Profits jump 13% but should investors sell Big Yellow Group plc before Brexit?
As we approach the end of what has been a rather testing year (some might use a stronger adjective here), thoughts will begin to turn about what 2017 could mean for investors, their holdings and, ultimately, their money. Although Donald Trump's every move has dominated headlines over the last couple of weeks, 2017's 'main event' arguably remains Brexit.
With this in mind, let's look at the latest set of interim results from self-storage titan and FTSE 250 constituent, Big Yellow(LSE: BYG). Given our tendency to accumulate more and more stuff as we go along, could this share be an ideal addition to your portfolio before our EU departure? If not, should those already invested sell up and move on?
Today's interim figures were certainly positive. Revenue climbed 9% to £54.8m in the six months to 30 September. Adjusted profit before tax came in at £27m, a very encouraging 13% rise from last year's figure of £23.9m. Cashflow rose by 10% to £28.9m after finance costs were deducted and growth was also apparent in occupancy levels. There was further cheer for income investors as the company raised its interim dividend by 12% to 13.5p per share. As many Fool readers will know, a growing dividend is just one indicator that a company is doing well. A stagnant dividend suggests something else entirely.
With such good numbers, some might regard the market's muted reaction (a fairly negligible rise of 0.15% at the time of writing) as rather strange. In my view, a lot of this can be explained by CEO Nicholas Vetch's cautious tone regarding Brexit and how it might affect the company. Reflecting that Big Yellow is on "heightened alert" and that activity levels and demand are likely to be "more subdued" going forward was always going to take the fizz out of today's results.
Nevertheless, I think investors should take comfort from Vetch's more reassuring comments that the company has been "planning for this eventuality since 2008´´, and that Big Yellow is "well placed to face down most challenges". Although there are no guarantees when it comes to investing (and what next year might bring), I consider the company's decision to under-promise and perhaps over-deliver as eminently sensible.
Safer than Safestore?
Assuming Big Yellow will be able to weather the Brexit storm, the question that immediately presents itself is whether this company is more deserving of your capital than its nearest competitor, £755m cap Safestore(LSE: SAFE), particularly given the latter's recent, equally positive Q4 trading update.
Trading on a forecast price-to-earnings (P/E) ratio of just under 17, shares in Safestore are certainly cheaper than those of Big Yellow, which trades on a P/E just above 19. The smaller company can also boast marginally higher levels of return on capital over the last few years. That said, as far as dividends are concerned, Big Yellow wins out with a yield of 3.96% penciled in for 2017. This compares favourably to Safestore's forecast yield of 3.51%, even if this payout is better covered by earnings.
Ultimately, I'm not sure there's much to separate the two. Given its slightly larger clout, however, I'd probably side with Big Yellow at the current time.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.