Self-storage sheds are not the most beautiful of buildings, and they don’t need to be. To advertise their presence — and help attract custom from house movers, home renovators, businesses and anyone else who doesn’t have enough space for their stuff — they just need to be big and garish.
There are two listed operators in the UK, Big Yellow and Safestore, providing yet another way to add property exposure to your portfolio. Both companies are Reits and therefore pay out 90 per cent of their income as dividends. But despite the diversity of property options available to investors, from housebuilders and warehouses to offices and shopping centres, almost all real estate groups are highly sensitive to interest rates and the economic cycle.
Recessions are particularly bad news for office landlords and shopping centres. Some sub-sectors, such as student accommodation, can slip under the radar of high interest rates to a degree — a bank rate above 4 per cent won’t impact demand for student rooms, for example.
But higher borrowing rates and the so-called cost of doing business crisis can make it prohibitively expensive to build new accommodation blocks, and that’s an issue for the storage providers too. Nevertheless, expansion through new developments, extensions and acquisitions features heavily in their plans for earnings growth (Safestore has 31 projects in its pipeline) spurred on by the fact that self-storage rates in the UK, and the equally immature European market, are way below those in the US and Australia.
BUY: Safestore (SAFE)
The self-storage group’s share price has fallen 26.9 per cent over the past year despite stable revenues, writes Natasha Voase.
Property stocks are often the victims of changing interest rate expectations and we think that Safestore’s share price is no exception. It is currently down 26.9 per cent year on year, with most of the losses incurred since October.
Given the share price, we would have expected a bloodbath in its annual results. In reality, they were more of a mixed bag, indicating some signs of a slowdown in occupier demand amid strong valuation uplifts.
Pre-tax profit increased by 92 per cent to £399mn. Much of this was due to a £292mn valuation uplift, with revenues virtually flat at £223mn. However, when measured at constant exchange rates, the group’s revenue grew 1.1 per cent year on year. However, underlying ebitda fell by 4.2 per cent due to inflationary pressures on key cost lines and the impact of new developments.
Safestore’s occupancy figures warrant some examination as the company appears to have experienced a slight softening in the underlying occupier market, although we do not believe this warrants the share price slide. Average occupancy fell by 1.1 per cent, while the average storage rate fell by 0.4 per cent to £30.3 per square foot. This contributed to a 1.5 per cent decline in storage revenue to £218mn.
Safestore has certainly been busy in its “expansion” markets and it now has 12 stores in Spain, 14 in the Netherlands and six in Belgium, with nine further stores in the pipeline, most of which are in Spain.
Economic challenges such as recession and inflation are a key concern for the self-storage market since they affect both customers’ disposable incomes and their propensity to move home. The dynamics vary from market to market, with some markets structurally undersupplied. The Netherlands, meanwhile, has the most storage per capita outside of the UK, according to the CBRE and Federation of European Self Storage annual report.
Safestore trades at 13.9 times forward earnings and has a discount to net asset value of 39 per cent, substantially wider than when we first tipped it as a buy. While we are more cautious than we once were, we think the share price declines experienced in recent months are unjustified and present a good opportunity for investors to exploit temporary weakness.
BUY: Games Workshop (GAW)
Revenues and profits at the newly promoted FTSE 100 company are reaching new heights, writes Valeria Martinez.
Games Workshop’s first results as a FTSE 100 constituent, coupled with a chunky 155p dividend surprise, have underlined why the fantasy model maker deserved its promotion from the mid-ranks more than three decades after its debut on the London market.
Coming on the heels of the deal with Amazon to adapt the Warhammer 40,000 universe into films and TV series, the company’s best-ever first half saw licensing revenue more than double to £30.1mn, driven by the success of two video game launches based on the miniature war game.
Core reported revenue grew by 14.3 per cent from a year ago, with sales up 21.7 per cent and 11.2 per cent in the trade and retail streams, respectively. Despite a lacklustre year for retailers, Games Workshop’s stores in the UK, North America and continental Europe hit record sales, while online revenue fell by 4.2 per cent more than a year after the overhaul of its web store.
The buzz from media and licensing deals may have contributed to the higher footfall, but community excitement for the Warhammer universe is also apparent in a 21 per cent surge in active My Warhammer portal users, to 695,000. Warhammer subscribers were up too, rising from 169,000 to 207,000.
Even so, not all new product launches sold at planned levels. Core gross margins slipped by 190 basis points to 67.5 per cent on higher inventory provisions, but core operating margins continued to move in the right direction, rising by 100 bps to 36.4 per cent despite an uptick in staff costs.
Management said measures introduced in Labour’s Autumn Budget, including increases in the national living wage and national insurance rises, are not expected to impact the current financial year’s performance, but could drive input cost rises in full-year 2026. Also looming in the background is the prospect of universal US tariffs.
In the meantime, strong cash flows and a healthy balance sheet leave plenty of room for Games Workshop to keep pouring resources into boosting its manufacturing capacity and expanding its real estate. Capital investment rose from £6.5mn to £14.3mn in the first half, with £5.4mn spent in land and building purchases in Nottingham.
Analysts at Jefferies said the Amazon media tie-up could be a “game-changer” in terms of global awareness and demand for the core Warhammer product. A forward price/earnings multiple of 26.4 looks pricey given that the jury is still out on the deal’s financial impact, but the rating may be justified given the opportunity, coupled with the company’s record.
HOLD: Victorian Plumbing (VIC)
Bathroom specialist plans to increase marketing spend, writes Michael Fahy.
Victorian Plumbing has fared better than other members of 2021’s “90 per cent club” — the group of companies that floated in frothier times and whose shares subsequently lost 90 per cent of their value.
The company’s shares are now down a mere 64 per cent on their listing price, or 71 per cent on the price they hit at the end of their first day of trading.
To be fair, the market in which it operates has been in a funk pretty much ever since the company listed. Rising interest rates made home loans more expensive, meaning fewer people took on bathroom upgrades. The company recorded a 1 per cent decline in like-for-like sales for 2024.
There were some signs of progress. Adjusted pre-tax profit rose by 14 per cent to £23.1mn on the back of improved gross margins.
Adjustments were substantial, though, as it recorded £11mn of exceptional costs — around £9mn on a warehouse transformation project and the rest on the acquisition from administrators and subsequent closure of its similarly-named competitor, Victoria Plum.
On top of this, there was a £3.1mn charge (or more than a third of reported pre-tax profit) for share-based payments.
The company said its new 544,000 sq ft distribution centre, which is now operational, provides the basis for further growth both in bathrooms and other new categories, and it plans to “more confidently spend on efficient marketing” to drive higher volumes.
However, we concur with broker Panmure Liberum’s assessment that the company has “a lot to prove in a difficult market”, and a valuation of 16 times forecast earnings isn’t much of an incentive.
