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Lok’nStore is trading at a lot less than one-half of its net asset value.
The self storage operator’s net asset value, after a property revaluation, was 207p a share at the end of July 2009. That is down from 244p a share a year ago but it still provides a solid base for the company. Even if deferred tax is subtracted, the NAV is still 166p a share.
At 68.5p a share, up 5p on the day, Lok’nStore is valued at £18.3m. That is a 59% discount to the post-deferred tax NAV. The shares do not look like moving all the way towards the NAV level but an improvement in investor confidence could lead to interest at this level.
Lok’nStore is asking shareholders for permission to buy back up to 21.8% of its shares, which could help to put a floor under the share price. This is the same number of shares that Lok’nStore was previously allowed to buy back but it did not buy any last year despite the fall in the share price.
Net debt was £24.8m at the end of July 2009 compared the valuation of the property portfolio of £78.4m. There are available facilities of £11.9m and the total facility lasts until 2012. Lok’nStore operates 21 self-storage centres and has four new sites with planning permission, including relocations for Reading and Southampton. Management is cautious and does not intend to open these sites yet. That means capital investment could be low this year thereby allowing to the company to reduce its debt levels via operational cash flow.
The dividend of 1p a share will cost £250,000. That is nearly seven times covered by last year’s operational cash flow.
Lok’nStore reported an 8% decline in revenues to £10m in the year to July 2009. The loss fell from £741,000 to £656,000, although the previous year’s figure included a £311,000 goodwill write-down. Marketing and other costs were reduced while interest charges fell in line with interest rates.
There was some weakness in prices per square foot. Occupancy levels have recovered to 52% of lettable space and prices could also start to recover. The newest site at Harlow was breaking even after seven months.
Mintel estimates that the UK self-storage market has been growing at rates between 8% and 15% over the past five years. There appears further scope for growth as the economy recovers.
Hardman forecasts a £100,000 profit on revenues of £10.3m in 2009-10.
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