Safestyle (LON: SFE) shares dropped another 58% again today. SFE shares are, not quite yet, actually bankrupt but it does look like that’s the direction of travel. Which gives an example to that Hemingway line about bankruptcy, it first happens really slowly then it happens all of a sudden. For a few months back Safestyle looked like it was doing just fine. Then we heard that sales were down, which meant they’d not enough working capital and now we get to today where they think, well, they’re right on that edge.
The announcement: “In the Announcement, the Company confirmed that it was in a process which may include a capital injection or new financing, a potential sale of the shares in the subsidiaries and/or a sale of the business and assets of the subsidiaries (the "Process"). Based on discussions to date, the Company does not expect to be in receipt of a capital injection or new financing into Safestyle.” Ah, so that is a problem. The next stage is a possible sale of all of the business or parts of it. That lack of working capital - and thus imminent possible demise - also means that prices aren’t going to be great. Nor is there any assurance that there will be anything left over for the equity if such a sale in full or in part does happen.
Safestyle share price from Google Finance
We reported in September on Safestyle: “As we’ve said many a time there’s an art to reading corporate announcements. A very useful starting guide is to start at the end. For that’s where the information management don’t want to have to tell us will be. For example, today: “Our best estimate is that, whilst we expect demand levels will pick up versus current levels in line with seasonal trends, we believe it is likely to be below previously expected levels. Consequently, the Board now expects the Group's revenue for 2023 will be between £140m - £142m and consequently, underlying loss will be in the range of £(9.5)m - £(10.5)m. On the above basis, year-end net debt is expected to be between £(5.5)m and £(6.5)m. The Group has debt facilities of £7.5m and was in a net cash position of £1.5m as at the end of its August reporting period. The trading outlook and timing of working capital outflows for the year to go are the primary cause of the expected year-end net debt position. The Group intends to engage with stakeholders to strengthen the balance sheet in order to support its recovery and help facilitate future growth.””
That’s where they said they needed more capital. Even if they only said it quietly. Then again in Oct for SFE shares: “Safestyle (LON: SFE) shares are down another 47% today. SFE shares already dropped a different 45% a couple of weeks back. This is not, as they say, a good look for a share price. The basic problem is that the company’s simply out of working capital. That’s sad and all that but a slowing market hits the cost base and suddenly bank lending limits are hit and there we are. More working capital is needed but which bank is going to want to lend into that sort of situation? So, we get today’s announcement which indicates that yes, more capital might be found. But current shareholders won’t get a look in.”
Today’s announcement is that that didn’t happen either. So, sell the business - with potentially no return to equity - or, well, there is no other well available in fact. It looks like, but is not guaranteed as yet, that Safestyle is going bust. And we’re in the quickly stage of Hemingway’s formulation too.
