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Safestyle UK – 2017 results, mighty dividend yield an attraction - or a warning?

By Steve Moore | Friday 23 March 2018

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.

Its shares having fallen from more than 300p less than 9 months ago to 90p, Safestyle UK (SFE), “the leading UK-focused retailer and manufacturer of PVCu replacement windows and doors for the homeowner market”, has announced 2017 calendar year results…

These show lower adjusted pre-tax profit (of £14.6 million) on revenue also lower than in 2016 (£158.6 million v. £159.4 million) - the company particularly noting “increases in door canvass and digital lead generation costs, increased finance subsidy costs and raw material price increases as a result of sterling weakness and commodity price inflation”.

Additionally, after particularly £2.9 million of tax paid, £0.8 million of exceptionals, £3 million of capex in excess of depreciation + amortisation and a net £1.3 million working capital outflow, there was not enough to cover dividends (£9.3 million) – with resultantly net cash reducing by £2.4 million to £11 million. Total current assets of £17.6 million (prior year: £20.2 million) compared to current liabilities of £12.3 million (prior year: £14.4 million) and non-current liabilities of £1.4 million (prior year: £1.7 million). A 7.5p per share final dividend for the year maintains the payout at 11.25p per share.

The latter is also despite, following “during 2017 the market became increasingly challenging and continued to deteriorate as a result of declining consumer confidence”, “the group's order intake in 2018 to date has been weak and our market share is under pressure… market conditions remain challenging, given the current economic uncertainties and the increased competitive environment”.

Following a resultant series of profit warnings, there’s also now to be a change of CFO – it announced “after 10 years with the company, Mike Robinson will step down… during May 2018 to pursue other business opportunities… The board will appoint Rob Neale to succeed Mike as CFO. Rob is currently Head of Leisure Travel Finance at and Jet2holidays, divisions of Dart Group plc”.

The shares have responded to all this slightly further lower, capitalising the company at circa £74 million and suggesting a prospective dividend yield of around 12.5%. However, the worry this suggests on outlook looks valid, with a currently seemingly ever-more challenging trading environment - and sees me presently continue to avoid.

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