Double glazing firm Safestyle UK has warned that it will make a loss of over £8m this year after facing stiff competition from a new rival SafeGlaze, which has since closed down.
In better news, the Bradford-based firm said that its workforce has grown significantly as agents have returned in large numbers following the closure of SafeGlaze. Safestyle's shares rose 4 per cent on the news.
Analyst Charlie Campbell at Liberum said: "These agents are successfully generating improved orders, to the extent that order intake is now on a par with the same period in 2017, before SafeGlaze started.
"Improved prospects for sales lead us to add around £1m a year to pre-tax profits across the forecast horizon, even taking into account some prudence around end markets, but estimates fall for 2018 as employee and lead generation costs increase before the additional revenues are booked."
Safestyle said that since it signed a commercial agreement in October, it has experienced a significant increase in its contracted workforce across its canvass, sales, surveying and installations operations. This has resulted in an improved sales order intake that is in line with the same six week period last year.
Linked to this growth in the workforce that was previously not forecast, the group has invested more than budgeted in lead generation, commissions and associated overheads.
Whilst Safestyle's management anticipates that turnover for the last month of the year will be ahead of that previously forecast, the majority of the benefit of this recruitment and the return on this increased investment will only occur in 2019.
As a result of the timing difference between incurring these higher costs and the installations taking place, Safestyle now expects that for the year ending December 31, the group will deliver an underlying pre-tax loss of between £8.2m and £8.6m.
However, as a result of the recruitment activity and associated investment in growth and despite the fact that management’s three phase turnaround plan is in its early stages against a backdrop of weaker consumer confidence, the board said it is confident that the recovery and performance in 2019 will be ahead of current market expectations.
Mr Campbell said: "We have raised our target price from 94p to 100p in recognition of improved future prospects, and maintain our buy recommendation. Safestyle has the potential to recover most of the 25 per cent of lost revenues (and associated profits) now that its workforce is restored to pre-SafeGlaze levels.
"We understand that Safestyle has been successful in recruiting a large proportion of agents previously contracted to SafeGlaze. It is especially encouraging that installers have largely returned as they are in high demand in the industry."
Mr Campbell said he sees the new management team as highly qualified to turn around Safestyle.
"Mike Gallacher joined in May 2018, having spent most of his career with Mars Inc, with postings in Asia and culminating in a role as managing director at Mars Petcare UK (with sales of around £750m)," he said.
"He subsequently spent two years as CEO of First Milk (a UK farmer owned dairy co-operative), from 2015 to 2017, during which time he led a very successful turnaround, taking the £440m revenue business from an operating loss of £22m to an operating profit of £12m."
The group also has a new CFO, Rob Neale and a new chairman, Alan Lovell, who both started in July.