# Safestyle UK Plc Progress in turnaround leads to upgrade in FY19

- Link: https://www.directorstalkinterviews.com/safestyle-uk-plc-progress-in-turnaround-leads-to-upgrade-in-fy19/412763223
- Published: 2018-12-17T10:25:15+00:00
- Author: Charlotte Edwards

**Safestyle UK Plc** (LON:SFE) We upgrade FY19 estimates on today’s trading update.
Revenue increases 3.1% to £131m (prev. £127m) leading to an 18% increase in profit
before tax to £5.3m (prev. £4.5m). The loss in FY18 increases to £8.5m due to timing
as the improved run rate incurs additional costs prior to revenue and profit being
recognised in FY19. Since the announcement (22nd October) of the five year non-compete
with a party involved with Safeglaze, a business now in administration, Safestyle
has seen a significant increase in staff resulting in a material improvement in 
sales order intake. Order intake over the last six weeks is comparable with the 
same period in FY17 indicating that the current run rate is ahead of expectations
leading to today’s increase in FY19 forecasts. The current earnings multiple of 
12.8x reflects the recovery underway at Safestyle and today’s statement indicates
that whilst in the initial stages, the management team have made significant headway.

** Returning staff is a good indication of the recovery of the business**: Following
the agreement of the non-compete, the Group has seen a material increase in headcount
across its surveying, canvassing, sales and installations workforces. This is translating
into a much-improved sales order intake. The increase in installer headcount is 
particularly pleasing, as this is vital to delivering on the improved order book
and contrasts with constrained installation capacity experienced by some industry
competitors of late.

 **Positive change to FY19 profitability forecasts**: With order intake in recent
weeks now running at levels comparable with 2017 sales, we move our FY19 revenue
forecasts 3.1% higher to £131m. Operating leverage within the business means this
results in an .18% increase in profitability to £5.3m. Increased investment in lead
generation, commissions and overheads associated with an expanded workforce, combined
with a timing difference between lead generation versus installation taking place
means our FY18 forecasted loss after tax moves to £8.5m (prev. £6.5m) in line with
the £8.2m to £8.6m guidance in today’s statement. Whilst the acceleration in workforce
headcount impacts near term profitability, we believe this positive investment in
the business should drive a stronger than previously forecast recovery.

 **Valuation**: We believe the positive momentum seen in the business following
the resolution of the dispute with SafeGlaze, along with ongoing self-help measures
offers substantial turn around potential for the shares. The business’ production
facility is well invested with good capacity for ongoing growth, and investment 
in technology is expected to generate efficiencies and incremental margin improvement
going forward. Safestyle is currently trading on 12.8x FY19 earnings and carries
low levels of debt. The Group will announce its final results for FY18 on 28th March
2019

Share on: