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Buy Safestyle UK At 275p

Safestyle UK plc, the leading UK-focused retailer and manufacturer of PVCu replacement windows and doors for the homeowner market, has the hallmarks of being a solid growth stock. Following its strong interim results announced earlier this month, Safestyle UK joins the Direct Market Touch growth portfolio, at the heart of our strategy for wealth creation.

The Business

Founded in 1992, Safestyle UK is the largest company in the UK homeowner window and door replacement market, by installations, having manufactured over 279,000 frames and carrying out over 60,000 installations in 2015. The group’s market share grew in 2015 to 9.46%, up from 8.48%, ensuring the eleventh consecutive year of market share growth.

Safestyle has 35 sales branches and 12 installation depots located throughout the UK, with its most recent sales branches being opened in Guildford and Norwich. All windows and doors are made to order from its factory in Wombwell, South Yorkshire, a facility that is currently being extended to meet increasing demand. The extension to its factory is scheduled to be complete by summer 2017.

The Group’s strategy is to further increase market share through expanding its geographical representation, particularly in the South and South-East of England. It also plans to strengthen its product offering with a wider range of composite doors and window options, and introduce a new replacement conservatory product.

Interim Results

Safestyle’s interim results for the six months to 30 June 2016, announced earlier this month, demonstrate the strong performance of the Group. Revenue in the first six months was up by 12.8%, from £74 million in the 2015 comparative period, to £83.5 million, whilst underlying pre-tax profits were up by 17.8% to £10.6 million. Earnings per share were up by 3.3% at 9.4p, and the interim dividend was increased by 10.3% to 3.75p per share.

The Group’s balance sheet strengthened significantly in the first six months of the current financial year, with key current asset metrics of cash and cash equivalents up from £16.485 million at 31 December 2015 to £23.552 million at 30 June 2016. Whilst the cash and cash equivalent position was prior to accrued dividends of £11 million being paid shortly after the interim period end, it does nonetheless demonstrate the strong cash generation of the business. Trade and other receivables rose from £3.858 million at the year-end to £6.752 million. Tangible assets of property, plant, and equipment stood were valued at £8.498 million at the interim period.

Forecasts

For the full year to 31 December 2016, brokers are forecasting revenue of £165.1 million, with pre-tax profits of £20.22 million, and earnings per share of 19.77p. For 2017, revenue is forecast to increase to £176.9 million, and pre-tax profits to increase to £21.68 million, with earnings per share coming in at 21.16p.

The forecasts put Safestyle on a current 2016 earnings multiple of 13.9, falling to 13 for 2017. The full-year dividend for 2016 is forecast to be 11.38p/share, a yield of 4.1%, rising to 12.21p/share for 2017, a projected yield of 4.44%.

Investors who are on the shareholder register by 30 September 2016, will also receive the interim dividend of 3.75p/share.

Conclusion

Safestyle represents a solid growth stock with a strong balance sheet, and an attractive dividend yield for investors seeking a combination of growth and income. We believe that a sensible 12-month target price for the shares is 320p, an upside of 16% from the current share price, which, coupled with a dividend yield of over 4%, would ensure an annualised upside of over 20%. As part of a balanced portfolio, Safestyle offers growth and income worth going for. Buy.

Market Data:

Share Price: 275p
Shares In Issue: 81,569,000
Market Cap: £224.3 million
EPIC: SFE
Market: AIM
Websites: www.safestyleukplc.co.uk and www.safestyle-windows.co.uk

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