With a trading announcement due on 7 October, it could be a catalyst for renewed interest in Safestore Holdings (LSE: SAFE), especially as the shares have come off highs recently. With results expected to be at the top end of market expectations, earnings guidance increased and the self-storage group bouncing back from the pandemic, there could be room for Safestore to be one of the best stocks for me to buy in October.
Third-quarter trading update
As an indication of what to expect in October, we can look back to the previous set of results covering the third quarter. Those results showed that year-on-year, revenue was up 18%. Occupancy was also moving in the right direction, which could mean the October trading update is also very upbeat.
Why I expect further growth
The results aside, there are strong reasons to expect further longer-term growth from Safestore, I feel. There’s an issue with low supply of self-storage units in the UK versus other markets (like Australia, for example). This should help Safestore maintain or increase prices, which would be good for investors. The company has been savvy with digital marketing through the pandemic and has attracted a lot more enquiries and ultimately more customers. This is good for the business long term.
The business is also not reliant just on the UK. It operates in other European markets, notably France, but also Spain, plus Belgium and the Netherlands (via joint ventures).
Some concerns to be aware of
The shares aren’t cheap. That’s the main problem I see. If results are at all below expectations either in October, or in the future, the shares could be hit heavily. However, on the plus side, competitors’ share prices are even more expensive, so it could be argued Safestore is a ‘cheap’ property operation.
Given its expansion and the fact it’s a property company, it’s also no surprise debt has increased at Safestore. That does also store up some risk for investors if growth stalls. Net debt has gone from £283m in 2015 to a current level of £505m.
The company may also have benefited from increased house moving because of the stamp duty holiday. This is unlikely to be repeated. That may make it harder to grow as strongly next year and means a tough comparison. The group’s results may also be flattered this year by the bounce-back from the pandemic.
One of the best stocks to buy in October?
So there are some concerns, but Safestore strikes me as a well run, profitable company with growth and income (the dividend has grown consistently strongly in recent years) opportunities. But do I think it could be one of the best stocks to buy for October? Maybe, if results exceed expectations. However, I’m not 100% convinced and I’ll hold off buying for now, as longer term I think there are cheaper shares offering growth, such as Vertu Motors and Sylvania Platinum.
Andy Ross owns shares in Vertu Motors and Sylvania Platinum. The Motley Fool UK has recommended Vertu Motors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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