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Safestyle expects wider loss on higher costs after non-compete deal with co-founder

Liberum maintained a ‘buy’ rating on Safestyle and raised its target price to 100p from 82p, citing improved future prospects
Safestyle has spent heavily on hiring more contractors

Window glazing supplier Safestyle UK PLC (LON:SFE) expects a wider loss for the year due to higher costs but shares rose as it said its 2019 performance would exceed market forecasts.

The retailer has spent heavily on hiring more contracted staff across its canvass, sales, surveying and installations operations since reaching a commercial agreement with co-founder Mitu Misra.

Misra had set up rival firm Safeglaze, which had taken some of Safestyle’s market share.

The deal, announced in October, involves a five-year non-compete agreement and the provision of services by Misra in support of the continued recovery of Safestyle.

READ: Safestyle shares fly after it seals non-compete deal with co-founder

Safestyle, which sells PVC windows and doors to the home improvement market, said the investment in its workforce has resulted in an improved sales order intake in the six weeks since the agreement was reached, flat on the same period last year.

But the group invested more than budgeted in lead generation, lead generation, commissions and associated overheads.

“Whilst management anticipates that turnover for the last month of the year will be ahead of that previously forecast, the majority of the benefit of this recruitment and the return on this increased investment will only occur in 2019,” the company said.

“As a result of the timing difference between incurring these higher costs and the installations taking place, the board now expects that for the year ending 31 December 2018, the group will deliver an underlying loss before tax that is between £8.2mln and £8.6mln.”

Safestyle said it was confident that the group’s 2019 performance would recover to beat current market expectations.

Liberum maintained a ‘buy’ rating on the shares and raised its target price to 100p from 82p, citing improved future prospects.

“Improved prospects for sales lead us to add around £1mln per annum to pre-tax profit across the forecast horizon, even taking into account some prudence around end markets, but estimates fall for 2018 as employee and lead generation costs increase before the additional revenues are booked.”

Shares rose 4.1% to 84.85p in morning trading.

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