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.
