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Safestyle UK – AGM update, bank profits recommendation justified?

By Steve Moore | Thursday 18 May 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

PVCu replacement windows and doors company, Safestyle UK (SFE) was a January 2016, 245p offer price recommendation on the Nifty Fifty – on which we suggesting banking profits at approaching 300p in March. The shares reached a more than 320p close yesterday, but are currently heading back towards 290p on the back of an AGM trading update.

Our bank profits note stated caution on the current environment – and the AGM update includes that “recent trading has been weaker than expected” (including 2% order intake growth for the first four months of 2017), this with “statistics which have shown a significant contraction in the overall market in the first quarter of 2017”.

Together with “some parallel running costs following investment in our new production facilities… the group expects to grow revenues in the first half of the financial year, but anticipates profits in the first half will be lower than the comparative period last year”. It though notes “a number of initiatives underway and combined with the impact of enhanced production productivity… the board is confident of delivering full year results broadly in line with market expectations”.

“Broadly in line” tends to mean ‘slightly behind’ – and even this looks difficult given the anticipated first half performance and amidst an admitted “more challenging trading environment”.

As such, my previous wariness of the valuation in relation to prospective earnings here is now much enhanced. The stance remains sell.

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