Small Cap Value Report (Wed 28 Feb 2018) - AVG, SFE, SAG, FOXT, CSSG

Tuesday, Feb 27 2018 by

Hi, it's Paul here.

Thanks for the reader requests. As mentioned in the comments below, I much prefer it when readers add a few key points about the company results/trading update, indicating why you think it's interesting. That makes it more interesting for me, and everyone else. Rather than a single sentence asking me to do all the work! 

Please note that yesterday's article ended up being a bit of a monster, with 5 companies reported on. Here's the finished article.

A friend flagged up that dotDigital (LON:DOTD) might be affected by the new GDPR regulations re email marketing & spam. These regulations kick in this May, and require email marketers to solicit the permission of everyone on their databases to remain on the database. Obviously this is going to decimate many email databases, and make email marketing/spam very difficult to do. I imagine that might have some negative impact on DOTD, despite it branching out into other channels, such as social media. Maybe GDPR is why it decided to branch out? Anyway, I didn't think of this point yesterday, so just wanted to mention it today (and I've added a post-script to yesterday's report).

This article will take shape during the afternoon & early evening - so please refresh this page later. I'm not a morning person, so generally my articles are mostly written in the afternoons & evening.

Safestyle UK (LON:SFE)

Share price: 119p (down 21.7% today, at 14:51)
No. shares: 82.8m
Market cap: £98.5m

Trading update (profit warning)

Safestyle UK plc, the leading retailer and manufacturer of PVCu replacement windows and doors to the UK homeowner market, today issues an update on current trading.

As you can see from the chart (see below), vertical moves down usually indicate a series of profit warnings in the past, and we have another one today, unfortunately.

Today the company says;

The Group announced on 13 December 2017 that it had seen a continuing deterioration in the market resulting from declining consumer confidence and the Board expected market conditions to continue to be very challenging in 2018.

The activities of an aggressive new market entrant have added to an already competitive landscape and impacted the Group in certain areas of its operations.

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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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Avingtrans plc is a United Kingdom-based company, which is principally engaged in the provision of engineered components, systems and services to the energy, medical and traffic management industries around the world. The Company operates in energy and medical segment. The energy and medical segment is engaged in the designing and manufacturing of machined and fabricated pressure and vacuum vessels and process plant and equipment for the power, oil and gas and medical markets. The energy and medical segment is also engaged in the designing and manufacturing of fabricated poles and cabinets for roadside safety cameras and rail track signaling. The Company's geographical locations include the United Kingdom, Europe, North America and Rest of World. The Company's subsidiaries include Crown UK Limited, Stainless Metalcraft (Chatteris) Limited, Composite Products Ltd, Hayward Tyler Ltd and Peter Brotherhood Ltd. more »

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Foxtons Group plc is a United Kingdom-based company, which operates as an estate agent. The Company and its subsidiaries are engaged in the provision of services to the residential property market in the United Kingdom. It operates through three segments: Sales, Lettings and Mortgage Broking. The Sales segment generates commission on sales of residential property. The Lettings segment earns fees from the letting and management of residential properties and income from interest earned on tenants' deposits. The Mortgage Broking segment receives commission from the arrangement of mortgages and related products under contracts with financial service providers and receives administration fees from clients. The Company offers its residential property sales and lettings services through its network of approximately 60 branches. It offers independent mortgage advice and other related services through Alexander Hall. It offers corporate services, property management and other services. more »

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

42 Comments on this Article show/hide all

MrContrarian 28th Feb '18 3 of 42

My morning smallcap tweet:

Vernalis (LON:VER), Defenx (LON:DFX), Safestyle UK (LON:SFE), Foxtons (LON:FOXT)

Vernalis (VER) warns Tuzistra XR prescriptions expected to be below FY guided range of 105,000-115,000. Also no significant updates from Tris on either addressing the CCP-07 or CCP-08 complete response letters, or achieving proof-of-concept for CCP-06. Will reveal plan to cut cash burn soon.
Defenx (DFX) as warned FY rev materially below prior year and will report a significant loss. "The board is now looking to implement a strategic plan, defenx 2020, which will see the Group build on its existing cloud backup product with a focus on corporate customers. This strategy reflects the changing competitive landscape..." No progress on collection of trade debtors arising from the Group's security product sales. The Group is actively exploring funding options and shareholder BV-Tech continues to be supportive.
Safestyle UK (SFE) warns again. Order intake in 2018 to date has been disappointing, guides FY underlying pretax materially below 2017 and current market expectations. Cutting costs.
Foxtons Group (FOXT) FY in line., adj EPS 2.6p (5.7p). Outlook: "expect trading conditions to remain challenging during 2018, and our current sales pipeline is below where it was this time last year...We anticipate the implementation of the Tenant Fees Bill in 2019. Though at this stage it is unclear exactly what the legislation will look like, we are exploring ways to mitigate the impact." I'm short.

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gus 1065 28th Feb '18 4 of 42

Getech (LON:GTC) final results out this morning for 17 months up to Dec 2017.

Interesting, niche O&G geo-service small cap (£10m market cap). Perennially turning the corner but never quite seems to pull it off. Today’s results, in line with trading update at the start of the month, suggest some green shoots after an ongoing restructuring/change of personnel. Hints at rationalising head office - need to check accounts to see if this is reference to possible disposal of a decent freehold property as could be significant in the context of such a small market cap.


p.s. Quick look at the latest 2016 accounts note 12 shows freehold property on the books at £2.8m on an “at cost” basis.  Not sure whether some or all of this is their Kitson House head office but if it is, there could be potential to release some capital here.

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Clementwether 28th Feb '18 5 of 42

Science Group Science (LON:SAG) Solid company, good balance sheet, decent results, slow and steady with surplus cash used for the occasional bolt-on acquisition.

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threeputt 28th Feb '18 6 of 42

I'm also interested in AVG

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Beginner 28th Feb '18 7 of 42

In reply to post #331278

The 1pm (LON:OPM) release was one of the 'grey ones' Paul mentioned, sent out for public relations purposes rather than through necessity or utility. Seems best to ignore it really. (Arguably having the potential to shift abroad derisks the company a little, but I cannot see that myself. I hold here for the longer term.)

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Reacher 28th Feb '18 8 of 42

St. James's Place (LON:STJ) have a results presentation at 10:30am which is being streamed and recorded for playback. I find these worth listening to. More details at:

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mammyoko 28th Feb '18 9 of 42

Hi Paul - please could you look at £SAG

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runthejoules 28th Feb '18 10 of 42

is Safestyle UK (LON:SFE) entering value territry now? I despise their sales technique but if this cold and/or energy price rises continue....

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danyou 28th Feb '18 11 of 42

Any chance you could please look at Richard Beddard firm favourite - Science Group -Science (LON:SAG)
Good looking figures today -looks like a good buy and hold conservatively run company?

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slopsjon 28th Feb '18 12 of 42

Toys4US UK and Maplin close to administration

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FoolishBen 28th Feb '18 13 of 42

Hi Paul - May I suggest you take a look at Croma Security Solutions (LON:CSSG)

Earnings look good, the market cap is now over £14m, they are profitable, have excellent share price momentum and what appears to be a reasonable PEG ratio....

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alterego 28th Feb '18 14 of 42

Avingtrans (LON:AVG) please

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jesseowens 28th Feb '18 15 of 42

Avingtrans (LON:AVG) please Paul

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Gromley 28th Feb '18 16 of 42

I was a little puzzled back in September by how well the Safestyle UK (LON:SFE) share price stood up in face of a second profit warning (falling to c. 160p and subsequently recovering to over £2 on the back of a buyback).

It felt (and still does to a degree) that there was a sense of denial in the market about the weakness in consumer spending.

Today's fall (-25% to 114 as I write) seems a bit more like it, a single digit trailing PE seems a much more rational rating at this phase in the market. However I don't honestly see that there is any hurry to be piling in at this stage.

Back in September I said "Buying today [Price then 160ish] will probably look an absolute bargain in 3 or 4 years time, but buying in a few months I suspect might look more so." and despite the second half of that sentence having come true, I still think there is risk to the downside from here.

The company says :

The Group continues to be cash generative, with a strong cash position and robust balance sheet. 

Which is true, as we commented last time there is no reason to fear that Safestyle UK (LON:SFE) cannot survive the downturn, but they did slip into loss back in 2008 and it's entirely plausible they will again this time. 

Safestyle remains very well invested for any upturn in demand and the Board expects the benefits of its cost savings programme to take effect in 2018, particularly in the second half.

For once I'm not going to bemoan the "second half" reference here as the impacts of cost reductions can be reliably predicted (unlike claims/hopes from others that sales will pick up later on). However it does seem they have been a little slow with some of this cost reduction.

As this price it is now a much more interesting 'watch' for me but I'd be quite happy to loose out on the first few percent of any recovery for waiting to see the recovery being sustained.

 It seems to me that the pain of holding Safestyle UK (LON:SFE) into today's fall is an avoidable mistake and one to be wary of with other stocks heavily dependent on discretionary spend.

(I don't ignore btw the company's reference to "activities of an aggressive new market entrant" , there were rumours to this effect and had I been a holder I would have been looking to research that, it does go I think to show that there isn't too much of a moat here.)

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CliveBorg 28th Feb '18 17 of 42

In reply to post #331413

Gromley:.Excellent breakdown - in plain English - of £Safestyle. It will be interesting to see where the bottom will turn out to be. In its history on the stock exchange, this company have never been lower, and the yield is now over 9%.

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pgs501 28th Feb '18 18 of 42

In reply to post #331388

Hi FoolishBen,

I had never looked at Croma Security Solutions (LON:CSSG) until this morning but these results look very good:

EPS increased from 1.09 to 4.92p / share for July-Dec however when I compare to the StockReport it expects 4.9p for the whole year (though no brokers listed). Am I missing something here?

One thing I did notice is that whilst NTAV has increased by c. £800k and looks safe (NTAV now £2.5m) both debtors and creditors have doubled from £3-6m, so a material amount. They also have paid off all debt now and cash has climbed to 1.3m, which must surely be viewed positively.

Cash flow statement looks pretty good to me as well with a nice inflow from ops, payment for investment, and payments to reduce debt (to zero) and buying back shares.

From a statement perspective: "The Group's financial performance shows our success to date but also we believe reflects a fundamental uplift in our future long-term earnings."

Finally intuitively this company appears to be in an interesting space with public budgets for police under pressure combined with a heightened awareness about security e.g. terrorism.

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clarea 28th Feb '18 19 of 42

Safestyle UK (LON:SFE) please Paul

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DGW 28th Feb '18 20 of 42

Yes Paul a report on Avingtrans would be appreciated.

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runthejoules 28th Feb '18 21 of 42

Re: Safestyle UK (LON:SFE) looks like have been eating their dinner, stealing their consultants and staff. They promise to beat quotes and so looks like £SFE's margin is their opportunity. What ya gonna do when the competition has Pat Butcher in their ads? Won't be investing in windows until they go solar anyway, most people must have double glazing now and if it's only replaced every 10-15 years, as with LED lights, Dialight (LON:DIA) and Luceco (LON:LUCE) how can there be growth really?

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ridavies 28th Feb '18 22 of 42

In reply to post #331413

Thanks for your commentary and analysis on Safestyle UK (LON:SFE).
The structure of the company has changed significantly in the last 6-12 months with differences in management opinions at the top level. The 'aggressive new market entrant' is a very serious change in their operating environment, and may well come from the people who have left the business in the restructuring. Contacts count for a lot in this type of business and if you add this threat to the cyclical one which they have been experiencing for a year or so, then the two together amount to a very serious impact on their business. They have a strong balance sheet etc, but that will not be a support for the SP, even at today's levels. There were major sales at around 110p - perhaps 2.5 million so far today and the SP will no doubt recover form its lows to finish about 10-15% down, but this may not be the last drop in the next 6 months. Prelims due 22nd March, and the trading update says 2018 seriously worse than even 2017. There may well be another fall in SP at the time of the 2017 prelims. Often happens when people wake up to the 'full bad news', and especially the Outlook.

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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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