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Big Yellow's big margin continues to increase

The self-storage landlord and operator posts another strong set of results, but its value has not been recognised by the market
May 23, 2023
  • Small discount to NAV
  • Net rent per square foot increase

It is a sign of the strength of Big Yellow’s (BYG) margins that, despite taking a £29.9mn valuation hit, the self-storage landlord and operator was still able to post £75.3mn in pre-tax profit from £189mn in revenue in its results for the year to 31 March. Other real estate investment trusts (Reits) have not been so lucky. The ‘mini’ Budget-driven interest rate spike reduced buyers’ budgets overnight and led to a bruising revaluation for Reits across the board. Most have posted pre-tax losses in the months since, but not Big Yellow.

The pre-tax figure is still heavily down on last year due to the revaluation, but the prospect of future earnings looks good. Operating profit before value changes was up 12.6 per cent thanks to a 9 per cent bump in net rent per square foot. In other words, even as Big Yellow grows its portfolio, it is still seeing an increase in demand for its services which it can use to drive up rents.

Meanwhile, the increased efficiency from having a larger portfolio means it has been able to steadily increase its operating margin from an already high 60.3 per cent in FY 2021 to 63.6 per cent in this year’s results. Such high margins will hit a ceiling eventually but, for now, shareholders are benefiting from the good times with dividends increasing by a further 8 per cent.

Such performance from Big Yellow is not new, but in the past shareholders typically had to pay a large premium to net asset value (NAV) for this stock. Right now, however, the wider misfortunes of the property sector mean that investors can buy into BYG at a marginal discount to NAV. For that reason and several others, we reiterate our call. Buy.

Last IC View: Buy, 1,153p, 22 Nov 2022

BIG YELLOW GROUP (BYG)   
ORD PRICE:1,177pMARKET VALUE:£2.14bn
TOUCH:1,175-1,180p12-MONTH HIGH:1,440pLOW: 939p
DIVIDEND YIELD:3.8%TRADING PROP:nil
DISCOUNT TO NAV:-0.59%NET DEBT:23%
INVESTMENT PROP:£2.45bn   
Year to 31 MarNet asset value (p)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201968912778.333.2
202076193.455.833.8
202188926615234.0
20221,18769938542.0
20231,18475.340.145.2
% change-0.3-89-90+8
Ex-div: 06 Jul   
Payment: 28 Jul