Lok'n Store boosts rates and reduces costs

Lok'n Store (LOK) was one of the leading risers on Aim after the self-storage company announced a 37 per cent rise in cash profits to £16.4mn. The strong annual showing was driven by a 13 per cent increase on the achieved rate on occupied space combined with a 6.4 percentage point reduction in total operating costs as a proportion of revenues to 38.5 per cent. That’s doubly impressive when set against an inflationary backdrop. And sale and manage-back arrangements have been carried out at a premium, helping to reduce net debt and boost cash available for distribution.

The self-storage industry was something of an outlier during the pandemic, at least in relation to some other property-based sectors which saw occupancy rates and rents affected by the lockdowns. The consequent spread of hybrid working arrangements has also had a positive impact. And even seemingly tangential issues such as the rental crisis have increased the number of people that need a unit to store their belongings.

Management is looking to meet this increasing demand through a development pipeline that will expand its owned-store space by 44.1 per cent over the medium term. Of the 14 pipeline sites, 10 are contracted and four are “progressing with lawyers”.

Secular trends are favourable, but the development pipeline is key to driving growth and the sole justification for a lofty consensus earnings multiple of 30 times forecast earnings.

The company’s net asset value increased by 33 per cent in FY 2022, but it would be fanciful to imagine that will be the standard rate going forward, even though Aug/Sep trading was 13.6 per cent up on the same period last year. Buy.

Last IC view: Buy, 1,030p, 26 Apr 2022