Will Safestore Holdings plc overtake Big Yellow Group plc after 14% sales rise?

Should you buy Safestore Holdings plc (LON: SAFE) instead of Big Yellow Group plc (LON: BYG)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Storage company Safestore (LSE: SAFE) has released a strong fourth quarter trading update today with revenue up by almost 14% at constant exchange rates and weak sterling providing an additional boost to the reported figure of 18.4%. Does this mean that Safestore is now a better buy than sector peer Big Yellow Group (LSE: BYG)? Well, that’s debatable.

Safestore enjoyed upbeat performance across its divisions. For example, in the UK like-for-like (LFL) sales increased by 9.2%, while in France they rose by 5%. This took LFL revenue growth for the full year to 8.1% at constant exchange rates, with Safestore’s balanced approach to revenue management proving to be highly successful.

A key reason for Safestore’s strong sales performance was a rise in occupancy. For the full year this increased by 3.5% LFL, with Safestore’s LFL average storage rate also up 3.9% at constant exchange rates. Alongside the acquisitions of Space Maker and the opening of five new stores towards the end of the financial year, this shows that Safestore is making good progress on both an organic and acqusition basis. Therefore, it expects earnings to be at the top of the consensus range.

Looking ahead, Safestore has the potential to deliver further growth in the long run. It’s focused on the significant opportunity presented by its 1.6m sq ft of currently unlet space. And its balance sheet capacity and flexibility provide it with the scope to make further acquisitions in order to boost its organic growth potential.

A better bet?

Safestore is expected to record a rise in earnings of 13% in the current financial year. This compares favourably to sector peer Big Yellow, which is expected to post a rise in earnings of 10% in the both the current year and the next one. However, Big Yellow’s growth outlook is arguably more stable than that of Safestore. The former has increased earnings in each of the last five years, while Safestore’s reported earnings have been more volatile and less consistent.

This could indicate that Big Yellow has a lower risk profile than Safestore and may explain why it trades at a premium to its sector peer, with Big Yellow having a price-to-earnings (P/E) ratio of 19.6 versus 18.7 for Safestore. Given the relatively minor difference in their valuations and growth prospects, Big Yellow appears to have a superior risk/reward ratio to Safestore.

In addition, it yields 4.1% versus 3.1% for Safestore. While the latter’s dividends are covered 1.7 times versus 1.3 times for Big Yellow, the higher yield of the latter plus its strong earnings growth prospects means that it has greater income appeal over the medium term. Alongside a lower risk profile and despite a marginally higher valuation, this makes Big Yellow the better buy. However, Safestore is still set to deliver a high total return in the coming years.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Big Yellow Group. 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.

More on Investing Articles

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »

Investing Articles

Billionaire Warren Buffett just bought shares of Domino’s Pizza. Should I grab a slice?

Our writer takes a look at a few reasons why Domino's Pizza stock might have appealed to Warren Buffett's Berkshire…

Read more »