Safestyle shares down after profits warning
Shares in Safestyle UK '‹plunged nearly 20 per cent after the Bradford-based double glazing firm issued its second profit warning in three months'‹.
The group blamed higher costs, sending its shares to an all time low. Shares in the company slumped as much as 26 per cent in early trading on the London Stock Exchange and were down 19.5 per cent at 4pm at 40.5p.
The firm is now forecasting an underlying pre-tax loss and said revenue will be below market expectations for the year to December 31. The group said its gross margins have been hit by higher digital marketing costs and sales commissions.
The retailer, which sells PVC windows and doors, has been struggling with a steady decline in sales volume amid rising inflation and falling consumer confidence as homeowners rein in non-essential spending.
It has also been hit by new market entrant SafeGlaze UK. The two firms, both based in Bradford, have become arch enemies since Safestyle accused its rival of “passing off, the misuse of confidential information, unlawful means conspiracy and malicious falsehood“.
Safestyle was forced to scrap its dividend in April, when it said its 2018 revenue and profit would be significantly below market estimates.
It has also seen management changes in recent months as chairman Peter Richardson resigned shortly after assuming the role. Former Mars executive Mike Gallacher joined as Safestyle’s chief executive in May, taking over the post from Steve Birmingham.
The company said its order intake has improved in recent weeks, but is still at a lower level than expected. Pricing remains firm after the company introduced price increases.
Safestyle also forecast £6m in one-off costs this year. However, it expressed confidence in its medium and long term prospects as it expects material annual savings from its cost savings programme.
Analyst Charlie Campbell at Liberum said: "Safestyle’s trading update contains the good news that order intake has now stabilised following disruption from a very aggressive new market entrant, and that staff numbers are now starting to be rebuilt.
"The bad news is that activity levels are at a lower level and margins have suffered more than originally expected. This has led us to reduce expected pre-tax profit from a £4m profit to a £3m loss, but we are confident in new management’s ability to restore profits."
Mr Campbell said the balance sheet should have a small net cash position at the year end, but facilities are now in place and he does not expect these to be needed without a further deterioration in trading.
Liberum has cuts its target price from 60p to 40p to anticipate the stock market reaction.
"But we are starting to see significant upside on a two year view if recovery takes hold, noting that the shares would only be on two times peak earnings at that level," said Mr Campbell.
"We expect profit recovery in 2019 as Safestyle rebuilds its lead generation capability and as the group benefits from price increases made through the second half of 2018. We are confident that these will hold as we understand that the whole industry has pushed prices up."
In late May, Safestyle said it had won the first round of its legal battle against SafeGlaze UK. .
At the hearing, the Court made a number of orders against SafeGlaze and some named individuals.