SHARE TO WATCH: Stor-Age now no longer the perennial under-dog
Opinion / 1 October 2018, 1:00pm / Amelia Morgenrood
JOHANNESBURG – There seems to be no end to the Stor-Age success story. Last week, the company raised R400 million within a few hours, in an oversubscribed book-build exercise.
The shares were placed at R12 a share, at a discount of around 3.5 percent to the market price. Stor-Age is the only JSE-listed counter in the storage business and one of only nine listings globally.
Stor-Age provides purpose-built, public self-storage units available in all shapes and sizes, enabling you to store as little, or as much as you need to. They offer a van service to assist with your move and also stock a full range of packaging items, including self-storage boxes, padlocks, bubble wrap, tape and other helpful items, available for purchase at all of their stores nationwide.
This is a niche business which seems to be untouched by economic cycles and challenging economic conditions.
The same goes for the UK, where Brexit uncertainty does not have the same effect it has on other property companies.
In November 2017, Stor-Age made a strategic entry into the UK self-storage market with the acquisition of Storage King, the sixth-largest UK self-storage brand.
The UK is a growing and under-supplied market relative to first world peers like the US and Australia.
Contrary to most South African companies venturing offshore, the chance for success for Stor-Age seems to be high. Self-storage product characteristics are homogeneous across the first and developing worlds and is globally a growth sector.
Stor-Age executives have spent significant time in first world markets during the previous decade to optimise execution of their UK business plan.
The UK is a familiar jurisdiction when it comes to property – it's governed by a familiar language, culture, business practice and banking. South Africans are used to the legal system.
Storage King has an established management team with significant "on the ground" experience in the UK.
Pipeline of opportunities
This is an established platform with a high-quality property portfolio and a good pipeline of opportunities. The UK acquisition diversifies risk in relation to the South African market and provides rand-hedged investment in a growing first world economy.
At year-end (March 31, 2018) Stor-Age had 14 properties in the UK and 36 in South Africa. Chief executive Gavin Lucas says the capital now raised will allow Stor-Age to take advantage of new opportunities in the pipeline in both SA and the UK.
These include the recently opened Stor-Age Bryanston and an additional 12 properties in SA, following the acquisition of a managed portfolio announced earlier last month.
The full year results published in June offered a quite impressive picture. The total dividend increased 11 percent, and like-for-like growth in rental income was 10.6 percent.
Costs seem to be very well contained, and growth in net property operating income was 11.8 percent.
Since its listing at R10 per share in November 2015, the company never disappointed. It briefly dropped to R9, and then steadily increased to around R12 where it got stuck.
Valuation seems to be undemanding for this stable company.
Post the acquisition the portfolio value increase to R5 billion, offering a combined gross lettable area of 410 000m² and occupancy levels of 83 percent in South Africa and 78 percent in the UK.
The company experienced strong rental rate growth of 12 percent year-on-year to June 2018, with the current average rental rate of R103/m2. This brings the South African average to R95 and the UK to £21.
The management forecast earnings yield of 7.85 percent for the year to March 2019 and 8.41 percent for the year to March 2020.
Amelia Morgenrood is a PSG Wealth financial adviser based in Pretoria. Views are of the author and not necessarily the general view of the entire PSG entity. Stor-Age shares are held in her own capacity and on behalf of clients.
The views expressed here are not necessarily those of Independent Media.