Monthly Archives: October 2024

Stor-Age Property REIT Limited – Initiation of Coverage – Good Stor(e) of Capital

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%.

Metrofile Holdings – FY 24 Results – Disappointing but could be the Bottom

Share Code: MFL – Market Cap: R1.1bn – PE: 15.1x – DY: 5.6%

FY 24 Results: Weaker than expected

  • Metrofile’s revenue rose only +1% with MRM South Africa’s revenue slipping -3% hurt the Group as delayed decisions by customers and slower product sales and revenues from digital more than offset good box pricing.
  • The MRM Middle East’s EBITDA margin fell as management had to fend off two large new entrants in the market, MRM South Africa’s scanning margins saw pressure from internal issues and continued weakness in Kenya saw management impair goodwill by R53.5m in this segment
  • Management has decided to wind up Tidy Files (successfully executed after year-end), triggering a R19.9m one-off in FY 24.
  • All these one-offs combined to negatively hit EPS by c.12.6cps with EPS coming in at 3.9cps (FY 23: 32.1cps) but—excluding the one-offs—the Group’s Normalized HEPS declined to 20.0cps (FY 23: 32.1cps).
  • Despite these troubles, the Group’s cash generation remained strong (R287m of EBITDA generated R309m of cash from operations), degearing continues (Net Debt dropped -9% to R537m) and the Group declared a full-year dividend of 14cps.

Our Thoughts: New CEO, revised forecasts

  • The Group has a new CEO with a solid background, the current CFO steps into MRM South Africa’s turnaround as MD of this major segment, & the Board will announce a new CFO shortly.
  • We have been relatively ruthless by lowering some long-term assumptions and downgrading FY 25E HEPS by c.-17% (but still see it recovering from FY 24’s trough earnings).

Forecast, Valuation & Implied Return: Lower discount rate

  • We see Metrofile’s fair value as 347cps (previously: 390cps), implying an EV/EBITDA of 7.0x & a PE of 21.1x; this compares attractive to Iron Mountain’s current multiples (see below):
  • The change in our fair value is less of a downgrade than our cut in earnings as the large drop in South Africa’s sovereign bond yields over the period has propped up our segmentally-driven DCF fair values (i.e. future cash flows are now worth somewhat more).
  • Rolling our fair value forward, we arrive at a total return 12m TP of 403cps (previously: 456cps), implying a high c.61% return (including dividends) from these levels.