May 16, 2019 / 7:03 AM / 4 months ago

Safestyle UK's shares slump on lower profit expectations

(Reuters) - Safestyle UK Plc warned annual profit would miss forecasts as the windows and doors retailer battles to move on from a year of legal wrangling and competition from rival Safeglaze, sending its shares down more than 17%.

Safestyle UK has a 10.7% market share of the replacement window and door market in England and Wales, but has been hit by legal costs from its battle with Safeglaze and higher labour expenses for contract workers.

Safestyle, which had expected to return to profitability in 2019, said on Thursday it still sees a small profit for this year but expects it to be below current market estimates.

Safestyle’s shares were 15.3% lower at 78 pence at 0845 GMT, on track for their biggest percentage fall since last July, after the company said margins had recovered more slowly than it had hoped and costs were still a burden.

Liberum analysts cut the company’s 2019 pretax profit forecast to 700,000 pounds from 4.5 million pounds.

“Although this is disappointing, we note that this still represents a £9.1m profit swing in 2019 ... management’s message is clearly that recovery is still on track across the forecast period,” the analysts said.

Based in the northern English city of Bradford, Safestyle had struggled last year with a steady decline in sales volume.

Last March, Safestyle sued Safeglaze, which has been eating into its market share. The companies settled and signed a five-year non-compete agreement. Safestyle had said all areas of its operation were being hurt by Safeglaze’s entry into the market.

Safestyle UK previously said it had a plan in place to stabilise its business and on Thursday said the second phase of the plan was “well under way”, with a focus on recovering volumes and market share, restoring operational effectiveness, cutting costs and improving margins.

“I think the size of the impact on profitability is a consequence of where it is in the recovery process,” Zeus Capital analyst Andy Hanson told Reuters.

The company also said it was rebuilding its order book and expects half-year revenue to grow by about 10% compared to the first half of 2018, even though consumer demand appeared to be soft.

Reporting by Samantha Machado and Noor Zainab Hussain in Bengaluru; Editing by Shounak Dasgupta and Keith Weir

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