Is the Shurgard approach for Lok'n Store opportunistic?

Earlier this month, it was announced that Europe's biggest self-storage landlord, Shurgard (BE:SHUR), would purchase UK rival Lok'n Store (LOK) for £378mn. Lok'n Store's board has backed the all-cash takeover, so this may be the UK company’s last interim results as a separate publicly traded entity.

So, assuming the deal goes ahead, is the Shurgard approach justified by recent financial performance? Cash profits fell to £7.65mn, against £7.93mn at the same point in 2023. Profit was constrained by a 15 per cent increase in overall costs, with rent, energy bills and business rates all heading in the wrong direction. To mitigate the impact of these increases, the group has pushed up prices by 4 per cent to £27.37 per square foot. However, this was undermined to an extent by a 2.9 per cent decrease in occupied unit space. Ancillary sales made up of packaging materials, insurance and other sales were up 2.2 per cent to £1.29mn.

In terms of the portfolio, bosses at Shurgard will doubtless have factored the new store pipeline into the equation. New outlets have recently been opened at Basildon and Kettering, and two further openings are due this year in Staines and Bromborough. Lok'n Store notes that the balance of the portfolio continues to shift towards landmark freehold stores and managed stores, which should be supportive of cash margins going forward.

Customer demand remains above pre-pandemic levels, although it has softened compared with the same period 12 months ago. Since the period end, the group “has continued to observe positive but muted revenue growth”. We highlighted the investment case in May 2023 when the shares were trading at a 22 per cent discount to the offer price of 1,110p. However, we feel that Shurgard looks to be benefiting from a temporary lull in the market, and the offer price is 18 per cent adrift of the consensus target price. Hold.

Last IC view: Buy, 655p, 30 Oct 2023