Weekly share tips: Safestore

Mark Tovey explains why he thinks Safestore could be an opportunity.

Current Safestore performance Learn more about SAFE
How to buy Safestore shares Step-by-step instructions

Looking for some investing inspiration? While Finder’s deputy editor for investing, George Sweeney, enjoys his holiday, I’ll be taking the reins. As always, we’ll delve deep into a stock that’s captured our interest. It’s not financial advice or a recommendation to buy – just information.

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.

Safestore (SAFE) – the basics

This week, we’re looking at Safestore (LSE:SAFE), the UK’s largest self-storage company with a market cap of £1.6 billion.

Headquartered in Hertfordshire, Safestore operates 181 storage facilities. Of these, 130 are wholly owned locations in the UK, with 72 in the London and South East area and the rest in key cities like Manchester, Birmingham, Glasgow, Edinburgh, Liverpool, and Bristol.

The group also has a small but growing presence in continental Europe:

  • 29 stores in Paris
  • 9 in the Netherlands
  • 7 in Spain
  • 6 in Belgium

Fun fact: a blog post in 2016 by Safestore revealed numerous accounts by staff of paranormal activity, including rattling padlocks, shifting items and one (very grainy) CCTV image of a ghostly figure in a corridor in Romford.

History of the company

You’ve probably never heard of Safestore – industry research found 56% of Brits couldn’t name a single self-storage company. That’s despite The Guardian reporting earlier this year that Britons have filled self-storage units with enough possessions to occupy Buckingham Palace more than 60 times over. The news site attributed the boom in self-storage to “the housing crisis, enduring consumerism and a sentimental reluctance to let go of inanimate objects”.

Safestore was founded in 1998 and listed on the main market of the London Stock Exchange in 2007, solidifying its financial standing and fuelling future expansion into European markets. The company set up shop in Paris in 2004 after it bought out the French business Par Une Pièce en Plus.

Its rival is Big Yellow, which boasts a slightly bigger market cap and higher brand recognition. However, Big Yellow only has 107 storage facilities (compared to Safestore’s 181) and is heavily concentrated in London, with no overseas presence. Both companies are listed on the FTSE 250.

Current performance of Safestore

The Safestore share price stands at 733.00 GBX. Shareholders have not done well recently. Year-to-date, the shares have decreased by over 24%, and they are down by nearly 11% over the past 12 months. This performance is notably weaker than the broader FTSE 250, which has gained 3.5% in the same period. If you want to see the positive 43% 5-year performance, you can select the “5y” tab below.

During the past year, concerns have loomed over Safestore due to the grim macroeconomic backdrop. The Bank of England’s aggressive rate hikes have increased borrowing costs for real estate investment trusts (REITs) like Safestore, impacting their profitability. Additionally, higher rates make alternative investments like bonds and money market funds more appealing, reducing investor appetite for REITs.

Despite this, the company’s H1 2023 results offer a glimmer of hope: group revenue is up 9%, and overseas markets like Paris and Madrid are performing well. While UK occupancy has seen a dip, the company’s diversification into other markets is paying off. Barcelona is expanding its store count (from 4 to 9), and occupancy levels in the Netherlands and Belgium are stable.

How to buy shares in Safestore

  1. Choose a platform. If you’re a beginner, take a second to compare share dealing accounts.
  2. Open your account. You’ll need your ID, bank details and national insurance number.
  3. Confirm your payment details. Fund your account with a bank transfer, debit card or credit card.
  4. Search the platform for stock code. SAFE, in this case.
  5. Research Safestore shares. The platform should provide the latest information available.
  6. Buy your Safestore stock. It’s that simple.

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Safestore dividends

As it currently stands, the Safestore dividend yield is approximately 4.1%, slightly above the FTSE 250’s average of 3.7%.

Safestore generally pays dividends multiple times a year. It’s important to remember that dividends are not guaranteed. They serve as a way to reward investors when the company performs well.

Always bear in mind that unexpected events can occur. Dividend payments might be reduced or even halted entirely.

What lies ahead for Safestore shares?

It’s been a tough year for Safestore shareholders with a 24% year-to-date drop. But I think the longer-term picture shows promise.

Nowadays, we’re accumulating gizmos and clutter at a pace that would make our great-grandparents’ heads spin. However, space to keep all these goodies has become a luxury. In 1930, you’d spend the equivalent of 3 years of average earnings to buy a house. Now it’s 10 years. That disparity highlights a growth opportunity for the self-storage sector.

When it comes to growth potential, consider that the US has 7 times more storage units per person than the UK. Meanwhile, Europe offers further expansion prospects, with the self-storage sector on the continent seriously lagging behind the UK. Safestore has already broken this market and is the second biggest self-storage provider in Europe.

Analyst forecasts are optimistic, too, with a 12-month median price target of 1,000 GBX, a 36.5% increase from the current share price.

What to be aware of

Although Safestore seems well placed for long-term growth, it hasn’t got those gains stored away under lock and key just yet. Here are some key risks to consider:

  • A significant 76% of Safestore’s market share is concentrated in the UK, where it faces stiff competition from Big Yellow, potentially limiting growth. This geographic concentration also leaves it heavily exposed to the ups and downs of the British economy.
  • The self-storage industry has low barriers to entry. Newcomers just need some space and lockers to start, posing a threat to Safestore’s market position in the UK and its European expansion plans.
  • In an economic downturn, consumers might opt to discard excess belongings instead of paying for storage, affecting Safestore’s revenue.
  • Rising interest rates could continue to negatively impact REITs like Safestore and pose a risk of crashing the UK property market.
  • Safestore recently reported a decline in profits for the fiscal first half, raising concerns about its financial health. Profits dropped to £92.8 million from £270 million the previous year.
  • Although revenue has seen an increase year-over-year, the contrast with declining profits could signal inefficiencies or increased operational costs.
  • The company’s European expansion may be easier said than done, given cultural and regulatory differences.

The bottom line on Safestore stock

While it’s been a rough year for Safestore, I believe the horizon may be brighter. The company’s put down roots in Europe, and it has the largest number of self-storage units in the UK.

However, investors should remember that Safestore doesn’t have a monopoly on storage solutions. Anyone with some room and a locker could compete with them and, for the minimalists among us, there’s an even cheaper option: taking our surplus items to the tip!

Still, analysts are turning optimistic on Safestore. The stock is trading at a rock-bottom valuation, with a price-to-earnings ratio of 4.3. Given space is increasingly at a premium due to the spiralling cost of housing, self-storage is a sector enjoying strong tailwinds.

Disclaimer

Mark Tovey owns shares in Safestore.

This article offers general information about investing and the stock market, but should not be construed as personal investment advice. It has been provided without consideration of your personal circumstances or objectives. It should not be interpreted as an inducement, invitation or recommendation relating to any of the products listed or referred to. The value of investments can fall as well as rise, and you may get back less than you invested, so your capital is at risk. Past performance is no guarantee of future results. If you're not sure which investments are right for you, please get financial advice. The author holds no positions in any share mentioned.

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