Share Code: JSE: SSS – Market Cap: R7.2b – PE: 17.0x – DY: 7.9%
Business Overview:
- Stor-Age is an integrated & internally managed REIT that owns & operates self-storage properties in South Africa and the United Kingdom with a portfolio comprising of 103 properties (60 in SA operate under Stor-Age brand & 43 in the UK operate under the Storage King brand).
- Stor-Age is the largest, market-dominant self-storage brand in SA whilst ranking 6th in the UK (the UK is an under-penetrated Developed Market based on self-storage space per capita versus other DMs).
Key Upsides & Downsides:
- The current interest rate-cutting cycle may lower finance costs, boost valuations & increase the attractiveness of the property sector.
- Furthermore, Stor-Age has a highly defensive product (self-storage), and the share price has been resilient through economic downturns with an excellent track record of operating and dividend growth.
- Self-storage has high barriers to entry that includes long lease-up periods for newly developed properties and limited available properties in high-density, visible urban nodes.
- The Group has a fast-growing, high-margin income stream of management fees from third-party property management and digital marketing platform that offer its shareholders exciting optionality.
- Management has a pipeline of 13 properties that are expected to add 60,000m2 of GLA to its portfolio in the near term.
- Management has decided to decrease its distributable income payout ratio from 100% to a more sustainable 90~95%, thus resulting in some downward pressure on short-term distributions per share despite expected growth in forecast distributable income.
Forecast, Valuation and Implied Return:
- We see Stor-age as having a fair value of c.R15.50 per share based on a blended average of a discounted cash flow valuation (R15.92) and relative valuation model (R15.08); the latter is based on the valuation multiples of comparable listed self-storage peer companies.
- Rolling forward our fair value by 12 months at our Cost of Equity (less our expected dividend) gives us a 12m TP of R15.97 per share, implying a total return of c.14% based on the current share price (R15.02).
- We see a c.14% total return in the stock as comprising a forecast price return of c.6% and forecast dividend yield of c.8%.