# Safestyle UK plc Shares offer an attractive 6.1% dividend yield – Zeus

- Link: https://www.directorstalkinterviews.com/safestyle-uk-plc-shares-offer-attractive-6-1-dividend-yield-zeus/412735814
- Published: 2017-09-21T07:13:58+01:00
- Author: Giles Arbor

**Safestyle UK Plc** (LON:SFE) has released interim results for the six months ended
30 June. Revenue of £82.5m is +1.4% YoY (HY16 restated: £81.4m) however an increase
in costs driven by investment in lead acquisition, the move to a new facility and
additional IT investment has resulted in a 15.1% decline in underlying PBT to £9.0m.
As highlighted in the trading statement (8th September), market conditions remain
challenging; FENSA data shows the rate of market decline accelerated from a reduction
of 2.4% in Q1 to 17.2% in Q2, with this steeper rate of decline continuing in Q3.
Safestyle’s investment in lead acquisition has protected its market share, which
now stands at 11.2% and order intake is up 1.8% in the six months to June, despite
the difficult trading environment. Our profit forecasts are unchanged following 
the downgrade to numbers on the trading statement. We move our dividend forecasts
lower, reflecting the flat interim dividend but acknowledge the announcement of 
the £2.5m return to shareholders through a share buy-back programme, revealed today.
The company trades on a PER of 11.8x and yields 6.1% backed by a solid balance sheet
with a forecasted £13.0m of net cash at the year end.

**Taking share in a flat market:** Revenue of £82.5m is 1.4% higher YoY, driven 
by an 8.3% increase in average unit price to £599 (H116: £553), offsetting a 6.8%
decline in installation volumes. Whilst modest, this growth in revenue is in sharp
contrast with the steep decline seen in installation volumes across the market with
Safestyle increasing its market share to 11.2% (FY16:10.2%).

**Higher costs impacting profitability:** Higher costs have impacted profitability
with underlying EBITDA of £9.8m -11.7% and underlying PBT of £9.0m -15.1% YoY. Price
increases implemented at the start of the year have more than compensated for additional
material costs resulting from sterling’s devaluation. However, increases in other
direct costs have impacted profitability. The tough market backdrop has increased
competition for lead generation with online marketing costs +19% YoY. Expected additional
costs relating to the transfer of production to the new factory have also impacted
margins in H1 and operating costs are also higher as a result of investment in senior
management and IT.

**Forecasts:** We have adjusted our revenue and COS projections to reflect the company’s
adoption of IFRS 15 which strips out charges incurred in the sale of financed products,
this has no impact on forecast profitability. We reduce our dividend expectations
to reflect the flat interim dividend, but welcome today’s announcement of plans 
to return capital to shareholders through a £2.5m share buy-back programme. We now
expect FY17 dividend to be flat YoY at 11.3p and assume 3.0% growth thereafter.

**Valuation:** At current levels Safestyle UK plc trades on an FY17 PER of 11.8x
falling to 10.8x in FY18 on forecasts that assume flat revenue with c.£1.0m of the
£1.5m uplift in profitability stemming from cost savings. At last night’s closing
price, the shares offer an attractive 6.1% dividend yield.

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