The growth of self-storage in the UK is a fascinating social phenomenon. While there are many practical reasons for paying to pack a household’s goods into a windowless cell, such as moving or renovating the family home, that is only part of what is driving the sector’s expansion. While a storage unit can in effect become a cheap house extension, we seem to be aping Americans’ inability to throw things away.
A US television advertisement summed it up. A wife tries to dispose of her middle-aged husband’s old baseball helmet and mitt, only for him to plead: “It’s part of who I am.” Not for nothing is that country the self-storage world’s king, with $80 billion annual revenue compared with the UK’s $1.3 billion. So far, only a few per cent of Britons rent this type of space, against 19 per cent in the US. But UK penetration is well ahead of Europe and is growing.
Those trends are fertile ground for the UK market leader, Big Yellow, a real estate investment trust. Starting in 1998 with a single unit in Richmond, Surrey, it now has 109. In a timely piece of public relations, the week after the general election it secured planning permission for a 68,400 sq ft installation in the heart of the prime minister Sir Keir Starmer’s beloved Kentish Town. Typical rent is £22 a week for 50 sq ft.
The group’s results for the year to March 31 showed revenue 6 per cent higher at £199.6 million, a jump in pre-tax profit from £75.3 million to £241 million, earnings per share up from 40.1p to 127.1p, year-end occupancy levels of 80.9 per cent, down from 83.2 per cent the previous year, and net rent per square foot £34.14, a 5 per cent rise.
In the first quarter of the current year, revenue was £50.2 million, from £48.1 million a year ago, 3.2 per cent higher on a like-for-like basis. The chairman, Nick Vetch, said: “We have an opportunity to generate in excess of £50 million of net operating income from a combination of delivering the income from our pipeline stores and leasing up the existing fully built 1.4 million sq ft of vacant space.”
That picture is in stark contrast to the message from Big Yellow’s close rival, Safestore, which this column examined on July 18. Like-for-like revenues there fell 0.3 per cent in its first half-year. UK revenue shrank 1.5 per cent, thanks to mostly flat rates and weaker occupancy rates. Both companies have nearly half their stores in London, but Safestore has ventured into the so far less receptive European mainland while Big Yellow has so far confined itself to Britain.
None of this is lost on the monster charging up the front path. The world’s biggest self-store firm, Public Storage, has a 35 per cent-owned proxy on this side of the Atlantic, Shurgard which operates 250 stores from Stockholm to Marseilles and this year bought Lok’n Store in the UK, taking its estate here from 48 to 100 at a price of 70 times 2023 earnings. “It’s all about your needs and peace of mind,” its publicity purrs, but plainly only the monopolies authorities stand between Shurgard and a clean sweep of the UK. It is hard to see the new government making a political stand on that, but it will want to maintain competition.
That of course can be an attraction for investors in Big Yellow, where the share register is bristling with expectant US funds such as BlackRock, Fidelity and Vanguard, plus the Canada Pension Plan. The shares have had a strong run this year, from £10 in February to £12.64 in June and now drawing breath at about £11.86. In those circumstances, bearing in mind the Lok’n Store price, the shares look decent value, with the investment bank Jefferies predicting a 20 price-earnings for the current year’s profits, and a 4.2 per cent dividend yield. The Big Yellow management should be straining every sinew to boost those numbers before Shurgard comes knocking.
ADVICE Buy
WHY Investors will benefit from Big Yellow’s growth, with the bonus of takeover possibilities
Victorian Plumbing
June 2021 seems a long time ago now. Covid was still among us and a string of companies took advantage of the housebound population to float household services on the stock market at highly optimistic valuations. Among those on the Aim exchange was Victorian Plumbing, Britain’s leading bathroom retailer.
The chief executive, 45-year-old Mark Radcliffe, and his family unloaded £260 million of shares and £11 million was raised for the business as the shares were placed among eager institutions at 262p. Frenetic early dealings took the price to 306p, but within 15 months they had plummeted to 35p and have since climbed unsteadily to just above 90p after touching 97p in May.
The company’s latest announcement explained that lower shipping costs and more own-brand sales contributed to a 40 per cent increase in pre-tax profit to £11.5 million for the half-year to the end of March, despite sales remaining flat at 144.6 million in a recovering sector.
Radcliffe added the sweetener that it has bought the confusingly similarly-named ailing online competitor, Victoria Plum, for £22.5 million. That brand will be extinguished, but integration costs will hold back profits until next year. The hope is that by then lower interest rates and economic growth will restore the public thirst for new bathrooms.
Peel Hunt’s analysts see revenue growing from a modest £291 million in the current year to £340 million two years hence, taking adjusted pre-tax profit from £19.1 million to £27.7 million. That would lead to earnings per share, adjusted and fully diluted, from 4.4p a share to 6.4p for a reasonable but not bargain-basement 14.5 price/earnings ratio. However, the dividend yield could reach a tasty 5.6 per cent by then.
Now that it has absorbed Victoria Plum, the group would be attractive to a bigger group but for the Radcliffe family’s controlling shareholding and the chief executive’s relative youth. However, two institutions, Kayne Anderson Rudnick Investment Management and BlackRock, own 6.7 per cent and may begin manoeuvres if they do not see progress.
ADVICE Hold
WHY Brighter economic outlook will help demand next year
