Safestyle UK plc (LON:SFE) has announced results for the year ended 31 December 2017. Performance for FY17 is in line with our forecasts with revenue and adjusted PBT down 0.6% and 26.6% respectively. This decline reflects a weaker market backdrop, with FENSA data showing a 9% decline in installations YOY, as well as increased competitive pressures. Additional cost headwinds in the form of door canvass and digital lead generation costs, finance subsidies and raw material price inflation have impacted profitability in the period. 2018 is set to be a year of transformation for Safestyle with management focused on creating a leaner and more efficient business. Restructuring of the Sales and Canvassing operations is underway and the recently completed investment in a new factory has improved the efficiency of production. The shares currently trade on an FY18 PE ratio of 7.7x falling to 6.9x in FY19. A final dividend of 7.5p announced today gives an annualised yield of 12.6%.
Results: Revenue of £158.6m is down 0.6% YOY, with the volume of frames installed down 7.9% to 266k offset by an increase in average price of 7.6% to £608. A positive mix effect also contributed to the 4.2% increase in average order value to £3,232. Cost headwinds impacted profitability. Gross profit of £51.4m is down 7.5% YOY with gross margin falling 250 basis points. Underlying EBITDA of £16.8m is down 22.4% YOY with margins 3% lower. The year-end net cash position of £11.0m is below the £11.9m forecast, reflecting the timing of a payment run that fell marginally after year end.
Directorate change: The company has announced CFO Mike Robinson will step down in May, after 10 years with the company. The board will appoint Robert Neale, Head of Leisure and Travel finance at Jet2.com and Jet2holidays, both divisions of Dart Group plc, as his successor.
Forecasts: Our FY18 and FY19 forecasts are unchanged today following revisions made at last month’s trading update (28th February).
Market outlook: Management have highlighted ongoing market pressures that are expected to continue over the course of 2018. This sentiment is shared by a number of Safestyle’s peers which have issued warnings, including Headlam and Carpet Right. We revised lower our FY18 and FY19 forecasts to reflect these headwinds alongside the pre-close trading statement last month.
Valuation: At its current share price Safestyle trades at a notable discount to its wider building products peer group. An FY18 PE ratio of 7.7x is 41% below average multiples whilst a final dividend of 7.5p announced today takes the annualised yield to 12.6%.
