Small Cap Value Report (Tue 18 Jul 2017) - SFE, SOM, NTBR, DOTD

Tuesday, Jul 18 2017 by

Good morning ladies & gentlemen! It's Paul here.

I added a few extra sections to Graham's report last night, in the comments section. So for my comments on Elecosoft (ELCO), Interquest (ITQ), and Conviviality (CVR), please see my comment (no.26) using this link.

I appreciate that me adding extra sections in the comments isn't ideal, but it's a quick & easy way to post stuff on my days off, that otherwise wouldn't be posted at all. Plus I will always add a link to such extra sections, the following day.

Safestyle UK (LON:SFE)

Share price: 230.8p (down 10.2% today)
No. shares: 82.8m
Market cap: £191.1m

Half year trading update - for the 6 months to 30 Jun 2017.

I hadn't realised how much this double glazing company's share price had fallen recently. As you can see from the 2-year chart below, it's now close to the post-Brexit vote low, and autumn 2015 low. So if you like the company, this could be a buying opportunity. Or something might be going badly wrong. That's always the big quandary with buying dips.


It sounds like market conditions are getting a fair bit tougher - which is consistent with other companies reporting more fragile consumer confidence;

Since our last trading statement at our AGM on 18 May 2017, the Company has continued to trade in line with earlier months, with order intake levels continuing up 2% year on year. Within this overall figure, however, the trend from week to week during Q2 has been more volatile than we have experienced for a long time.

Furthermore, FENSA statistics for the five month period to the end of May 2017 show a market decline in volume terms in excess of 10%. Against this backdrop of patchier consumer demand, it is clear that Safestyle continues to significantly outperform the market and to increase share.

It's good to see that the company is giving fairly specific guidance to investors on how 2017 is likely to pan out;

As outlined in our AGM statement, we expect to report marginal revenue growth in the first half of 2017, with reduced profits. Given the uncertain market conditions and weaker consumer confidence, we consider it prudent to…

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Safestyle UK plc is a United Kingdom-based company engaged in the sale, manufacture and installation of replacement un-plasticized poly vinyl chloride (PVCu) windows and doors for the United Kingdom homeowner market. The Company's segment includes the sale, design, manufacture, installation and maintenance of domestic, double-glazed, replacement windows and doors. The Company has over 30 sales branches and approximately 10 distribution depots located throughout the United Kingdom. Its product range includes EcoDiamond WINDOWS, EcoDiamond UPVC DOORS, EcoDiamond BI-FOLD DOORS, EcoDiamond REPLACEMENT CONSERVATORIES, GuardDoor, Pavilion and Inspire. It has manufactured over 279,000 frames and carried out approximately 60,000 installations. The Company's subsidiaries include Style Group Holdings Limited, Style Group Limited and HPAS Limited. more »

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Somero Enterprises, Inc. is a manufacturer of laser-guided equipment. The Company's equipment automates the process of spreading and leveling volumes of concrete for commercial flooring and other horizontal surfaces, such as paved parking lots in North America. The Company's products include S-22E, S-15R, S-15M, STS-11M, S-840, S-485, CopperHead XD 3.0, Mini Screed C, PowerRake 3.0, 3-D Profiler and SiteShape. Its Somero Floor Levelness System monitors Laser Screed performance, operator performance and reports alert percentages of issues. The Somero SiteShape System allows for grade shaping automatically using users' motor grader, dozer or other grading machine. The Somero 3-D Profiler System allows automatic paving of contoured sites using a Somero Laser Screed equipment. The CopperHead XD machine encounters applications, such as chaired rebar, low slump and poor subgrades. The Somero eXtreme Platform (SXP) allows users use their Laser Screed equipment. more »

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Northern Bear Plc is engaged in providing specialist building services. The Company operates in the support services sector. The Company's segments include Roofing activities, which provides a range of roofing services, including slating, tiling, leadwork, felting, refurbishment and maintenance for domestic, commercial and public sector properties; Materials handling activities, which includes supply, service and maintenance of fork lift trucks and warehouse equipment both on hire and for sale; Building services activities, which provides services, including fire protection and asbestos removal, and Corporate and other activities, which provides head office activity and consolidation items. The Company also provides services ranging from general building work, asbestos surveying, fork lift truck sales/hire, and health and safety consultancy. The Company's subsidiaries include Isoler Limited, Springs Roofing Limited, Wensley Roofing Limited and Jennings Properties Limited. more »

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  Is LON:SFE fundamentally strong or weak? Find out More »

31 Comments on this Article show/hide all

anfitrion 18th Jul '17 12 of 31

Interesting to see how different consumer companies are trading.

I was surprised by Conviviality's strong results yesterday (it seems people are still fine to go out for drinks), but Safestyle is telling us that big-ticket expense is a different thing.

As for Safestyle, windows may not be the hottest thing, but you are getting the lowest cost player in the industry (by virtue of their vertical integration), sitting in cash and with a history of winning market share every year for a very long time. So if you don't mind sitting and waiting, this is the clear industry winning horse. Management also owns a good chunk, which never hurts.

Having said this, I wouldn't go anywhere near worse quality players like Epwin, for example.

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iiimurray 18th Jul '17 13 of 31

Hi Paul and Graham
Any views on Synectics interims?


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JTG 18th Jul '17 14 of 31

In reply to post #200267

Curious as to why you consider Epwin worse quality? Thought their greater product breadth was a plus...

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smatthews1 18th Jul '17 15 of 31

Also impressed with Northern Bear (LON:NTBR). results, we have an excellent summer so far this year which should always help towards their roofing business's. As a result from the Glenfell disaster I can also see their survey drone, and Isolar business doing quite well.

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anfitrion 18th Jul '17 16 of 31

In reply to post #200279

Well, they are not vertically integrated, which is a big negative in my view. Also they have been struggling with the integration of acquistions and have a history of negative LFL growth.

Not saying they cannot turn it around, but when you don't have your house in order the outside headwinds blow much harder.

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herbie47 18th Jul '17 17 of 31

In reply to post #200267

Did you mean Entu (UK) (LON:ENTU) rather than Epwin (LON:EPWN) ?

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anfitrion 18th Jul '17 18 of 31

In reply to post #200315

No, I don't even consider Entu as "investable". :)

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Graham Neary 18th Jul '17 19 of 31

In reply to post #200207

Hi jimmy, it's covered!


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Hedgecutter 18th Jul '17 20 of 31

Hi Paul,
Somero is looking very positive today, so as one off my largest holdings, I am very happy.
But iI see Eagle Eye (LSE;EYE), one of my smaller punts, also gave what looked like a positive trading update, but the response has been a 3% drop in the SP. Is this due to cash situation, as they appear to be getting through the money raised recently quite fast?
Your thoughts would be appreciated.

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ricky65 18th Jul '17 21 of 31

In reply to post #200259

Hi Graham

Thanks for covering Northern Bear (LON:NTBR). Perhaps one of the reasons valuation is on the lower side is because the service sector seems out of favour at the moment? I think it's also a bit under the radar being £15M market cap. Looks good for the moment. 1.5p special divi is also a nice unexpected bonus.

Kind regards


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JASPERTHEDOG 18th Jul '17 22 of 31

It would seem that leaky windows are not the only problem at SFE. The share price started to go southwards with determination some ten days ago. I suppose it's too much to hope that insider leaks from PR agencies and NOMADS can always be caught, but this does look bad.

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anfitrion 18th Jul '17 23 of 31

In reply to post #200347

House brokers only get the numbers the night before the release, so clearly there is a corporate issue here.

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Redrichmond 18th Jul '17 24 of 31

In reply to post #200255

Sorry for my typos on SOM

"They are still growing and adding 10% new customers each year and the existing customers are re-investing their money /upgrading and /or buying new machines"

They are not buying "reports" as I stated.. :)

They said A lot of the concrete contractors only travel 100 miles max from their base as the Somero machines are loaded onto lorries and that can take 2-3hrs to get to a job as is quite a slow operation so having staff fly to florida for training is a pain.(Somero do offer training at client sites for a charge) Getting trained in the heat of florida is a lot different to the wet of seattle where most of the backlog of construction work is also, although this is more related to the preparation/finishing than the operation of the report as they stated. They cover this in the training also

I like the idea of franchised training centres where SOM take a cut for outsourcing training (like IBM, microsoft etc) but they are not at that size yet

This share really is a long term hold And forget about it as paul mentioned.

Trumps construction law change has been put on the back burner till 2018 also

I was going to dump it all last week and sell all the shares but learning to be patient isnt one of my virtues

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ridavies 18th Jul '17 25 of 31

In reply to post #200267

Everyone keeps talking about windows. In fact,possibly the key major step in this business's fortunes is when they relatively recently went into conservatories too. That is an even bigger price item than a few windows. It would be interesting to analyse where they are suffering - windows and / or conservatories?

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Tanglands 18th Jul '17 26 of 31

Paul, love the idea of you commenting within the comments section and then as you did posting a link in todays report so we can find it. I think I speak for most/all on this site that we would rather hear from you then not! regards

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Gromley 18th Jul '17 27 of 31

In reply to post #200431

Paul, love the idea of you commenting within the comments section and then as you did posting a link in todays report so we can find it. I think I speak for most/all on this site that we would rather hear from you then not! regards

Better though I think to do what Graham did today and add a section to the end of the report as this is then more easily searchable?

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JASPERTHEDOG 18th Jul '17 28 of 31

In reply to post #200439

Hear,hear! I usually skim the comments, but not always, and rarely when the companies, or the digests, in the main report are of little interest or the comments wander off into ...
So, if there are tid-bits and updates, please keep them in the main body.
Thanks to both of you for the hard work.

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Gromley 18th Jul '17 29 of 31

I should start this comment on dotDigital (LON:DOTD) with a disclaimer that I thoroughly detest email marketing so it is entirely possible that I am not being entirely objective.

The obvious point to make is the massive PE, but of course as a high growth share this can be a misleading metric (as the E can rapidly catch up with the P).

But is the growth really that convincing?

19% revenue growth is certainly impressive, and gives lots of scope for operational gearing to kick in in a good way.

And increase ARPU is also generically a very good sign.

But when these factors combine to reveal an implied 5% fall in customer numbers for a company in aggressive growth phase I start to worry.

It may of course be the case that they have previously had a marketing strategy that was too broad, attracting good customers that will stick and grow, together with a large number that will not be retained. If marketing has now become more focused, attracting mostly sticky customers, that would explain the anomaly and maybe make this attractive. But I would want to see some concrete evidence that this was really the case to be able to justify the current valuation.

My personal concern would be that instead this is somewhat more ephemeral and liable to collapse in a puff of smoke.

I will confess that I don't really understand what dotDigital (LON:DOTD) really offer, but I do know that a while back I wrote my own bulk emailer to support a voluntary group I work with, because I couldn't find anything readily available that fit the bill for what I wanted and whilst this is not a wholly slick user friendly offering, it wouldn't take too much effort to make it so and I only employed relatively limited effort (and more limited expertise!) to build. So I have to wonder whether there is really any kind of 'moat' here at all.

As per the start of my comment , I'm probably prejudiced against this business - but I hope I wouldn't let that stand in the way of a decent investment opportunity. So I would really welcome any views to the contrary on this.

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Mrken 20th Jul '17 30 of 31

In reply to post #200267

Please give more details on your negative views of Epwin.

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Mrken 20th Jul '17 31 of 31

In reply to post #200375

Paul says Somero is one that is in his Tucked Away Drawer.

What other AIM shares are in the drawer. Would he useful for IHT mitigation.


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 Are LON:SFE's fundamentals sound as an investment? Find out More »

About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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