Safestyle sales rocket as homeowners splash cash on home improvements during lockdown

The Bradford-based firm has seen demand rocket as homeowners decided to spend their cash on home improvements rather than holidays, eating out, going to the pub or shopping amid the pandemic.

Following the Government’s implementation of a second national lockdown in November, Safestyle said it was able to continue largely normal operations thanks to strict Covid-safe policies that were developed during and after the first lockdown.

In a trading update for the year to December 31, the group said that thanks to strong growth in orders, it has increased its operational capacity and recruited more staff.

This response delivered 9 per cent year on year revenue growth in the third quarter and is expected to deliver 20 per cent revenue growth in the fourth quarter.

This revenue growth was achieved despite major supply chain issues due to the increase in industry demand, reduced third party supply chain inventories and global and European supply constraints.

Throughout the second half of the year, the group has worked to balance trading and installation activities to optimise order intake growth and deliver margin improvement whilst controlling customer lead times and service levels.

The firm's order book is more than double what it was at the end of the third quarter last year and it is forecast to be 75 per cent ahead by the end of this year.

Safestyle said it will enter 2021 with its strongest ever installation pipeline, providing a solid platform to maintain its current trading momentum whilst at the same time providing some insulation against the potential impact of disruption from further lockdowns.

The level of installation activity in the fourth quarter is expected to deliver the group's strongest financial result for any quarter since 2017.

The group has built capacity to deliver double digit revenue growth. At the same time, Safestyle said it has navigated a range of issues including supply chain disruption, additional Covid-related costs, temporary restrictions on canvass operations and investments to deal with lockdown warranty work. Together, these factors have impacted profitability levels.

As a result, second half revenue is expected to be approximately £71m with an underlying pre-tax profit of around £500,000, materially lowered by the investments in building the order book and the issues it has faced.

Full year revenue is therefore expected to be over £113m with an underlying pre-tax loss of around £4.5m, the loss being fully attributable to the cessation of operations during the first national lockdown.

Despite the obvious uncertainty of the consumer context, the group said it is confident that revenue and profitability momentum in the fourth quarter will carry through into 2021, a performance level that is underpinned by the strength of the order book.

Consequently, the board expects its 2021 financial performance to be significantly ahead of current market expectations.

Mike Gallacher, CEO of Safestyle UK, said: “Despite the unprecedented challenges faced by the group during the year, I am pleased with the recent tangible progress we have made in stepping up our operational capacity and delivering strong revenue growth, whilst further strengthening our order book.

"Moreover, we have also made good progress on our longer-term strategic priorities. Notwithstanding the uncertainty associated with the current economic backdrop, the group is well positioned to build on this positive momentum going into 2021. I would again like to thank our staff and all of our stakeholders for their efforts and support over the course of the year.”

Analyst Charlie Campbell at Liberum said: "We have raised our 2021 earnings per share estimate by 34 per cent as Safestyle starts 2021 with a record order book and as margin improvement initiatives start to bear fruit.

"The increased appetite for home improvement is likely to last and macro-economic challenges will hit renters more than owners.

"The group has a net cash position, which we expect to grow over time. We see over 75 per cent upside to our unchanged 65p target price, and eventual recovery to 120p. The shares look very cheap on three times peak earnings.