MIDAS SHARE TIPS: Thinking out of the box helps Safestore deliver more growth
In today's consumer society, there is a constant tension between the amount of stuff people own and the space they have to keep it in. Some resort to garages or lock-ups. Some leave surplus bits and pieces at their parents’ home.
But growing numbers are turning to self-storage as an efficient, secure and relatively cost-effective way to overcome their lack of room.
Safestore is well placed to benefit from this trend. The shares are 286.25p and should deliver growth and dividend income over the next few years.
In safe hands: Almost half of Safestore’s depots are inside the M25 where the demand for space is most acute
The company owns 97 depots in the UK, almost half of which are within the M25, where the need for space is most acute. There are also 24 stores in Paris, which suffers from similar constraints to London and has a real shortage of storage outlets.
The Paris business was built up by Frederic Vecchioli, under whose watchful eye it has delivered 17 years of continuous growth, even through the financial crisis.
In September 2013, Vecchioli crossed the Channel to become chief executive of Safestore, since when he has made several decisive changes to improve occupancy and rental rates, strengthen the group’s financial position and, most importantly, increase profits.
Storage is a sector where most enquiries begin online but then progress to the stores themselves. That means successful companies need an excellent website, a strong presence on Google and smart, enthusiastic staff when potential customers come and visit. Vecchioli has worked hard on all these fronts.
New directors were appointed to oversee operations and human resources; new regional managers were brought in to ensure local areas were performing; and a new incentive plan was introduced for sales staff. Before, incentives were largely based on rather abstract group financial data. Now they are easy to understand and are more closely aligned with individual performance.
Vecchioli has undergone a wide-ranging recruitment drive as well, replacing about half the store-based workforce and two-thirds of regional managers.
On the financial front, a store in East London was sold for more than £40 million, a share placing last year raised £31 million and improved terms were struck with the group’s banks.
Results since Vecchioli took the helm indicate he is moving in the right direction. In the year to October 2014, occupancy rates rose from 65.3 per cent to 68.8 per cent, profits were 31 per cent up at £28.5 million and the dividend was increased by almost 30 per cent to 7.45p.
Half-year figures, released this month, showed continued progress on all fronts, including a 39.5 per cent increase in the interim dividend to 3p. Impressively too, enquiries were up 12 per cent, but new lettings rose by 31 per cent, suggesting that staff are becoming much better at persuading potential customers to sign on the dotted line.
Analysts now forecast full-year profits up 18.5 per cent to £33.8 million and a total dividend of at least 8.6p, with further gains pencilled in for 2016.
Safestore’s customers are split between individuals and businesses. Individuals use storage when they are moving home, downsizing, renovating or when their circumstances change, perhaps through having children or getting divorced.
This segment is growing as the housing market picks up and more property owners have the wherewithal to renovate their homes. However, business use is growing fast as well. Small online companies frequently use Safestore to house their goods, as they can pay for storage on a monthly basis, which provides far more flexibility than taking out long-term industrial or retail space. Large multinationals, such as Coca-Cola, Red Bull, Halfords and Diageo, also use the group’s facilities.
Although all these companies have massive warehouses to store their products, these are not always accessible to marketing or sales people, who may need a few items to show potential customers or to run local promotions.
Vecchioli has focused on this segment as a source of potential growth, storage revenue has risen 27 per cent since last year and these companies now account for 11 per cent of UK occupancy.
Overall, occupancy across the group stands at 68.9 per cent, which means that 1.6 million square feet is lying vacant. Vecchioli considers this a huge opportunity to increase sales and profits without having to buy more stores.
Self-storage is still a relatively new business in Britain. In the US, for example, there are 14 times as many stores per square mile as there are here and occupancy rates for the bigger operators average 90 per cent.
Midas verdict: Safestore has made good progress over the past 18 months but there is more to come. The group’s position as one of the largest self-storage companies in Britain gives it a prominent position on Google, Vecchioli is determined to increase occupancy and rental rates and he is not averse to the odd acquisition if the terms are right. The group is also expected to reward shareholders with decent dividend growth. Buy.
Traded on: Main market Ticker: SAFE Contact: Safestore.com or 020 8732 1500
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