MIDAS SHARE TIPS: Prospects look secure as storage firm Lok'n Store's boost to sites helps it deliver record results

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Britain is a crowded island and the South East is more densely populated than anywhere else. Many households and businesses do not have enough room for all their possessions and, increasingly, they are turning to self-storage to provide an answer to their problem.

The trend helped Lok’nStore deliver record results last week, with chief executive Andrew Jacobs promising plenty more growth in the future.

At 307½p, the shares have good potential for the long term and should provide steady dividend growth as well.

Solid: Andrew Jacobs saw profits from his storage units surge by 35 per cent last year

Storage is in limited supply and there is growing demand, particularly in the South East, so Lok’nStore has an ambitious expansion programme. Having opened two sites in the past year, it is opening another three in the next six to nine months, in Bristol, Southampton and Chichester. That will take the total portfolio to 26 stores, almost 60 per cent of which are new, purpose-built units with top-quality facilities.

Well-located, attractive sites also mean customers are prepared to pay a bit more. The average customer pays £25 a week and prices rose 4.2 per cent last year, with further increases expected this year.

Given the need for storage, more sites invariably translate into higher sales and profits. In the year to July 31, Lok’nStore produced a 10.9 per cent increase in revenue to £15.4 million and a 34.6 per cent surge in pre-tax profits to £2.65 million. The company also lifted the dividend by 14.3 per cent to 8p. It started to pay a dividend four years ago and has delivered double-digit rises ever since.

Lok’nStore customers take many forms. One police force stored a pile of speed cameras for three years, waiting until a consultation process had been completed to allow it to install the cameras on the streets. A couple expecting a baby will empty out the spare room for the new arrival and put their bits and pieces into storage. And keen athletes will store winter kit, such as skis and snowboards, in the summer and put their hot weather gear into storage during the colder months.

Whatever the situation, most people put more belongings into storage than they expected to and store it for longer. Some small businesses even use Lok’nStore sites as flexible offices, renting storage units and work space on a rolling monthly basis. More than half of the group’s customers stay for longer than a year, more than 30 per cent stay for more than three years and 22 per cent leave their goods in store for over five years, with some customers using the units for ten or even 15 years.

Lok’nStore’s properties are valued at £98 million, which translates to a net asset value per share of 302p, just a shade below the current share price. Rivals Safestore and Big Yellow trade at a significant premium to their net asset value and have always benefited from being larger and more established. As Lok’nStore grows, however, the stock should start to catch up with its peers.

Profits are expected to increase by 26 per cent to £3.4 million in the current financial year and a further 25 per cent in 2017, with the dividend rising to 9.2p in 2016 and 10.6p the year after.

Midas verdict: Lok’nStore has increased profits every year for the past 20, apart from 2009, when the business world collapsed. At 307½p, the shares should deliver steady, long-term growth. Buy.

Traded on: AIM Ticker: LOK Contact: loknstore.co.uk or 01252 521010