Safestyle UK Plc (LON:SFE) has announced a trading update this morning warning of increased competitive pressures that have impacted order intake and are expected to result in a 9.5% reduction to FY18 revenues. The actions of an aggressive new market entrant have led to a decline in the Group’s canvassing salesforce in certain regions of its operations. Management is taking action to counter these pressures with planned major restructuring of the Sales and Canvassing functions underway and a review of the company’s cost base progressing. This heightened industry rivalry, combined with ongoing challenging market conditions, highlighted in Safestyle’s December trading update (13th December) results in a reduction to FY18 and FY19 EPS forecasts by 23.6% and 22.4% respectively today. Guidance for the year ended 31 December 2017 is unchanged. At last night’s closing price, the shares trade on an FY18 PER of 13.0x falling to 11.7x in FY19. The business remains cash generative, with a strong cash position and a robust balance sheet. A final dividend of 7.5p has been confirmed with shares currently offering an attractive yield of 7.4%.
* A more intense competitive backdrop is expected to impact FY18 sales: Safestyle has seen a higher than expected attrition rate in its door to door canvassers as a result of aggressive competition in some localised markets. Management has planned for a reduction in canvas headcount with the business investing in growing its lower-cost direct response and digital marketing channels, however this accelerated decline in door to door leads is now anticipated to result in lower than forecast sales in FY18.
* Action is being taken to offset the impact of this heightened competition: Planned major restructuring to the Sales and Canvassing functions is being carried out, alongside a review of the Group’s cost base. The Group has also invested in IT and its recruitment function to support customer service levels and efficiency within the business.
* Forecasts: Guidance for FY17 is unchanged. We have adjusted our forecast assumptions following today’s revised guidance with FY18 and FY19 EPS reduced by 23.6% and 22.4% respectively. A summary of changes to our forecasts is presented in Exhibit 1 below.
* Valuation: Safestyle UK Plc trades on an FY18 PER of 13.0x falling to 11.7x in FY19. We note valuation is also supported by an attractive dividend yield of 7.4% with a final dividend of 7.5p for FY17 confirmed in today’s statement. This is backed by a strong net cash position and a robust balance sheet. ZC now assumes the dividend will remain flat over the forecast period. Final year results for the 12 months to December 2017 will be announced on 22nd March.
