skip to Main Content
 

Big Yellow dividend machine ups interim return by 8%

*

If you have moved address any time recently, you’ll have realised how much stuff you accumulate over time. Most of it is junk and clutter – but human nature errs towards hoarding, and you just can’t part with some things. But in a world of downsizing all your clutter won’t fit into your new place. That’s where the business of self-storage makes an appearance, and the Big Yellow Group [LON:BYG] is the market leader in clutter aggregation.

The Bagshot-based company publishes its results for the year ended 31st March 2023 on Monday (22nd May).

Should you be driving down a ring-road or arterial road on the fringe of a city, you will be familiar with the sight of a vast aluminium shed with a cheery, square Simpson’s-yellow sign advertising (if you hadn’t noticed it) the Big Yellow’s premises. It would be one of 108 units that the company has, with a total storage capacity of more than 6.3 million square feet and 77,000 active customers.

Big Yellow was established in 1999 and is fast-approaching its quarter-of-a-century. A year later the company listed on AIM, raising GBP40m on its debut and was promoted to the main board two years later. The company’s average storage unit is approximately 60,000 square feet with Big Yellow’s largest units at Staples Corner, Fulham and Bow weighing in at over 100,000 square foot, bigger (and brighter) than the average UK self-storage unit,

Big Yellow’s product is storage space, but since 2007 the company has been structured as a Real Estate Investment Trust (REIT), a company that owns, operates, or finances income-generating real estate. Like most REITs Big Yellow has been a dividend machine. Lockdown was a good time for the storage companies, as people needed storage space like never before. Whether it was offices moving furniture and IT equipment to protect from rodent infestations; families clearing out the shed to make it a WFH office space; or the imposition of adult children come home to roost during Covid, the pandemic saw Big Yellow’s share price rocket. That said, as the pandemic has unwound, Big Yellow’s share price also dropped back.

The company closed trading on 16th May at 1,183p and has offered a 3.1% year-to-date return and a -5.9% one-year return with shares ranging between 938.5p and 1,440p over a 52-week period. The company has a market capitalisation of GBP2.2bn. At the end of 2021, after lockdown, you would have had to pay 1,707p a share.

But now Covid has passed, what of Big Yellow’s prospects? Well one of the factors that have been playing into the storage company’s hands has been the cost-of-living crisis. News emerged this week of rents continuing their inexorable rise. The average new monthly rent outside London has passed GBP1,000 for the first time, figures show, with tenants in Great Britain now typically paying 25% more than they were at the start of the Covid pandemic. Hamptons, the estate agent which conducted the survey, warned that the rate of rent rises was “unlikely to slow considerably due to the number of landlords looking to pass on their rising costs” that were exacerbated by the Liz Truss budget last year and a dozen consecutive interest rates rises, and this may force some tenants to downsize or relocate to a cheaper area.

Lockdown also saw a boom in online shopping, and the accumulation of ‘stuff’ has never been higher for any generation preceding. However, although we are consuming more than ever as a society, we are, due to macroeconomic factors, going to have a lot less space to put it into. The leading consumer nation in the world, the US, had about seven-times more storage space per capita than the UK, so there is room for Big Yellow to grow.

Consistent model

With falling land prices and a surge in demand for storage space, Big Yellow’s business model, and revenue seems set to remain consistent.

In its last trading update, Big Yellow saw a 15% uptick in revenue year-on-year for the six months ending September 2022 to GBP93.8m. The company’s earnings were GBP66.8m for the six months, up 16% on the corresponding period in 2021 and adjusted profit before tax went up by the same margin to GBP54.6m. To make a hat-trick of 16%’s, cash flow also increased by that amount to GBP55.2m

All-in, Big Yellow offered a solid set of first half results against the backdrop of a challenging macro and geopolitical environment. The company opened two new units in London during the period and acquired freeholds in Old Kent Road, London and in Slough and gained planning permission in Staines with seven further units in the works.


The company refinanced an existing GBP120m loan and secured new debt of GBP225m with 41% of its debt on fixed-rate terms, which it is planning to increase to at least 50% taking net debt as at end-September to GBP468.9m, with GBP50m available for drawdown. Big Yellow’s chairman, Nicholas Vetch said at the time: “We continue to generate operating cash flow post dividends and are looking to realise GBP100m in disposals by March 2024, [with] Harrow [at GBP61m] being the first.” The company was confident of a good winter and was hoping that the trend of land prices falling would continue into 2023.

Dividend machine

The interesting part of the story is dividends. Big Yellow’s dividend policy is to distribute 80% of full year adjusted earnings per share.  Vetch said: “The second half of the year has historically delivered at the operating level a similar outturn to the first half; however we are likely to see a further increase in our borrowing costs in the second half of the year.  We have therefore declared an interim dividend of 22.3p per share representing an 8% increase.  This first half dividend has all been declared as Property Income Distribution.”

The company’s dividend yields have been consistent and is currently around the 8.5% mark, and the entry point for the shares is over the last three years historically low, so it does make for a compelling investment case, if only for the dividends, at the moment.

Jim Gibson, the company’s chief executive and co-founder with Vetch and Philip Burks said at the time of Big Yellow’s last trading update in January: “Although it is early in the current fourth quarter, we are seeing a return to growth in net reservations and occupancy. We now move into our seasonally stronger spring and summer trading period.”

Undoubtedly it will be a tough year, but Big Yellow has a strong track record of profitability and a large portfolio of self-storage facilities in prime locations and it is now casting its net overseas to Europe, a massively underdeveloped market for self-storage when compared to the UK and US, with France, Spain and Germany well-below the continental average storage space per capita.

Bridgewise rates Big Yellow as an ‘Underperform.’ The analyst said: “Big Yellow’s financial reports for Q3 showed some underwhelming results. Their negative income, growth, and value factors indicate that the company is finding it increasingly difficult to produce impressive numbers. These troubling results make a strong case for underperformance and for anticipating a significant downside. Correspondingly, Big Yellow received a ranking of 59 and an ‘Underperform’ recommendation.”

Like this article? Sign up to our free newsletter.

This article does not constitute investment advice. Do your own research or consult a professional advisor.

The Armchair Trader's 'How to' Guides

In-depth Reports

Detailed reviews of selected companies and investment trusts.

Thanks to our Partners

Our partners are established, regulated businesses and we are grateful for their support.

Aquis
FP Markets
IG
Pepperstone
WisdomTree
CME Group
Back To Top