Lok'n Store (LOK) may be the smallest of the big three self-storage outfits in the UK, but it's making up ground fast, with net asset value up 28 per cent in the year to July 2016. Prices charged and occupancy rates continue to climb, reflecting growing demand and a limited supply of decent storage space. And, while there are around 880 self-storage facilities in the UK providing around 38m sq ft of space, this equates to just 0.6 sq ft per person compared with 7.7 sq ft in the US. So there is plenty of room for expansion.
- Growing demand for self-storage
- Very low gearing
- Expanding site network
- Costs held in check
- Modest dividend
- Growing competition
The company has been busy moving to meet this demand, and in the 12 months to the end of July added four new development sites to its 26 owned or managed (six of the total). These will add 14 per cent more space and take the proportion of purpose-built stores from 59 per cent to 64 per cent. Two of the new stores will be managed, while sites in Gillingham and Wellingborough will be owned stores and should be opened later in 2017. This will cost about £10m, but Lok'n Store has a track record for making good use of its resources to fund growth. Last year it brought in £2m from the sale of an old Reading site, £3m from disposal of development land in Portsmouth and £3.5m from a sale and manage-back deal on its Swindon store.
Managing stores that it doesn't own provides another useful source of income. This allows it to use its management expertise without having to commit any capital. Management-related fees in the year to July jumped from £177,000 a year earlier to £439,000. Ancillary sales provide another revenue stream. This is where the company sells items such as boxes and packaging materials, as well as insurance. Income rose 5.3 per cent in the year to July and now accounts for 11.2 per cent of self-storage revenues, up from 10.8 per cent a year earlier.
| LOK'N STORE (LOK) | ||||
|---|---|---|---|---|
| ORD PRICE: | 409.5p | MARKET VALUE: | £118m | |
| TOUCH: | 402-417p | 12-MONTHHIGH: | 462p | LOW: 264p |
| FWD DIVIDEND YIELD: | 2.9% | FWD PE RATIO: | 25 | |
| DISCOUNT TO FORWARD NAV: | 2% | NET DEBT: | 33% | |
| Year to 31 Jul | Net asset value (p) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2014 | 271 | 2.0 | 7.2 | 7 |
| 2015 | 302 | 2.7 | 7.6 | 8 |
| 2016 | 386 | 3.6 | 10.4 | 9 |
| 2017* | 405 | 4.7 | 13.8 | 10.4 |
| 2018* | 419 | 5.6 | 16.2 | 11.9 |
| % change | +3 | +19 | +17 | +14 |
Normal market size: 1,000 Market makers: 3 Beta: 0.63 *FinnCap estimates, adjusted NAV, PTP and EPS | ||||
Costs have also been tightly managed, falling as a percentage of revenue from 61.2 per cent to 58.9 per cent, while solid cash generation and a valuation uplift helped to reduce the loan-to-value ratio from an already modest 25.8 per cent to 20.8 per cent. And this is set to fall even further to around 13.8 per cent after the company sold 1.975m shares held in Treasury at 400p a share and pledged to use the proceeds to reduce debt.
A £40m banking facility was secured last January at a much more attractive rate and, although £28.8m has been drawn down, there is no obligation to make any repayments before expiry in January 2021, as well as a possible two-year extension.
The attractions of the UK were underlined this year when the largest privately owned US operator, StorageMart, entered the market with the acquisition of 15 stores. Lok'n Store could make a good bite-sized acquisition for a new entrant, although management's 35 per cent stake means any offer would probably need to meet with board approval.
