The past year has seen shares in self-storage operator Safestore (LSE: SAFE) fall 14%. Safestore shares are now around two-fifths lower than they were at the start of 2022.
Over the long run though, they have performed well, moving up 60% in the past five years.
If anything, I see the share price fall as a buying opportunity.
The company’s full-year results that were published today (17 January) underlined some of the business’s attractions for me. If I had spare money to invest, I would be happy to buy more of the shares.
Long-term growth story
This is not a growth share benefitting from phenomenal rates of business expansion.
But just as demand for self-storage in UK and Europe continues to increase, so does Safestore’s business.
Last year saw revenues increase 5.5% compared to the prior year. The company grew its storage space by a similar amount. It added around half a million square feet of new space across five locations in the UK, six in Spain and two in the Netherlands. Self-storage in Europe remains underdeveloped compared to the US.
Basic net assets per share also grew, by 4.7%. The Safestore share price is actually now below the basic net assets per share.
Some concerns to watch
The annual dividend grew, although by just 1%. After several years of much bigger annual dividend raises – 19% last year alone – that is disappointing.
I also think it could hurt Safestore shares in the short term. Although the dividend rose, the income story here now looks less compelling then before.
The yield of 3.5% is reasonable but not outstanding. Rival Big Yellow offers 4%. A 1% annual growth rate simply does not excite me.
There were other items in the results that concerned me a shareholder. Closing occupancy rates slipped slightly. Adding new capacity is well and good but lots of it needs to be rented out to make money. Ideally growth should not come at the cost of occupancy rates across the whole estate.
Profit before tax more than halved. That sounds awful but as a property company, earnings are not necessarily the most useful metric for an investor to consider. I am more focused on free cash flow and net debt. Free cash flow was 12% lower. Meanwhile, net debt was 16% higher.
Why I’d buy
On balance, the results were a mixed bag. They contained some unwelcome news for shareholders like me, such as the lacklustre dividend increase.
I think management has a lot to do in coming years to balance the ambition for growth with financial discipline and making sure it optimises the amount of space rented out at the right price. One risk is that pricing can come under pressure from local rivals. Barriers to entry in the business are low.
But Safestore has a proven business model. It is profitable and free cash flow generative. It has a well-established brand, a customer base of around 90,000 personal and business clients and an extensive site network.
I remain confident about its long-term prospects and would happily buy more shares for my portfolio.
