidance until visibility improves. As a result, we have tried to be conservative in forecasts assuming that the additional costs are not offset in the short term as it takes time for installations to come through. However, the 16.9% growth in installation revenue in the last three weeks provides optimism that revenue and profitability will improve going forward. The net effect is that we increase the loss before tax to £2.1m in the current year (prev. £0.9m) but leave FY21 forecasts unchanged. The interim results (17th September) will provide greater clarity as to the FY20 outcome.

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