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Safestyle UK shares fall as trading update fails to meet expectations

The group cautioned that ‘elements of consumer demand do appear to be soft’ but highlighted that the market saw 2.7% growth in the first four months of the year
Double-glazed window
Safestyle warned, however, that margin improvement has been slower than expected, due to higher lead generation costs and the pace of recovery in its operational effectiveness

Safestyle UK Plc (LON:SFE) shares dropped on Thursday as its latest trading update failed to meet expectations leading Liberum Capital to cut its target price.

Changing hands at 79.2p the double-glazed windows and doors firm's shares were down 12.9p or 14%.

In a statement, ahead of today’s AGM, Safestyle told investors that it continued to build its order book during the first four months of the year and it expects to grow revenue by 10% in the first half and in the second half it expects 20% growth compared to 2018.

It cautioned that ‘elements of consumer demand do appear to be soft’ but highlighted that the market saw 2.7% growth in the first four months - meaning that Safestyle performed ahead of its peers.

READ: Thursday’s stock market movers report

The company also noted that its first half margin is forecast to have improved by 4.5% from the preceding six month period, and momentum is expected to continue through the remainder of the year.

Safestyle warned, however, that margin improvement has been slower than expected, due to higher lead generation costs and the pace of recovery in its operational effectiveness.

“Whilst the board does expect turnover to remain broadly in line with current market expectations and continues to forecast a small profit for the full year, it does expect this profit to be below current market expectations,” it said.

The company, meanwhile, explained that it expects the full benefits of recent business improvements will be seen in the 2020 financial year.

In a note to clients, analysts at Liberum said: “Safestyle's AGM trading update brings the welcome news that recovery is being achieved in revenues and profitability, with revenue growth of 17% expected this year and gross margins up 450 basis points in H1. However, expectations were higher than this and so we bring our 2019E PBT forecast down from £4.5mln to £0.7mln.”

They added: “Although this is disappointing, we note that this still represents a £9.1mln profit swing in 2019 and management is confident that the exit rate for profit will be strong at the end of 2019, giving a strong platform for further progress in 2020.”

Liberum reduced its target price for Safestyle shares to 105p from 110p but retained a 'buy' rating on the stock.

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