Safestyle on the road to recovery

The Bradford-based firm was hit by legal costs as it battled SafeGlaze, but now that threat is behind it Safestyle said it made a profit in its second quarter and it reduced first half losses from £5.7m to £2.5m.

CEO Mike Gallacher said the group has a three phase turnaround plan.

“The first phase last year was stabilising the business, getting the litigation done, sorting out our funding and financing, and building the stability of the business,” he said.

“This year is all about returning to profitability. It was good to reach that milestone in the second quarter.

“We were in significant monthly losses last year. We’re now getting to good levels of profitability month by month. The exit rate points to good financial results next year so the guidance for our performance next year is robust.”

Finance director Rob Neale said the group is now seeing good sales momentum.

“The second quarter was profitable, the third quarter is profitable,” he said.

“The fourth quarter will be marginally loss-making because of seasonality.”

Mr Gallacher said the group has not seen any Brexit uncertainty.

“Like many businesses, our message internally is to focus on what is within our control,” he said

“It is a balanced recovery and we have gained market share.”

Safestyle’s market share has recovered to 8.6 per cent, up from 7.0 per cent in the second half of 2018.

“We are gaining market share by providing a good value proposition to consumers,” said Mr Gallacher.

“We are going back to the formula that powered the growth of Safestyle.

“Safestyle is a great local success story, something we should be proud of in the region and we’ve returned to those fundamentals after a year of significant disruption.”

Analyst Charlie Campbell at Liberum said: “New management has succeeded in restoring the group to profitability and positive cash flows, after the severe disruption of 2018.”

Mr Campbell said this has been achieved by rebuilding the network of self-employed agents, improving gross margins and lowering overheads.

“We expect momentum from management’s actions to carry into the second half and into 2020,” he said.

“We have left estimates unchanged for 2020 and beyond to reflect strong momentum, but management is guiding to a small loss in 2019 as it chooses to invest in lead generation to create strong momentum into 2020.”

Liberum has maintained its 105p target price and its ‘buy’ recommendation for Safestyle.

“Peak margins of 12 per cent may be difficult to reach again as the regulatory environment is tougher, but there is still significant recovery potential as volumes and profitability recover further,” said Mr Campbell.