Move over, Argo Blockchain shares – these could be a longer term winner

Christopher Ruane sees some similarities between Argo Blockchain shares and those in another company. Here’s why he thinks they could outperform Argo.

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With an increase of over 3,000% in the last year, Argo Blockchain (LSE: ARB) shares have soared in value. But there’s a name I would rather buy for my portfolio today. While it doesn’t have the dizzying track record of the Argo Blockchain share price, I think it could be a better longer-term winner.

Property exposure

Like Argo Blockchain, Safestore (LSE: SAFE) is a property company at heart. Its basic business model is simple. It owns or rents property, then lets out smaller portions of the property for storage. That is the same model as Argo Blockchain, which runs data centres and rents space out to customers who wish to perform tasks like mining cryptocurrency.

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So, why do I prefer the Safestore approach to property rentals? In short, I think the long-term demand prospects are clearer than they are for a data centre company like Argo. A wide range of customers use self-storage facilities like those run by Safestore. It could be people storing excess possessions they collect as a hobby, a family putting its belongings somewhere safe while they downsize, or a small  business which needs to keep some equipment under lock and key for a while. Whatever the reason, many of these customers are likely to keep renting for months or even years, in my opinion. That helps predictability of revenue and visibility of future earnings.

By contrast, demand for customers to sublet part of a data centre to mine crypto seems less predictable to me. A sudden price crash can make the economics unattractive. A regulatory change could cut mining demand overnight, as has already been seen in China. Those are all risks for holders of Argo Blockchain shares.

The way to make money as a landlord is to rent out property for more than one pays for it. I think the self-storage industry meets a growing need and so should be able to keep doing that, benefitting leading names such as Safestore. I don’t feel the same necessarily holds for crypto mining.

Argo Blockchain shares and crypto exposure

One of the attractions of Argo Blockchain to some investors, though, is that it isn’t just a property landlord. It mines its own crypto and so is partly seen as a proxy for cryptocurrencies like Bitcoin.

By contrast, Safestore has no crypto exposure. The £18.9m in first half net cash flow it reported last week is in a currency with less valuation swings – pounds sterling. Revenue growth of 11% and operating profit growth of 63.7% didn’t reflect changes in crypto prices. Instead, they reflect the performance of a company which has been growing steadily for many years. Shareholders were rewarded with a dividend increase, making the interim dividend 27% higher than last year. Argo Blockchain shares pay no dividend.

Landlords like Argo Blockchain and Safestore do face risks. For example, if they contract for more property than they can sublet, it can add costs without boosting earnings. There is also an element of price competition which can keep profit margins low across the industry.

But what I like about Safestore is its clear focus on self-storage. I think in the long-term that could help it perform better than Argo Blockchain shares, which are affected by moves in crypto valuations.

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Christopher Ruane has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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