Safestay (SSTY) is growing fast and has plans to open as many as 25 upmarket hostels across the UK and Europe. The company is the latest venture of serial property entrepreneur and chairman Larry Lipman. In the past, Mr Lipman has been a driving force behind companies such as Safestore, Safeland and Bizspace. At the moment Safestay has four hostels up and running, all of which are in the UK and three of which are freehold owned. That's fast work considering it only floated in May last year. And with the infrastructure needed to support ongoing expansion now largely in place, we expect to see significant upside as more hostels are added.
- Big expansion in progress
- Significant operational gearing
- Shares trading close to NAV
- Strong balance sheet
- No dividend
- Potential dilution
One of the key attractions of the business model is the quality of the accommodation. It's just not the hostel of old that we might remember. Holland Park in London, Safestay's only leasehold property, provides an ideal example. Situated in the middle of the park, the boutique hostel is in a 17th century Grade 1 listed building complete with ornamental gardens and fountains. There is a canteen and licensed bar, quiet rooms, communal areas and both dormitories and self-contained rooms. Okay, there are no carpets and no room service, but at around £25 a night for a comfortable bed in central London, it's hard to beat.
Other hostels include Elephant & Castle in south London and York. The company recently completed a fourth acquisition in Edinburgh. Situated in the heart of the city, the hostel has 615 beds including 81 en-suite bedrooms, and cost £15.5m. Safestay has already pulled off a neat deal whereby Edinburgh University has signed a 12-year agreement that will see part of the accommodation used by students during term time, but leave rooms free during the peak summer season. Overall, during the peak summer season, the company will be operating with over 1,500 beds. Funding for the Edinburgh acquisition has come through a share placing and open offer raising just over £9m, and a new debt facility of £8.5m.
| SAFESTAY (SSTY) | ||||
|---|---|---|---|---|
| ORD PRICE: | 59p | MARKET VALUE: | £20m | |
| TOUCH: | 58-60p | 12-MONTH HIGH: | 75p | LOW: 43p |
| FORWARD DIVIDEND YIELD: | 1.2% | FORWARD PE RATIO: | 17 | |
| NET ASSET VALUE: | 25p | NET DEBT: | £18.5m | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 1.9 | 0.5 | 5.8 | 0.3 |
| 2015* | 4.0 | -0.1 | -0.4 | nil |
| 2016* | 8.4 | 1.4 | 3.4 | 0.7 |
| % change | +110 | - | - | - |
Normal market size: 500 Matched bargain trading Beta: 0.69 *Westhouse forecasts | ||||
Estimated net debt of £16.1m by the 2015 December year-end is backed by the £30m value of the three freehold properties. A maiden dividend is forecast in 2016 and profits in the current year will be dented by some delay in opening Holland Park, but are expected to grow the following year as Edinburgh comes on stream.
The share price is backed by forecast 2015 net asset value (NAV) of 57p. There should be plenty of opportunities to increase revenues by boosting occupancy as the Safestay brand gains traction, as well as through improved management of hostels, better use of the internet to generate bookings and charges for extras (such as the recently introduced £4 breakfast charge). What's more, with room rates averaging about £20 a night, small increases in monetary terms will produce large revenue and profit uplifts in percentage terms.
