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For a business that helps customers solve short-term problems, Big Yellow must think many years out. The self-storage firm has become a fixture in London and the south-east of England for people who move home, get divorced or start a business.
Bouncing back from lockdown from mid-May onwards, the firm’s bosses have observed new trends such as work-from-homers storing belongings to give them more space and an influx of unused conference paraphernalia.
In June, moving activity was down by 15pc on the previous year, with the most significant hit coming from a 10pc fall in residential move-ins. Two thirds of Big Yellow’s business comes from domestic lets, most of which are for less than 12 months.
However, on other measures little appears to have changed. In the last quarter occupancy was steady at 84pc and revenues ticked up slightly on a year ago. As of mid-July, 98pc of rent for the period had been collected and rent increases had resumed after a four-month hiatus.
The question is how Big Yellow fares in the post-pandemic world. Some 80pc of its business is pegged to London and the surrounding areas, where the property market has been in deep freeze. Fears of an exodus to the shires for families in search of more garden space are surely overblown.
Big Yellow thrives on the volume of home-moving, not rising prices, so initiatives such as the Chancellor’s stamp duty holiday could help as activity returns to close to normal levels, according to the Bank of England.
And then there is small business, which accounts for 35pc of the group’s space. A recession is bad news all round but rising unemployment corresponds with an increase in start-ups that need somewhere to store their merchandise.
Consider too the next round of stockpiling for the December Brexit deadline. Looking further out are the co-founders, Nicholas Vetch and James Gibson, who remain at the helm 20 years after flotation. They have spent the past five years assembling a pipeline of new sites. Plotting a path to 100 of them from 76 today, Big Yellow raised £82m in an April placing to replenish funds.
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Last month the group spent £19m on a freehold at Wapping, east London, where it aims to build a new facility to replace the smaller one next door. If Big Yellow is lucky with the planning system, it will be open in four years.
Another centre at King’s Cross has been in the pipeline since acquisition in 2015. No wonder executive share options awarded last week stretch out a decade.
Competition for London land is fierce, although the crisis may lead car showrooms and residential housing developers to be more cautious. It will not slow demand from logistics operators such as Amazon, however.
If Mr Vetch and Mr Gibson learnt anything from the 2008 downturn it is that there is no such thing as a too conservative balance sheet. Analysts at Berenberg, the bank, forecast that Big Yellow’s loan-to-value ratio this year will be the lowest for 15 years.
Investors who don’t like shocks will be pleased to hear that the pair will not stray far from their long-term strategy whatever has happened in the short term. That means no push into Europe, no giving up on London, no industry consolidation, a preference for freehold property over leasehold and a dividend yield of 3pc or more.
Not to mention a handy sideline of selling padlocks to three quarters of its move-ins so they can secure their room. Company followers at BofA Securities, the broker, think Big Yellow can still deliver a potential 10pc return on equity over the next three years.
The shares are popular and about trade 30pc ahead of next year’s forecast net asset value and at 24 times expected 2022 earnings. They are about 15pc ahead of where Questor tipped them in December 2018 but are 17pc off their all-time high touched in February before the crisis struck.
Despite some life-changing events, Big Yellow is still worth locking up somewhere safe.
Questor says: hold
Ticker: BYG
Share price at close: £10.03
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