Liberum ups Safestyle to 'buy' as it signs commercial agreement

Liberum upped Safestyle to 'buy' from 'hold' on Monday and boosted the target price to 80p from 50p as it now has much greater confidence in the recovery potential after the double glazing group signed a commercial agreement with its co-founder, Mitu Misra, who is working with competitor NIAMAC.

The company has entered into a five-year non-compete agreement with Misra, who will also provide services to support the recovery of Safestyle. Misra, who was party to the dispute involving NIAMAC, trading as SafeGlaze UK, will receive 4 million ordinary shares and a cash consideration of up to £2m.

"Today’s agreement should help restore the group’s capabilities in lead generation, sales and installation so that recovery is quicker than it would otherwise have been." Liberum said.

It argued that the agreement is likely to halt the momentum of NIAMAC and could lead to agents and employees returning to Safestyle. "This is likely to mean an acceleration in the recovery at Safestyle," it added.

"We understand that the non-compete arrangement means that Mr Misra will no longer play a role at SafeGlaze and will not be permitted to invest more resources into that business. This is likely to mean that at the very least SafeGlaze's momentum is halted. Without access to additional funds, SafeGlaze may struggle to carry out the rebranding required by the settlement reached in September 2018, in our view."

Liberum noted that at 56p, the shares only trade at around 2.8x peak earnings, suggesting very considerable upside if management can successfully rebuild the business to previous levels of activity.

The brokerage expects a small net debt position at year end of £2m, which should reverse as profitability is rebuilt.

At 1350 BST, the shares were up 33% to 75.50p.