Tucked away under some larger, more recognizable names on the FTSE 250 index, there’s a bit of an overlooked diamond, if you ask me.
I’m referring to Safestore (LSE: SAFE). I’ve had my eye on the stock for a while, and the share price has dropped to an excellent entry point for me.
Here’s why I like the stock, and why I’m planning on buying some shares as soon as I can.
Self-storage
Safestore is the UK’s leading self-storage business with an excellent profile, track record, and dominant market position. As well as leading in the UK, it’s now the second-largest business of its kind in Europe too.
The shares are down 19% over a 12-month period. At this time last year, they were trading for 939p, compared to current levels of 754p.
I’m not concerned about the share price drop. I understand this is due to a difficult macroeconomic picture. This same malaise has hurt many real estate and property stocks.
The bull case
Let’s be honest, storage isn’t exactly exciting or glamorous. Fortunately, I’m not always looking for excitement from my investments. I’m looking for leading businesses, with the potential for juicy returns, and future growth. Safestore ticks these boxes for me!
Safestore’s leading position in the UK has helped the firm grow nicely into a good-looking investment. However, its continued growth is what excites me, and makes me believe it could continue on its upward trajectory.
It’s slowly chipping away at the European market, and I’m convinced that management is eyeing up the number-one spot across the continent too. The recent purchase of a large facility in Germany signifies this to me. The European self-storage market is small, with lots of potential for growth.
It’s worth remembering demand for storage space has shot up in recent years. This is linked to the e-commerce boom, as well as a growing population. Safestore has capitalised, and looks like it could continue to do so.
Breaking down some fundamentals, I’ll start with its valuation. Safestore shares look attractive after the recent drop on a price-to-earnings ratio of 15. In addition to this, a dividend yield of just over 4% is enticing to help me boost my passive income stream. However, I’m conscious that dividends are never guaranteed.
Notable risks
Firstly, higher interest rates are a worry. I reckon this is the main reason the shares have fallen recently. These same higher rates put pressure on customers from a cost-of-living view, as higher costs may push people need to let go of their storage space to pay for necessities. This could hurt Safestore’s performance levels. Plus, property valuations can be pushed down due to higher rates too.
The other issue for Safestore is its current debt level of just over £800m on its balance sheet. Let’s be honest, most firms possess some form debt. However, in some cases, debt can hinder growth aspirations. Plus, paying down debt could take precedence over rewarding investors. I’ll keep an eye on this through performance updates from the business.
Overall I’m a fan of Safestore as a business and potential investment. Its dominant market position, growth prospects, valuation, and passive income opportunity are hard to ignore.
