Safestore: a safe bet
We all have too many possessions – that's good news for self-storage group Safestore, says Matthew Partridge.
We all have too many possessions that's good news for self-storage group Safestore.
Marie Kondo is making a fortune by getting people to cut down on their possessions.But where is all the stuff going? Straight into storage, it would seem.
Enter Safestore Holdings (LSE: SAFE), a real estate investment trust that rents out lockers and self-storage units to a wide range of clients, from businesses to private individuals. It runs 146 stores in Britain and France, split between London, north-west England and Paris, where it operates 22 stores.
Safestore's growth stems from three key factors. Firstly, it has been opening new stores to catch up with demand. It has also acquired stores from rivals that it has taken over, including Alligator Self Storage in 2017. Finally, it has also become better at finding customers for its existing premises, gradually increasing the occupancy rate from 60% in 2011 to 73% today. As a result, total revenue has shot up from £96.1 in 2013 to £144m last year. Not only has sales growth been strong, but it has also been consistent, with double-digit increases in 2016, 2017 and 2018.
Of course, strong growth isn't that helpful if it isn't profitable, but Safestore has been able to convert its expansion into increased earnings, with adjusted earnings-per-share (EPS, the most conservative measure) increasing by more than 150% in the last five years. Safestore's return on invested capital, a key gauge of profitability, has ranged between 10% and 16% in recent years; it is currently 15.8%. All this has enabled the group to greatly increase the money it returns to shareholders, with the dividend per share nearly tripling since 2013.
This is a strong track record, but will it continue? It's true that a fall in the value of the London property market could temporarily reduce the value of its buildings. However, it would take a big structural shift in the affordability of housing, or the average house size, for people to suddenly give up storing their possessions in storage lockers.
Britain needs more storage space
While there are now a huge number of Safestore storage spaces dotted across Greater London and Paris, there is still enormous unmet demand across the rest of the UK, as shown by the fact Safestore is planning to open several more units this year, including one in Birmingham. Overall, analysts expect the company to grow sales by an annual 5% a year over the next two years. At present Safestore trades at 11.4 times trailing earnings with a yield of just under 3%. Given its past track record and future growth potential, as reflected in sales forecasts and rising occupancy rates, we think the company's shares are attractively valued, implying plenty of upside. We'd therefore suggest that you buy it at the current price of 567p at £7 per 1p (compared with IG Index's minimum price of £1 per 1p). In this case we'd suggest you put a stop loss of 425p, which gives you a maximum downside of £994.
Trading techniques... the Super Bowl indicator
Sometimes a trading technique makes no sense at all but still appears to have a strong record. A case in point is the Super Bowl Indicator. In 1978 the sportswriter Leonard Koppett wrote a satirical column for the magazine Sporting News claiming there was a correlation between the outcome of the Super Bowl, the final championship game of the American football seasonandthe performance of the US stockmarket.
The Super Bowl was originally a play-off between the winners of America's two main leagues, the National Football League (NFL) and the American Football League (AFL). Since the NFL merged with the AFL, it has been a contest between the league's two conferences, the NFC and the AFC.Koppett noted that for the first 11 Super Bowls after the contest started in 1967, the years in which a team from the old NFL (now the NFC) won saw a rising stockmarket. Conversely, in years where a team fromthe old AFL (now the AFC) triumphed, the stockmarket declined.
Over the years the theoryhas had to be tweaked a bit to account for new teams being formed, or moving between conferences. It has also made some big mistakes, most notably failing to anticipate the bear markets of 2000 and 2008. Still, it has predicted the direction of stock prices 40 out of 52 times (76%).
The victory of the AFC's New England Patriots over the Los Angeles Rams last Sunday points to a stockmarket decline this year. However, we suggest you ignore this message.As Koppett himself points out, there is no reason at all why the outcome of a single game of American football should be related to the behaviour of the stockmarket. He originally wrote the article in order to send up our tendency to discern patterns in coincidental, unrelated occurrences. He was horrified to be taken seriously.
How my tips have fared
This has been a good week for my fouropen long positions.All of them have risen, although only by a small amount in most cases.For example, Greene King went up from 596p to 599p, Cineworld climbed from 257p to 260p and John Laing increased from 351pto 354p.The best performer was JD Sports, up from 437p to 450p. While Hays also increased to 157p, this is below the 160p level needed to trigger the trade. Overall, the four open positions are now making a collective profit of £753, up from £554.
The performance of my shorts has been more mixed. Bitcoin fell slightly in value to $3,411, while Weis Markets also declined from $49.07 to $48.78. Rightmove was also unchanged at 477p.However, the four other short positions all rose, including Twitter (from $33.27 to $34); Snap (from $61.8 to $6.80); Just Eat (649p to 707p) and Netflix ($339 to $347).Overall, my shorts are making a total profit of £1,300, down from £1,596. Combined with the profits from the longs, the open positions are a total of £2,053 in the black.
Since they are still profitable, we're going to continue running the Greene King and Bitcoin positions. However, we have decided it's worth tightening the stop-losses in order to ensure that we don't just let them drift.As a result, I'm now advising you to sell Greene King if it falls below 540p (up from 525p). I would also advise you to cover your position in bitcoin if it rises above $4,250(the original threshold was $4,500).
With our short position in Netflix close to its six-month anniversary, we're going to give it one last chance to show a profit before we recommend that you close it down.