Big Yellow's valuation bump spares its blushes

The valuation bump in Big Yellow's (BYG) results for the six months to 30 September flatter it somewhat. The £67.2mn gain in the self-storage landlord's properties reversed the valuation drop caused by last year's interest rate spike. The result is a big swing in IFRS numbers. 

Meanwhile, on an EPRA basis, things are less spectacular. Earnings per share, which strips out valuation changes, fell slightly because of increased costs and more issued shares. The rise in empty units is also beginning to look questionable. Though 81.4 per cent occupancy is in line with its peers, investors should note that the figure has fallen gradually from 85.2 per cent on 31 March 2021 and that the story is similar for its rival Safestore (SAFE).

This would suggest that demand for self-storage is declining, but other figures suggest not. Revenue is up 6 per cent because of a 5 per cent increase in like-for-like rents. Operating income, which records rental income minus costs and ignores valuation changes, is also up.

The balance sheet is healthy, too. Big Yellow continues to have much lower gearing than its peers, and last month it showed that the discount to net asset value (NAV) on which it trades was no obstacle to it raising £110mn via a placing. The discount is now relatively narrow, and the upshot is that Big Yellow has money to spend on expansion at a time when other real-estate investment trusts (Reits) are having to tighten their belts because of higher gearing and a deeper discount to NAV.

The market does not seem to have recognised Big Yellow's growth potential in this regard. While vacancy rates do pose a risk, we think the current discount undervalues this company. Buy.

Last IC view: Buy, 1,177p, 23 May 2023