Many of the new generation of Brobdingnagian warehouses next to the motorways of Britain are owned by Tritax Big Box. This FTSE 250 company is the only real estate investment trust specialising purely in owning and renting out these unbelievably vast structures, known, aptly, as big boxes.
Yesterday it announced plans for another one, at Fradley, in Staffordshire, with a blue-chip tenant, Screwfix, part of Kingfisher, signed up to it before the first girder is hoisted. Net of acquisition costs, the warehouse will yield 5.5 per cent.
Big boxes are catnip to retailers. They love the size, which enables them to centralise and simplify complex, distribution networks. They love their enormous heights — they can install a mezzanine with no change to the rent. They love the locations — close to the motorway with lashings of parking and the potential to add office space.
Big Box has amassed several high-quality tenants — from Amazon at Peterborough to Argos at Burton upon Trent to Rolls-Royce Motors at Bognor Regis and Marks & Spencer at Castle Donington. They are largely locked into upward-only rent reviews. And there is no dominant customer. Even Tesco accounts for less than 7 per cent of gross rent.
They tend to be sticky because they then invest heavily in automation and refrigeration. The risk of obsolescence is relatively low: it’s hard to see how big boxes can get much bigger.
After raising £350 million in October in an oversubscribed placing Big Box has been keen to find a home for the money and the Screwfix deal is encouraging. Big Box provides the funding to the developer, which then pays immediate interest, underpinning its ability to keep the dividend flowing.
The Screwfix deal is its eighth pre-let forward-funded development. The asset manager, Tritax, takes 1 per cent of the assets in management charges but this ratchets down as the company gets bigger.
Big Box has its risks. It borrows to spice up returns, and it could be wrong-footed by interest rate movements. It has only a short track record, since coming to the share market in late 2013. The shares fell 10 per cent after the Brexit vote in June — demonstrating that it is not immune to fears of an economic slowdown. But it looks relatively low-risk for investors wanting solid inflation-protected ballast. Buy on Brexit wobbles.
My advice Buy
Why Hefty yielder backed by property in top demand
DS Smith
Displaying a chocolate bar or pizza vertically on a supermarket shelf boosts sales by 35 per cent compared with placing them horizontally, according to Tesco research. The ingenious cardboard technology that makes this possible — and pushes the next item to the front each time an item is taken — has helped push DS Smith to another period of record results.
Smith makes the boxes in which food and drink are transported and displayed, as well as the increasingly elaborate promotional structures in the store aisles. It may be mere cardboard, but Procter & Gamble and Danone are prioritising this kind of promotional expenditure that over traditional advertising.
Smith, which has built a pan-European network of plants from Turkey to the Nordics, is in a sweet spot to keep the big manufacturers happy. Its scale and reach in Europe is probably second to none.
It’s also well placed to harness the shift to internet shopping. The likes of Amazon, which is strongly rumoured to be a customer, want innovative cardboard methods that minimise voids and, crucially, reduce product damage in transit.
Revenues on a constant currency basis are up 7 per cent in the last half year. A 15 per cent rise in the dividend is a measure of its confidence. The shares, marked 23p higher to 419p yesterday, trade on 13 times expected full year profits and yield 3.4 per cent, which is hardly expensive. Even in the event of a bumpy Brexit, the underlying tailwinds should remain favourable.
My advice Buy
Why The kings of cardboard are basking in favourable packaging trends
Polar Capital
It’s sometimes hard to know whether Polar Capital is run for shareholders or staff. The fund management company is in the third year of a draining period of customer defections. Pay remains resilient while shareholdings are diluted by newly issued stock for staff options. The shares are at little more than half their peak of three years ago.
Net outflows amounted to £763 million in the six months to September as clients pulled money from funds in the wake of poor figures. Only the collapse in the pound spared the management’s blushes, enabling them to report an increase in assets under management in sterling terms.
Profits no longer cover the dividend, which Polar promises to maintain for the full year at a cost of £23 million. That puts the company on a spectacular yield of 8.6 per cent. How long can this go on? It’s not clear. Polar has £72 million of cash, but isn’t saying how much of this is surplus to regulatory requirements.
Two rays of sunlight are a burst of inflows since the Trump victory and a strong rally in Japan. Shareholders may be frustrated with management. Its refusal to talk to the press on results day adds to the impression of complacency. But with the shares this low, it’s not the time to bail out.
My advice Hold
Why Whopping dividend while shareholders await turnaround
And finally...
A London-listed fund created to back opportunities in Burma is considering an additional listing in Asia to improve liquidity. Myanmar Investments International, which has so far invested $31 million in mobile phone masts and a microfinance business, reported a first-half loss of $1.33 million. The company reported a slowdown in the country, which is inching towards democracy after decades of military dictatorship but said it remained bullish. The shares, which were floated at $1.05 in 2013, fell 2 per cent to $1.38.