Big Yellow Group (BYG) £11.74

Market Cap: £2.28 billion

It may not be a glamorous sector, but self-storage is a remarkably stable and lucrative business with tremendous growth prospects.

As the UK market leader, with a portfolio of 109 stores and 6.4 million feet of lettable space, Big Yellow (BYG) is easily the most recognisable brand.

The business is driven by ‘life events’, which can range from selling a house, moving home, carrying out home improvements, getting married or separated, starting a family, downsizing, dealing with an inheritance or just needing somewhere to put excess ‘stuff’.

UK market penetration is low, with limited new supply coming onto the market, and Big Yellow’s stores are all located in prominent sites close to major centres of urban conurbation with easy access from a main road.

Buildings are purpose-built with security the number one priority: every storage room is individually alarmed and each customer has unique PIN-code access to the site, which has perimeter fencing, 24-hour CCTV and fire and smoke detectors.

By driving revenue and cash flow from its existing portfolio and adding new stores the firm has, by our calculations, increased earnings by a remarkable 17% per year on average since 2005, including during the pandemic, with very low volatility.

Over half of customers rent for more than a year and more than a third rent for two years meaning good visibility of revenues, and with low maintenance spending margins are high.

Its stores are either owned freehold or on very long leases, so the challenge is to grow occupancy and revenue while keeping costs down, which judging by its results for the year to March 2024 it clearly has a handle on.

Store revenue for the period increased 6% to £197 million with average net rent per square foot up 7.5% while EBITDA (earnings before interest, tax, depreciation and amortisation) came to £143 million, meaning a margin on sales of 72.5%.

The group has added 127,000 of space in King’s Cross and has a pipeline of 14 new stores which will add 1 million square feet in total to its portfolio.

The consensus sees earnings rising from 56p per share in March 2024 to just 57.6p next year and 61p the year after, which we suspect is too conservative given rent rises on existing space, the addition of new space and a likely increase in housing market activity post the general election.

In addition, the recent agreed bid for smaller rival Lok’n’Store (LOK:AIM) at a premium to its all-time high by Brussels-based Shurgard, Europe’s biggest self-operator, suggests industry consolidation is on the cards. 

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