IC article22 Jul 2014 13:38
Shares in double glazing company Safestyle UK
(SFE: 180p) have been trending down modestly on profit taking since peaking out close to an all-time high in the first week of June. But with the 14-day relative strength indicator (RSI) no oversold, and positive divergence on the chart, I feel this is an opportune time to buy in ahead of the half-year results on 18 September. Indeed, I strongly feel a return to this year’s high of 217p, and to my fair value target price of 230p, is fully justified.
In a pre-close trading update yesterday the company confirmed that revenues have increased by almost 9 per cent to £68.3m in the first six months of 2013. With the benefit of margin growth, expect profits to ramp up when the company reports its interim results. Safestyle’s products continue to prove as popular as ever with its market share increasing from 7.85 per cent to 8.24 per cent since the start of this year, according to data from FENSA. This is a continuation of a strong trend as the company has boosted its share of the market for nine consecutive years and almost doubled it since 2007. As the lowest cost national retailer and maker of uPVC windows and doors, Safestyle has a cost advantage over smaller firms and the advantage of being able to target market its audience in a more focused and cost-efficient way given its greater scale.
The decision to expand into the affluent south and south east market is playing a part too as these geographic areas have benefited most from the housing boom and the robust UK economic recovery. A record order book, improvements in margins, volumes and prices all highlight the material change in buyer's confidence in the housing market overall, as well as more solid employment prospects in the UK. In turn, existing homeowners are feeling more comfortable when it comes to making discretionary spending decisions such as buying new windows. They have to be because the average spend per order on Safestyle’s replacement windows is over £2,800.
Furthermore, householders are far more likely to make major capital spending decisions of this nature if it can add value to their properties. In estate agents speak, this is the ‘move or improve’ scenario for homeowners. That's something a rising property market guarantees which is good news for Safestyle, the largest retailer and manufacturer of uPVC windows and doors for the UK homeowner replacement market. Last year, the company installed 250,000 frames.
It’s also worth pointing out that housing market transactions are a lead indicator for repair, maintenance and improvement (RMI) spending, so with industry experts expecting the regional housing market recovery to continue for some years to come, then this should feed through to further growth in the replacement window and doors market too.
Conservative earnings estimates
In the circumstances, it’s hardly a surprise that analysts are upbeat on Safes