Safestyle UK PLC (LON:SFE) saw its shares slide on Monday as the windows and doors maker said turnaround investments will cause a “negative impact” on its profitability for 2020.
In an outlook statement accompanying a full-year trading update, the AIM-listed group said it plans to invest £3mln in 2020 to “put in place the foundations for sustainable, long term growth and UK market leadership”, which would dent profits in the short-term.
The plans followed figures for 2019 which the company said showed “continued progress” in its turnaround efforts as it battled against “weak consumer confidence and challenging market conditions in the second half of the year”.
Turnover for the year is expected to be £126mln, up from £116.4mln in 2018, while the group is also expecting to report an underlying pre-tax loss of £1.5mln, narrowed from an £8.7mln loss in the prior year.
The group also reported what it said was a “solid recovery in market shares” during the year from 7% at the end of 2018 to 8.4% in the third quarter of 2019 as sales accelerated in November and December.
"The new executive team has been in place for 12 months and I am pleased with the pace at which we have stabilised the business, reduced costs, embedded regulatory compliance and enhanced our operational effectiveness”, said Safestyle chief executive Mike Gallacher.
The CEO added that while there was still “lots to do” as the turnaround efforts continued and there had been “huge regulatory changes” and shifts in consumer behaviour, he was “determined to further establish the foundations needed to deliver sustainable profit growth and long-term success”.
House broker cuts target price
In a note, Safestyle’s house broker Liberum cut their price target to 80p from 105p but retained their ‘buy’ rating, saying that despite the “broadly successful stabilisation of the group”, they were downgrading their estimates significantly due to the expected £3mln hit to 2020 profits.
However, the broker said they believed the recovery had been “delayed rather than defeated” and believed Safestyle could “continue to grow market share and is very well placed if improving consumer confidence increases demand.
Investors seemed less convinced as the shares tumbled 13.3% to 60p in mid-morning trading.