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Promising signs at Safestore

TIP UPDATE: Half-year numbers from Safestore were disappointing, but with clear signs of underlying improvement at the self-storage group, the shares look too cheap
June 27, 2012

Increased investment in branding, marketing and call centres saw earnings slide at Safestore, but its strategy of lowering rents to attract more self-storage business to its high-end lock-ups seems to be paying off and means that the shares remain on our buy list.

IC TIP: Buy at 102p

Average rental rates fell from £26.33 to £25.09, but the key revenue-per-available-foot metric (RevPAF) rose 7.5 per cent. And, with the help of three new store openings, occupancy rose 11.8 per cent during the year to 3.3m square foot.

The second half holds some significant potential challenges. VAT is due to be introduced on self storage at the start of October, which management estimates could lower cash profits by between £2m and £3m, and property valuations have also fallen in anticipation. Meanwhile, the Parisian business, which generates a quarter of revenues and 22 per cent of cash profits, could also suffer due to the turmoil in the eurozone.

Broker Peel Hunt forecasts full-year underlying net asset value of 213p, EPS of 9.2p and DPS of 5.7p this year, and has pencilled in 222p, 9.7p and 6.2p for 2013 when the VAT effect will be felt in full.

SAFESTORE HOLDINGS (SAFE)
ORD PRICE:102pMARKET VALUE:£192m
TOUCH:102-103p12-MONTH HIGH:142pLOW: 92p
DIVIDEND YIELD:5.3%PE RATIO:81
NET ASSET VALUE:135pNET DEBT:154%

Half-year to 30 AprTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201145.50.972.381.75
201248.4-11.8-3.311.85
% change+6--+6

Ex-div: 11 Jul

Payment: 8 Aug