Strong trading continues
Safestyle UK plc (LON:SFE) trading has remained strong with revenue in the four months to the end of April up 6.7% yoy. This includes cyber-attack impacted weeks in January and February meaning March and April generated +10% growth and is inline, if not better, than the run rate seen before the attack. Management had stated that the impact would be short lived and today’s AGM statement confirms it. The order book remains at exceptionally high levels and the price increase that had been delayed has now been implemented, underpinning a positive outlook into the end of the year. Guidance is unchanged and as a result Zeus leaves estimates unchanged. Trading on 7.4x FY23 earnings and just 2.2x EV/EBITDA, with a strong net cash position and a growing dividend, Safestyle UK shares appear to be discounting a very severe downturn in UK consumer spending.
¨ Order book remains firm, underpinning FY22 outlook: +10% trading in March and April is above the Zeus pre-pandemic estimate run rate, highlighting the strength in the recovery following the issues earlier in the year. The new advertising campaign has certainly helped underpin the strong performance despite absolute spend being materially below historic levels. Order intake increased 16.3% to the end of April. Zeus estimate that the order book must have been at historic highs at that time, having increased on the strong level at start of FY22 helped by the cyber-attack preventing installations. The strength of the order book increases visibility to at least twelve weeks, in our estimation more than double the normal length, providing confidence in FY22 estimates.
¨ Pricing power a major positive: Cost input pressures have been a severe headwind for the building product industry over the last 18 months or so. The difference between businesses that can offset these pressures with those that struggle has been stark. Historically, Safestyle has strong track record in implementing price increases having a achieved an increase over the last ten years, in FY21 prices increased by 12%. In FY22 an initial increase was delayed, due to the impact of the cyber-attack, but this has now been implemented. This, combined with the order book strength, provides confidence in the outlook for FY22 forecasts.
¨ Installations materially below peak: The outlook for the UK consumer has weakened in recent months as inflation has increased creating the cost-of-living crisis which is only just starting to be felt in terms of energy and food. However, domestic installations remain 36% below FY16 levels offering a degree of comfort that the window and door market may not be as impacted as other areas.
¨ Valuation: The shares trade on 7.4x FY23 earnings and just 2.2x EV/EBITDA, more than discounting concerns regarding the UK consumer. With a compelling net cash position on its balance sheet Safestyle UK is in a good position to drive earnings both organically and through acquisitions, should the market stall materially over the coming months.
Summary financials
| Price | 43.2p |
| Market Cap | £59.9m |
| Shares in issue | 138.6m |
| 12m Trading Range | 38.0p – 62.9p |
| Free float | 100% |
| Next Event | Interims 22 Sept 2022 |
Financial forecasts
| Yr end Dec (£’m) | 2021A | 2022E | 2023E | 2024E |
| Revenue | 143.3 | 154.5 | 167.3 | 177.3 |
| yoy growth (%) | 26.6 | 7.8 | 8.3 | 6 |
| EBITDA | 15 | 11.6 | 17.7 | 18.6 |
| EBIT | 9.2 | 5.8 | 11.9 | 12.9 |
| Adj. PBT | 7.6 | 4.7 | 10.8 | 11.7 |
| Adj. PAT | 6.4 | 3.9 | 8.4 | 9.1 |
| EPS (p) basic adj. | 4.7 | 2.8 | 6.1 | 6.6 |
| EPS (p) ful dil. adj. | 4.5 | 2.7 | 5.8 | 6.3 |
| DPS (p) | 0 | 0.7 | 1.5 | 1.6 |
| Net cash | 12.1 | 13.4 | 20.6 | 27.6 |
| P/E | 9.3 | 15.3 | 7.4 | 6.9 |
| EV/EBITDA | 3.2 | 4 | 2.2 | 1.7 |
| Div yield (%) | 0 | 1.6 | 3.4 | 3.8 |
