The explosion in online shopping over the last few years has led to a distinct lack of warehouse space in the UK. That’s the conclusion from a recent industry report that appealed for public land to be set aside so that more industrial spaces can be developed. With less than 20% of the 18 million square feet of space needed annually likely to be built in 2017, there is a concern that businesses will struggle to expand their online operations until demand can be satisfied.
While this may not be great news for retailers, it’s most definitely positive for those holding shares in companies offering facilities and/or logistics services. That’s why I continue to think the following two stocks could be sound buys at the current time.
Over 2016, real estate investment trust Tritax Big Box (LSE: BBOX) generated a total return of 15.1% for its holders. Investors will be looking for more of the same in 2017, with full year results on 14th March being a likely catalyst.
Possessing a fully-let portfolio of 33 standing assets and tenants including Tesco, Next and Amazon, Tritax already generates annual rental income of almost £100m. With news on planning consent for two new developments expected next month and management boasting of a strong pipeline of off-market opportunities, this figure is surely set to march even higher.
Shares in Tritax currently trade on 20 times forward earnings and come with a forecast yield of almost 4.5% for 2017. While not cheap, I continue to view this as an excellent way for investors to benefit from the structural change in how we shop, even if the full impact of Brexit on consumer sentiment is still to be felt.
With significant barriers to entry limiting the supply of space and new business rates for those operating out of warehouses projected to rise by only 2% from April (compared to an estimated 8% increase for the average shop), Tritax looks a solid bet.
Big growth potential
Another way of playing the rise in online shopping is to buy shares in a firm that provides distribution services to some of our top retailers, such as ASOS, Supergroup and H&M — Leeds-based Clipper Logistics (LSE: CLG).
This month, the £367m cap unveiled a new 4-year contract with British American Tobacco. In addition to providing the latter with a full UK logistics operation, Clipper has also agreed to provide e-commerce support for its vapour business, Vype. This news follows on from an excellent set of interim results last December, recent confirmation of a 10-year agreement with John Lewis and new commitments with M&S and Halfords.
Another reason I’m bullish on Clipper is its market leading status as a provider of returns management — one of the biggest reasons for needing more industrial space. With returns costing UK retailers a quite extraordinary £60bn over 2016, the benefits that come from engaging with the company’s “tailored reverse logistics solution” (Boomerang) should be highly appealing for businesses. What company wouldn’t want to reduce complaint levels, improve cash flow and get stock ready for re-sale as quickly as possible?
Climbing 38% over the past 12 months, Clipper’s stock now trades on almost 30 times earnings for this year. This might look pricey but — given the company’s growth potential and proven ability to generate high returns on the capital it employs — I continue to believe they’re worth paying for.
Make no mistake
Failing to spot shifts in consumer sentiment can have a detrimental impact on your finances over the long term.
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Paul Summers owns shares in Clipper Logistics. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.