Bull Case22 May 2014 10:25
SafeStyle (SFE) is largest seller of replacement windows in the UK, which is a market worth about £2bn a year.
Safestyle are cheaper than their competitors; and this competitive advantage explains continually increasing market share from 4.4% to 7.9% now.
With all of their door-to-door canvassers, installers, and sales team being self-employed the business model is super lightweight.
It is a growing company with great returns on capital so that when the company continues growing, relatively little of the profit generated will need to reinvested to support that growth. The business model is inherently cash generative.
The company pays a decent 3% dividend at the moment and, due to the reasons above, that is likely to grow over time.
The replacement windows market is likely to grow as a whole over the next couple of years because it seems likely the the market will be correlated to the level of activity in the housing market generally.
The EV/EBIT (using the underlying PBT figure which I consider to be more accurate) is just over 10 which is superb for a fast-growing business like this.
The P/E ratio is 12.5 and the forward P/E is 11 tops.
In summary: SFE is undervalued at present, pays a decent dividend, and – more importantly – it is the perfect Warren Buffett company because the business model is (super) lightweight, it is highly cash generative, growing, and that is underpinned by a competitive advantage. For all these reasons I feel very confident in saying that SFE will one day be 500p and even 1000p as time goes by.
My advice: Strong Buy and hold for as long as possible.
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