Midas has long been a fan of the AIM-listed self-storage group Lok’nStore, which this column first tipped in 2015 when the shares were at £3.07.
In November last year, when Midas last looked at the company, the world was a different place and the shares were at £6.45. Praising founder Andrew Jacobs for building large colourful warehouses that matched customer need, Midas concluded that the shares were a strong hold.
That was then, and this is now, but even in the topsy turvy world of Covid-19, Lok’nStore is doing OK. Last week the shares closed at £5.65, but there are encouraging signs for the self-storage business.
The company released annual figures last week and catapulted itself into an exclusive club: companies that have raised their dividend since last year. With the annual dividend up 8.3 per cent, revenue up 6.4 per cent and the number of stores trading up to 36, the company has much to be optimistic about. However, earnings per share fell significantly, partly due to the disposal of data storage group Saracen.
Andrew Jacobs, who is now executive chairman, having taken on managing director Neil Newman-Shepherd, is bullish about the company’s prospects. While the company has had to buy PPE, and has used furlough for staff who needed to shield, Covid-19 doesn’t much affect the operations of a self-storage business – they can stay open, and when shops or businesses shut down they need somewhere to store their equipment.
Then there’s the potential house-moving boom created by the temporary stamp duty cut, which could also create further demand. The company has plans for further sites, and is changing its business model to improve profitability.
That means more freehold stores, and offering store management services to third party operators, and fewer leasehold properties. The company has 14 new stores in the pipeline including Warrington, Stevenage and Wolverhampton, which Newman Shepherd says will ‘add considerable momentum to sales and earnings growth in the future’.
As for the share price, analysts at Peel Hunt increased its rating on the stock to Buy. The house broker, FinnCap has a share price target of £8.65.
Midas verdict: Commercial property isn’t an easy place to invest at the moment, but self storage is a rare exception to the rule that the sector is disproportionately affected by Covid-19. Lok’nstore will have plenty of opportunities in the coming months as consumers downsize and move around for work, and businesses move to online operations that require less retail space but more storage. It is worth continuing to hold on to the shares to take advantage of this.
Traded on: AIM Ticker: LOK Contact: 01252 521010