Value in Safestyle UK SFE.L?

Wednesday, Nov 12 2014 by

Safestyle UK, window maker, does it offer any value?

The usual start place,


Broker Forecasts
Year Ending      Pre-tax      EPS      EPSg     P/E      PEG     DPS      Yld %

2014                    16.82       15.92     53.74     9.80     0.18     8.99      5.76
2015                    18.45       17.82     11.99     8.75     0.73     9.63      6.17

Key Ratios
                                                           Company                Sector                  Market
PER (E) r                                          8.88                          18.61                   15.20
Dividend Yield (E) %                     6.12                            3.63                     3.94
Price Earning Growth (E)r             0.56                          -0.04                     0.99
Return on Capital Employed% 686.73                        86.10                   62.87
Operating Margin %                      9.20                           10.11                  15.37
EPS Growth (E) %                        15.90                          15.25                    8.02
EV/EBITDA x                                   9.41                           12.58                  11.71
Net Gearing %                             -22.25                          67.21                  60.46
Net Tangible Asset Value PS p  -0.86                            0.64                     2.04
Price to Tangible BV x             -181.91                           12.41                   -0.87
Price/Cash Flow x                          9.31                           16.63                   13.50
Price/Sales x                                   0.97                             1.33                      3.01

                                                        2010              2011           2012             2013

Cash Flow Per Share p              14.46             3.71             9.23             16.76
CAPEX PS p                                  1.33              0.13             1.55               6.53


so not a bad start there then, we have forecast p/e under 2/3rd market and sector, forecast yield more than 50% above market and sector, assets ....move along please.... and debt doesnt exist as follows,

The cash balance at 30 June 2014 was £10.8 million, an increase of £5.6 million in the period."

from the latest interim figures they also reported,

"Revenue was up 10.4% to £69.2m (H1 2013: £62.7m) and the Group continued to increase its market share in the period to 8.24% (7.85% as at 31 December 2013 for FY 2013) according to FENSA installations data.

Profit before tax increased by 10.3% to £8.6m (H1 2013: £7.8m), reflecting improved gross and net margins, with earnings per share up 10.4% to 8.5p. Underlying EBITDA was up 12.1% at £9.3m (H1 2013: £8.3m)."



Our expectation for the market as a whole is of modest volume growth for the remainder of 2014 and into 2015. With our focus on increased geographic penetration and market share gains, the Board is confident that we can continue to deliver growth in sales, profit and cash flow, and accordingly we expect to report further progress for the full year."

so quite positive about the continuing progress they think they will make, having also made over half this years forecast eps in the first half trading, if things carry on as they are then they should be able to meet the eps figure, if not better it, as in the last half…

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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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11 Posts on this Thread show/hide all

rhomboid1 12th Nov '14 1 of 11

Copied from the other place;

Hi mr whits

I've not looked in detail due to a visceral dislike of the sector and it's adverts and sales practices, however I'd be interested to know how much of their income is from finance customers as I'd be concerned that regulators might well turn their attention to it as anecdotally sector sales techniques are a touch idiosyncratic to put it mildly

From the interims they say;

"Gross profit increased by 12% in the period from £22.4 million in 2013 to £25.2 million in 2014. Gross margin in the period was 36.4% compared to 35.7% for the same period in 2013. An increase in finance subsidies was more than offset by the benefits from higher prices and lower door canvas lead generation costs. The proportion of leads being generated by door canvassing fell from 56% in 2013 to 53% in the reported period."

So they look to be using finance to cloak higher prices which is a potential regulatory problem for the FCA as it contradicts the principles of TCF.

Anyone know any more?

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mrwhits 12th Nov '14 2 of 11

to be honest I don't know the implications you mentioned, but as it isn't currently a problem I'm going to stick my neck out and decide to still be in SFE.L, if there is a problem then I will look at it again, and decide what to do then, but at the moment I don't see that being the case.

It could change though, granted, and thanks for flagging it up as a potential problem.

Out of interest, what do you mean by TCF?



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JTG 12th Nov '14 3 of 11

Simon Thompson in IC targets 230p "fair value". I am a holder (thinking it worth 190p) and considering more at 155. Also interested in potential problem indicated.

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rhomboid1 12th Nov '14 4 of 11

In reply to post #87682

Hi mrwhits

TCF treating customers fairly

"TCF, with its focus on consumer outcomes, is central to our work in ensuring a fair deal for consumers. It underpins the delivery of our statutory consumer protection objective and the future objectives of the FCA. We recognise the continuing difficult economic and financial conditions, but we believe that this is when consumers need protection the most and we emphasise that firms must not divert attention away from focus on risks to the fair treatment of customers."

Safestyle appear to potentially setting themselves up for a regulatory kicking if they're subsidising finance to make it more attractive but doing so to improve margins rather than facilitate a sale.

Extended warranties are an example of where the FCA has waded into the sector and decimated profitability for some participants using TCF as part of their justification.

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mrwhits 12th Nov '14 5 of 11

OK thanks for that.

How are safestyle subsidising finance? are they taking some of the finance cost out of the sale at the companies expense? or have I missed the point here?

thanks in advance.

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rhomboid1 12th Nov '14 6 of 11

What safestyle appear to be doing is providing subvented finance , similar to the way car manufacturers do, however car manufacturer's have an FCA regulated firewall between them and the customer, any blowback falls on the dealer or the finance company, I'm not clear where the TCF buck stops with the home improvement sector , my suspicion from the earlier extract from the safestyle RNS , is that Safestyle are using finance to improve margins which unless it is done in a rigidly controlled and FCA approved process could be a can of worms.

From what I know anecdotally the sales process in the home improvement sector is way behind the best practice curve so it is not impossible to see a payment protection type scandal emerge in the future.

Just a thought to keep shareholders awake at night...


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whitepjs 12th Nov '14 7 of 11

After a little digging, I found that the provider of the finance is not Safestyle UK, but Barclays.

Does that not place a barrier between Safestyle and potential problems with the FCA, or are Safestyle still the ones with the duty of care for selling the finance and the product? I'm assuming the finance subsidies are amounts that Safestyle has to pay Barclays to obtain better credit deals for its customers.

Also, whilst the comment in the interims does place the finance subsidies in the same sentence as higher prices, isn't an assumption being made that the two are linked i.e. Safestyle are subsidising the finance deals enabling them to bump up the prices?

Finally, the large cash balance (£10.8mn) was mentioned as a plus. If you look back at the previous full year figures and previous 6 month interims, that cash balance is inflated by the lack of any dividend payment during the first half of the year. That payment is estimated at £7-8mn by Stockopedia for 2014. The cash figure is therefore likely to come out closer to £6-7mn at year end.

Btw I have no position in SFE.

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rhomboid1 12th Nov '14 8 of 11

In reply to post #87715

Hi white pjs

Interesting, it'll be who provide the funding, however the point of sale will therefore be handled by Safestyle in an FCA regulated role as Barclays won't get involved in the customer interface unless default occurs.

On the plus side at least they are partnered with Barclays rather than a Wonga type operation!


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Jardine 13th Nov '14 9 of 11

My main concern with Safestyle UK (LON:SFE) is that current assets at £16.5m are less than current liabilities at £19.1m. Any slow down in trade, say from a harsh Winter, would mean a working capital crunch.

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imranawan 13th Nov '14 10 of 11

In reply to post #87715

Accept your point that the cash position looks better than it really is, but the accrued dividend amount £4.2mn is listed under current liabilities on the balance sheet, which is why they are larger than current assets. You're assumption of actual cash is correct at around £6.6mn.

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valueman 26th Mar '15 11 of 11

A good ,solid result. This business has great fundamentals .It is worth a premium to the market NOT a discount .
Why ? Because the return on capital is extremely high ,it generates almost a 10% operating cash-flow to share price so you're getting a v good return for your investment and it is gradually growing its sales ,market share & margins .This year i believe it will benefit from oil price reductions on raw materials and from a more healthy consumer spending environment.
This is one to tuck away and watch it grow

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