Interactive Investor

Lok'n Store worth a fiver?

17th October 2016 18:20

Harriet Mann from interactive investor

Lok'n Store is certainly doing something right. Expanding its portfolio of storage sites in a highly cash generative market is behind a leap in its net asset value (NAV) and yet another dividend hike. Briefly reaching an all-time high Monday, some in the City still reckon the shares are worth 27% more.

Self-storage is a growing market and, with a number of new landmark sites launched, NAV jumped 28% in the year ended 31 July to 368p. Revenue increased 4% to £16.1 million, up 8% on a like-for-like basis, most from the self-storage division, up 5% like-for-like to £13.4 million, thanks to higher occupancy and unit pricing. Revenue from document storage jumped 11% to £2.2 million.

Group adjusted cash profit rose nearly 11% to £6.3 million, up 14% like-for-like. Profit at the self-storage business jumped by 4% to £7.5 million, or by 6.6% like-for-like, while document profit more-than-doubled to £0.59 million.

The self-storage business is highly cash generative, and this year's strong cash flow underpins a 12.5% increase to the dividend to 9p as part of its progressive policy. At the current share price Lok trades with a 2.4% yield, which grows to 2.8% in 2017 and 3.2% in 2018.

This income is protected somewhat, too, with cash available for distribution up 18% at 18.1p. As some of the biggest shareholders, chief executive Andrew Jacobs and chairman Simon Thomas are in for a windfall.

Three stores opened in Chichester, Bristol and Southampton during the year, which are performing well. Management wants to maintain this open rate as much as possible, with new sites soon to be opened in Wellingborough, Gillingham, Hemel Hempstead and Broadstairs adding 14% to portfolio space.

LOK shares surged more than tenfold since the financial crisis and by 15% since the EU referendumThe new store development programme continues to change its portfolio mix, with new and purpose built stores accounting for 63% of the portfolio.

Net debt fell 7% to £23.5 million, pulling the firm's loan to value ratio down five percentage points to 20.8%. This strong balance sheet gives the group the fuel for further acquisitions. Everything up to now has been smaller site acquisitions, and while Jacobs will consider a transformative acquisition should the right one come along, there are no current plans for any large Mergers and Acquisitions activity.

We've been following Lok'n Store for a while now, and the shares have surged more than tenfold since the financial crisis and by 15% since the EU referendum. The firm is pretty insulated from wider macro risks, says Jacobs.

The storage group trades at a 3% discount to its new, higher 386p NAV, whereas larger peers like Big Yellow trade at big premiums. If the market were to value Lok in the same way, the shares would be worth around £5, chief financial officer Ray Davies told Interactive Investor this morning.

House broker finnCap has upgraded its NAV based target price to 478p, implying 25% of upside after Monday's 3% rally.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.