Looking ahead, I see good reason to believe this £120m market cap firm can continue to grow its business, juice dividends and deliver continued earnings growth. A good part of my bullishness comes from the bright outlook for the self storage industry as a whole, which is growing rapidly thanks to Britons both buying more things and also spending more time in small flats rather than relatively more spacious homes.

Increased demand for self storage space is clear in Lok’n Store’s full-year trading update released this morning. For the year to July 31, the group saw its occupancy rates rise 7.7% while the price it charged per square foot increased 0.5%. On top of this strong growth from existing locations, the group also expanded significantly by opening three new stores in the year and purchasing five others.

There’s also good potential for future growth as the group increased its access to credit facilities while still keeping the balance sheet in good health with a loan-to-value ratio of just 16.8% as of January 31. Furthermore, the business itself is highly profitable with EBITDA of £3.85m generated in H1 from revenue of £8.82m.

With clear growth prospects and a rising dividend, I think Lok’n Store is a very interesting growth dividend stock, particularly as its shares are currently trading at slightly below their adjusted net asset value of 418p per share.  

Moving up the value added ladder 

Another small-cap that’s delivered substantial shareholder returns of late is Discoverie Group (LSE: DSCV), whose share price has risen over 55% in the past half-decade and sports a solid 2.17% dividend yield as of today.

Discoverie, which used to be known as Acal, is a big player in the field of niche electronic components found in everything from radio frequency chips to high-speed cameras and lasers. Through organic growth and acquisitions, the group has been fast consolidating the fractured market that connects the hundreds of producers of these components to the even larger number of end customers.  

From 2014 to last year, revenue nearly doubled from £211m to £387m, while operating profits quadrupled, thanks to the company’s strategy of moving up the supply chain by using its in-depth knowledge of customers’ needs to produce high-margin niche products by itself. This strategy has led the company’s operating margins to increase from 3.4% in 2014 to 6.3% in 2018 with management targeting 8.5% margins in the medium term.

And after five consecutive years of double-digit earnings growth, management has been able to slowly increase dividend payments while simultaneously investing significant sums in acquisitions and R&D capabilities. With net debt at year-end just 1.5 times EBITDA, the company should be in good shape if the next global economic downturn comes sooner than expected.

At 16 times forward earnings, Discoverie is not the cheapest stock out there, but given its compelling growth strategy and proven ability to increase earnings, I think the stock could be a great one for long-term investors.  

The post Two top growth dividend small-caps that could be millionaire-makers appeared first on The Twelfth Magpie.

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Ian Pierce 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.

Improving performance

The company in question is self-storage business Lok’n Store (LSE: LOK). Its first half results show an improvement on the same period from the previous year. Its revenue has increased 3.9% and self-storage occupancy was 4.6% higher. Its serviced document storage business performed well, with revenue up 8.8% against the first half of 2016. This included a rise in the number of boxes stored of 8%, while the number of tapes stored increased by 27% over the 12 months to the end of January 2017.

In addition to higher sales, the company’s balance sheet has also improved. The sale of 1.975m shares in November raised £7.9m and a two-year extension to its £40m bank facility means it has the financial strength to develop further. In addition, the new store opening programme continues to gather pace. Development has started on all four of the new sites acquired in the last financial year.

A growing market

The company’s improving performance is perhaps to be expected, given the favourable trading conditions for Lok’n Store and sector peers such as Big Yellow Group (LSE: BYG). Demand continues to rise at what seems to be a faster pace than supply, particularly in the south east. This should ensure not only higher revenue and profitability, but also the prospect of relatively consistent growth, which could lead to lower risk profiles for the two stocks.

Outlook

Over the last five years, Lok’n Store’s shares have traded on an average price-to-earnings (P/E) ratio of 28.8. This may seem high, but with earnings growth averaging over 44% per annum during the period, it is much easier to justify. However, its current P/E ratio stands at just over 34, which indicates the company’s shares are somewhat overvalued. Even when factoring next year’s 16% forecast rise in earnings, Lok’n Store still trades on a P/E ratio of 29. This indicates there is no upside potential on offer between now and 2019, since its future prospects seem to be priced-in.

However, sector peer Big Yellow Group (LSE: BYG) has an average P/E ratio over the last five years of 21.7. Today, its P/E ratio is 20.3 and over the next two years it is forecast to increase its earnings by around 9% per annum. This means that if it meets its forecasts and its P/E ratio moves higher to its long-term average, Big Yellow’s shares could be trading as much as 27% higher by 2019. As such, it seems to be a far more enticing buy than Lok’n Store at the present time.

The post Why this small cap offers a 0% return by 2019 appeared first on The Twelfth Magpie.

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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.

The results reaffirm my confidence in the bright outlook for Lok’n Store, but also reveal, en passant, one of many factors pointing to a far less rosy future for Royal Bank of Scotland (LSE: RBS), more of which shortly.

What a CAD!

Lok’n Store reported a 4.1% increase in revenue to £16.06m. Disciplined management kept operating costs at around the same level as last year, so margins improved, feeding through to a 15.8% rise in adjusted earnings per share (EPS) to 9.08p.

On the face of it, the shares appear expensive at a price-to-earnings (P/E) ratio of 42. However, I prefer to look at what the company calls cash available for distribution (CAD), which is cash after finance costs, tax, maintenance and new works team expenses. This increased 17.7% to 18.1p, so while the P/E is 42, the P/CAD is 21 — a reasonable valuation when considered against the rate of CAD growth.

The company’s primary objective is to deliver value for shareholders through increasing CAD and dividends, and the board lifted this year’s dividend by 12.5% to 9p (so, twice covered by CAD), giving a running yield of 2.4%.

I’m expecting CAD and dividend growth to continue apace, partly as a result of expansion (the company has already acquired sites for a further four new stores, which will add 14% to trading space) and partly as a result of a new £40m five-year banking facility on much improved terms.

The margin on the new facility is LIBOR plus 1.40%-1.65% compared with the previous LIBOR plus 2.35%-2.65%. The non-utilisation fee and arrangement fee have also been significantly reduced, so there’ll be a large saving over the life of the facility.

Lok’n Store’s balance sheet is robust, gearing is conservative, and the prospects for high CAD and dividend growth lead me to rate the shares a buy.

A stock to avoid?

The new loan facility is great news for Lok’n Store, but not so good for the provider of the facility — Royal Bank of Scotland. Low interest rates and high competition aren’t good for banks’ profits, and this is the prevailing situation in the UK for the foreseeable future.

In addition to the difficult trading environment, RBS is disadvantaged by having more profit-sapping legacy issues than its peers, while investor sentiment is also likely to remain subdued by the ongoing lack of headway in returning the government’s bailout stake in the bank to private hands.

Over the years since the financial crisis, City analysts’ forecasts for RBS’s recovery have been put back time and time again. This year’s no different. Twelve months ago the consensus forecast for 2016 EPS was about 25p. Today, it’s less than half that level. Hopes that RBS might be in a position to restart dividends have also once again been put back.

The current earnings consensus for 2016 gives a P/E of 13.8 at a share price of 170p. For 2017, the P/E falls to 10, which looks appealing but would prove to be deceptive if analyst forecasts were to go the same route as in previous years. As such, until the trend in earnings downgrades reverses, I can only see RBS as a stock to avoid.

The post Why Lok’n Store Group plc could be a better buy than its banker Royal Bank of Scotland Group plc appeared first on The Twelfth Magpie.

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G A Chester has no position in any shares mentioned. 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.

Lock in smashing returns

Shares in Lok’N Store Group (LSE: LOK) shot 4% higher in start-of-week business, after the self-storage specialist released blockbuster trading numbers.

Lok’N Store saw revenues leap 4.7% in the six months to January to £7.99m, with like-for-like revenues surging 8% during the period. This sterling result helped propel pre-tax profits 156% higher from the corresponding six months last year, to £3.79m.

The space provider continues to benefit from Britain’s growing ‘hoarding’ culture, with occupancy rates rising 2.4% during July-January on a like-for-like basis. And I expect Lok’N Store to remain in vogue as strong economic conditions boost Britons’ demand for extra space.

This view is shared by the City, and Lok’N Store is expected to see earnings shoot 34% higher in the year to July 2016. A subsequent P/E rating of 29 times may be expensive on paper, but I expect this figure to topple as earnings explode — indeed, a predicted 33% bottom-line rise in 2017 pushes the rating to a much-improved 21.7 times.

On the march

Insurance play Randall & Quilter (LSE: RQIH) also headed for the stars on Monday after releasing solid financials of its own, the firm recently trading 15% higher from last week’s close.

Randall & Quilter announced that it had swung back into the black in 2015, reporting a £2.8m profit versus the previous year’s loss of £1.6m. The company put this improved performance down to the impact of recent acquisition activity.

And the insurer is upbeat about its prospects for the year ahead — indeed, chairman and CEO Ken Randall advised that “the board has a positive outlook for the current year” before adding that “the pipeline of potential legacy acquisitions is very promising with a diverse range of opportunities.”

The number crunchers expect Randall & Quilter to keep its strong momentum going with profits of £8.3m in the current period. Like Lok’N Store, I reckon the financial business could be in line for broker upgrades in light of today’s positive release.

Digger dives

Mining and energy leviathan Glencore (LSE: GLEN) was faring less well in Monday trade, however, with its shares currently 3% lower from Friday’s close.

The business has moved lower in lockstep with falling commodity prices. Investors are taking the opportunity to cash in on heady-looking resources values, with bellwether copper, for instance, slumping back below the $5,000 per tonne marker.

Like its industry peers, I believe Glencore is in serious danger of a colossal share price correction should data from China turn lower again. All major commodity sectors remain in a state of chronic oversupply, a situation that is steadily worsening as mining capacity across the globe increases.

The City expects Glencore to move back into the black in 2016 with earnings of 3.4p per share. This figure results in a mega-high P/E rating of 54.6 times, and I consider such a reading unfathomable given the operator’s murky profits outlook. And Glencore’s massive reading certainly leaves plenty of scope for a serious retracement.

The post Should you buy Glencore plc, Lok’N Store Group plc & Randall & Quilter Investment Holdings ltd ord 2p (DI) today? appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. 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.