Broker note today-Buy target 185p |
 Increasing demand for storage solutions could boost this company's growth.
This week, my search for solid companies with a good track record, room to grow, and a reliable and growing dividend yield, has taken me to the FTSE Small Cap Index. Mind you, I wouldn't describe this company as a tiddler, sporting as it does a £274m market capitalisation.
It describes itself as the "UK's largest and Europe's second largest self storage provider," and it goes by the name of Safestore Holdings (LSE: SAFE).
It's a company that does what it says on the tin, and if you want a rapid appreciation of what it can do for individuals and companies, it's a good idea to take the virtual store tour that's available on the company's website (with the sound up!)
In, out
I think you'll agree the website looks very polished, and geared to making sales efficiently. That's what I like to see in companies that make potential investments: it's got the appearance of a business that has been successful, looks to have learnt how to optimise the execution of its operations, and has developed a recognisable and marketable brand.
To my way of thinking, by picking established and apparently hitherto successful enterprises to invest in, I'll have a pretty good chance of minimising the downside. The belt to my braces is that businesses like this one, have just survived the worst recession in a generation.
However, the company's fortunes haven't always been forged in the public arena. For example, in 2003 it delisted from the AIM market, and was the subject of a management buyout. It wasn't until 2007 that it then listed on the main market of the London Stock Exchange at 240p per share.
Shake it all about
During its years in private hands, the company experienced what it describes as "transformation" when it acquired four other businesses and increased its store count from 24 to 99. Today, it operates 118 stores, 22 of which are in and around Paris with the rest in the UK.
To put that into perspective, the business owns around 5.2m square feet of lettable storage space, with around 3m square feet currently occupied.
What I find interesting is the performance of the business since its 2007 appearance on the main market. To iron out the affect of property value fluctuations in its net profit figures, I've concentrated on operating profit that has been adjusted to remove the property element, and cash flow, for an indication of performance in this table:
2007 2008 2009 2010
Revenue (£m) 74 83 84 89
Operating Profit (£m) 41 45 47 48
Net cash from operations (£m) 26 28 25 28
Dividend per share 4.5p 4.65p 4.65p 4.95p
Net cash return on equity 10% 11% 10% 10%
Revenue profits and cash flow have all held up well through the recent economically tough years and the business has returned a reasonable return on equity through that time. This has all translated into a steadily rising dividend.
Having said that, the company appears to be pumping most of its cash into the improvement, maintenance and expansion of its property portfolio and has a pipeline of stores under construction valued at £18m. Also to that end, there is a fair chunk of debt with gearing of about 140% if you include stuff like finance lease commitments, too.
The hokey cokey
It's clear that the business has plenty of capacity for expanding its turnover and in the latest guidance released on 17 February, the CEO said:
"We are confident that Safestore, as market leader, is well placed to take a bigger share of the overall market through our operational expertise, national coverage and scale and is ideally placed to exploit any potential opportunities."
So with economies on an upward improving trend, it's easy to imagine the housing market picking up, for example, with a resulting increase in demand for the services of companies like Safestore.
Meanwhile the latest balance sheet shows net tangible assets of around 144p per share which compares well to the share price of 149p as I write.
In fact, it's tempting to think of the business purely as a property company when the market capitalisation is so well supported by the asset valuation. However, to do so might underestimate the strength of the business model and its potential to deliver greater profits in the event of higher occupancy rates, in my view.
It's useful to compare net cash from operations, which is derived after interest payments, to the market capitalisation. If you do that, the ratio is around 10 suggesting a fair valuation for the operating business. There is also a historic dividend yield of about 3.3% to keep investors company.
Turn around
There is change afoot at Safestore with a new CEO taking charge after the recent retirement of his long serving predecessor. That could unsettle investors, especially since the outgoing boss presided for around nine years and guided the business through its recent growth.
On the other hand, it looks like he has left the company in good shape and my guess is that the business might do well for investors over, say, a five year investment horizon if it can continue to gain market share and fill its spare capacity, perhaps due to rising demand as economies continue to recover. |
Huge overhang cleared at 135p a share!! 33m shares in total |
motley fool writer on safestore
Storing boxes is a profitable business.
American-style self-storage facilities are a relatively recent arrival to the UK. But for both consumers and businesses, they offer a convenient way of storing possessions and documents, on either a temporary or long-term basis.
From a UK investor's perspective, the market leader is Safestore (LSE: SAFE), which has 118 stores throughout the UK, and 22 stores in and around Paris.
Describing itself as the UK's only national self-storage provider, it serves 41,000 domestic and business customers, employs 500 people, and has 5.2 million sq ft of lettable storage space. What's more, it continues to add new storage outlets, opening three more during 2010 -- two in the UK, and one in France. A further ten stores are reportedly in the pipeline.
Recovery
It's difficult to quibble with the company's annual results for the year ending 31 October 2010, published this morning. The contrast with the recession-hit results of 2009 couldn't be more stark.
* Revenue up 5.7% to £89.2 million.
* Pre-tax profit of £29.2 million, contrasting with a prior year pre-tax loss of £9.4 million.
* Adjusted EPS up 8.9% to 8.19 pence.
* Final dividend increased by 8.3% to 3.25 pence.
* As at 31 October 2010, the property portfolio was valued at £687.2 million, up 6.1% since October 2009.
Additionally, rental rates were at a record £25.55 per square foot, while end-of-year occupancy was also at a record 2.94 million sq ft, up 168,000 sq ft -- and an increase of 195% over the growth experienced in 2009.
Given a fairly flat economy and a stagnant housing market, retiring chief executive Steve Williams seemed pleased, describing 2010 as "a year of considerable progress".
Property portfolio
That said, there's more to Safestore than meets the eye, and any investor will want to take a long hard look at several aspects of the business.
Most notably, Safestore is a property company, albeit one with a difference. So rental yields and occupancy rates come into consideration, in other words, as do property valuations and associated gains and losses. As fellow Fool Owain Bennallack points out, the commercial property sector is attractively unfashionable, but not without its risks and dangers.
That property portfolio valuation of £687 million is reassuring, for instance, but it's only an opinion. Likewise, talk of becoming a tax-efficient dividend-friendly REIT at some future point is just that: talk.
That said, Safestore's portfolio seems fairly solid. Roughly two-thirds of the UK portfolio is either freehold or long leasehold, with UK short leasehold properties ("short" being defined as 25 years or less) having an average remaining lease of just under 13 years. Less than half the French properties are freehold or long leasehold.
The business in France also complicates life -- both from a property valuation and management perspective, as well as exposing the company to currency fluctuations and hedging.
Debt is a factor, as well, although new (and larger) banking facilities have been negotiated until August 2013. Net borrowing (excluding finance leases) at 31 October 2010 stood at £294.0 million, little changed from the previous year, resulting in gearing of 109% -- high, but not ridiculously so.
Finally, although a well-established business, Safestore doesn't have a long stock market history -- at least, not this time round, anyway.
Taken private in a management buyout in 2003 that seemingly left some investors feeling unhappy, the business returned to the market in 2007. Trading above 250 pence at the time, the share price dipped to 40 pence in the depths of the recession, recovering to 135 pence today.
Is it a buy?
Analysts unanimously rate Safestore as a "strong buy". On balance, I think they're right.
The P/E of 11 isn't screamingly cheap, but the growing dividend provides a tasty forecast yield of over 4%. The PEG ratio of 0.2, meanwhile, places the business firmly in 'take a look' territory.
More to the point, while many property companies invest in office space or retail space -- and are thus subject to economic vagaries and the overhang of distressed properties held by the banks -- Safestore ploughs a different furrow: edge-of-town sites rented to people with a lot of cardboard boxes to store.
One for the watch list, I think. |
thanks scburbs. Is anyone here able to list the rankings of SAFE and its peers? LOK i see is about a twelth of SAFE's size and is fourth biggest. |
 "The Self-storage Market in the UK
The self-storage market in the UK has grown rapidly over the last decade and continues to offer a great opportunity, particularly to major operators such as Lok'nStore. The 2008 UK Self-Storage Association Industry report prepared by Mintel estimated that the industry had grown by between 8% and 15% annually over the past five years. In its 2009 update Mintel reported that despite the tough economic climate, the industry had grown by around 4% over the past year in terms of available rentable space.
In the UK there are now about 800 primary facilities (not including container self-storage facilities) and around 28 million rentable square feet - an increase of more than one million square feet (4%) of space in the last year. There is 0.5 sq ft of rentable space for each person in the UK. There are over 300 separate companies operating self-storage facilities in the UK with around 45% of the available space in the hands of the larger operators. Lok'nStore is the fourth largest and one of three quoted storage operators in the UK.
The industry in the UK generates revenues of about £360 million per annum and has over 235,000 customers currently storing.
The more mature US market grew from 2.9 sq ft per head of population in 1994 to 7.4 sq ft in 2009 with over 50,000 facilities throughout the US. There are also 1,300 facilities in Australia and New Zealand representing around 1.1 sq ft per member of the population. The lower penetration in the UK contrasts with the difference in population density which is only 32 per sq km in the US against 246 per sq km in the UK. This creates far more pressure to use property resources efficiently in the UK, which is a notable driver of demand for self-storage. Combined with this, the restrictive town planning regime in the UK is a strong barrier to entry in the industry, although in the short to medium term more property will become available to the self-storage industry as competitive uses for sites struggle economically." |
placed all and THERE HAS BEEN NO DILUTION |
should have hit the placing price by now,if fully subscibed should bounce back. |
interesting little flurry of buys |
scburbs .. strictly on a chart comparison .. LOK looks like it has already broken out & is on a run. not to say it is not worthy of consideration but, to me, SAFE looks like the timing may be better right now. any other views here? |
Nurdin ... back on my scope now after this fall & like the chart. agree they are looking cheap. will have another look over at the weekend and see how we open on Monday. also holding from 68 in PSPI for similar reasons. |
I'll have a look - ta.
CR |
CR, How about Lok N' Store (LOK). Same sector, but much much cheaper.
Smaller company and not as well developed as SAFE, but the valuation differential looks far too wide to me. |
Yep, dull reaction on a dull day.
I dare say they aren't going to set the world alight but decent value. I'll hold until I get bored as usual but think these look cheap, dunno if I want to sell really, unless I find something hotter for the cash.
CR |
 Homeowners struggling for more room
(UKPA) 4 hours ago
Homeowners trapped in small properties by the stagnant housing market are creating more space by putting their belongings in storage units, Safestore has said.
The UK's largest self-storage firm said it had seen a significant change in trends during the last year as economic pressures put home moves on the back burner.
As availability in the housing market remains low, Safestore said it had also seen an increase in people selling before they buy - creating a "natural break" in the house moving process and increasing the need for storage.
The firm, which has 95 outlets in the UK, saw revenues increase 1.9% in the year to October 31 to £84.4 million in a "challenging" market, although same-store sales were down 0.4%.
Underlying earnings rose 1.3% to £45.7 million, but the company swung to a bottom-line loss of £9.4 million due to a revaluation of its property portfolio.
The firm said while the first half of the year had been particularly difficult, it had since seen an increase in enquiries from both businesses and individuals.
"We continue to receive high levels of enquiries from event driven customers such as those getting married, divorced, travelling, renovating, moving abroad or inheriting possessions," the firm said.
"There are also those that rent an extra room in self storage in order to release space for the longer term, for an addition to the family, or want to create an office space or free up a room to let."
Rental rates per square foot increased 4.9% in the period to £25.24, while occupied space at the end of the financial year was up 2.1% at 2.7 million square foot.
Sales of insurance and merchandise increased by 4.8% to £11.5 million, which the firm said was "particularly pleasing" and reflected a better insurance offering and new packaging. |
Some chunkier trades this afternoon. Half a million at 138p. A third of a million at 137p earlier. |
I was impressed with the diverse range of uses of self storage...makes it sound almost recession proof:
We have a diverse set of domestic customers with a wide cross section of uses
for self storage. We continue to receive high levels of enquiries from event
driven customers such as those getting married, divorced, travelling,
renovating, moving abroad or inheriting possessions. There are also those that
rent an extra room in self storage in order to release space for the longer
term, for an addition to the family, or want to create an office space or free
up a room to let.
Nice ...:o) |
No shocks/horrors in the results or statement. But no exciting stuff either. And so far no market reaction at all. |
Look cheap don't they. Trading at a 25% discount to a rising NAV.
Earning at the lower end of forecasts but that's a side issue compared to the valuation you are buying their assets on and those asset values rising.
2010 should be the year that asset appreciation picks up now we have recovery imo
CR |
Mattjos..I have just bought back ;o) |
Results Friday - have a read of the last trading update - trading at well under NAV by around 30% and doing 10p+ a share earnings.
12 November 2009
Safestore Holdings Plc
("Safestore" or "the Company")
Pre-close trading update for the year ended 31 October 2009
'Continued strong trading'
Safestore Holdings plc ('Safestore' or 'the Company'), the largest self storage
company in the UK and Paris is pleased to report on its trading progress
(unaudited) for the year ended 31 October 2009.
* Revenue for the year to 31 October 2009 increased by 1.9% to GBP84.4 million
compared to GBP82.9 million last year
* Occupancy growth for the year to 31 October 2009 was 57,000 square feet ("sq
ft") compared to a loss of 195,000 sq ft last year
* Average rental rate per sq ft for the year to 31 October 2009 increased by 4.9%
to GBP25.24 compared to GBP24.05 last year
* Closing occupancy for the year as at 31 October 2009 was 2,773,000 sq ft
Revenues for Q4 2009 were 3.0% up on Q4 2008 at GBP22.1 million. The average
rental rate of GBP25.49 for Q4 2009 is 1.5% up on Q4 2008 and 3.9% ahead of Q3
2009. Occupancy performance in the fourth quarter, which is historically the
poorest performing quarter for new lets, was substantially better than the same
quarter last year with a decrease of 53,000 sq ft compared to a decrease of
166,000 sq ft in 2008. The majority of the occupancy decrease in Q4 this year is
related to the seasonal loss of students who store with us over the summer.
We continue to see an increasing level of enquiries and new lets. In particular,
we have noted a significant increase in domestic enquiries during Q4. Demand
from the business sector remains robust. Enquiries via the internet continue to
grow with Q4 being particularly strong and now represents the largest proportion
of total enquires and new lets. Our French business has continued to perform
strongly with good growth in both new lets and rental rates.
The Board of Safestore is confident that the full year results will be in line
with market expectations.
During the year we opened five new stores. The initial performance of these
stores has been encouraging. We currently have a pipeline of six expansion
stores all of which have planning permission. Of these stores four are freehold
and two long leaseholds (more than 50 years).
Steve Williams, Chief Executive Officer commented:
"Despite the challenging economic environment it has been pleasing to see an
improved year on year performance in occupancy growth and rental rate and
Safestore continues to benefit from its operational strengths. The business has
the capacity and operating expertise to take advantage of any increase in levels
of activity and its position as the UK market leader provides further
opportunities for growth." |
Agree - trading about 30% below NAV and doing 10p eps seems rather cheap and well off the recent highs.
CR |
Trading volumes have been very low this week. Might we expect more activity in the run-up to results next Friday? I've opened a small upbet in expectation of 160p looking more likely than 120p. |
Chart turning here by the look of it, right on support.
Already broken out next leg up here should be good.
I'd have thought decent buying interest over the next two weeks up to the results, we'll see.
CR |
Results Jan 29th.
CR |
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