BUY: Lok’n Store (LOK)
The self-storage group welcomed a double-digit increase in earnings and increased occupancy and has new sites in the pipeline, writes Jemma Slingo.
Lok’n Store has promised to pursue a “more progressive” dividend policy. In an upbeat set of annual results, including news that cash available for distribution was up by a third, management recommended an annual dividend of 15p a share — up from 13p in 2020 — marking the tenth consecutive yearly increase. Lok’n Store said it intends to accelerate the dividend growth as cash flows continue to build.
Unlike much of the real estate sector, self-storage has been relatively undamaged by repeated national lockdowns. Indeed, the group said demand for storage grew when families turned box rooms into home offices, and hospitality businesses were forced to stow away tables and chairs to comply with social distancing rules. Now people are moving house again, and companies are eyeing up new offices, demand for the steel units is likely to remain high.
According to the Self-Storage Association UK, there is a lack of self-storage supply in the UK compared with the US and Australia. While this may encourage competitors to enter the arena, new businesses can struggle to find suitable sites and to secure planning permission. In contrast, Lok’n Store has invested £26.9m in new storage facilities and has a strong pipeline of new sites, while it continues to boost the number of stores it manages for third-party owners.
The company’s expansion plan — combined with a 35 per cent annual surge in occupancy — makes it a promising option for investors even when you weigh up the growth expectations baked into a forward rating of 32 times consensus earnings. The long-term growth catalysts are still in place.
HOLD: FD Technologies (FDP)
The group has struggled to justify its bumper valuation in the past few years but hopes more recurring revenues will change this, writes Arthur Sants.
FD Technologies, formerly known as First Derivatives, is essentially a data-driven consultancy, enabling clients to better utilise their data. Its most unique selling point is its KX platform, cloud-based tech that provides real-time data analytics. It also has its First Derivative and MRP businesses that provide respective services in capital markets and marketing.
KX is in the process of switching to an annual recurring revenue (ARR) model. The KX go-to-market team increased by 52 per cent which helped it complete 41 KX subscription deals, compared to 14 in the first half of FY 2021. It has set a target of achieving 25 per cent per annum growth in KX ARR. By the end of October, the group was well on the way to meeting the target, though a 43 per cent increase in marketing costs and unfavourable foreign exchange movements fed through to an interim earnings loss. In total, there was a £13.3m increase in costs compared to last year, which if stripped out, would have meant a 31 per cent increase in adjusted cash profit.
Overall KX revenue fell because of lower perpetual licences revenue but broker Investec is now expecting recurring revenue to “accelerate in future periods due to an expansion in deal flow”. As expected with a technology company, it is priced for growth at 76 times forecast earnings. Shareholders are betting that increased subscriptions should boost profits once marketing costs start to fall as a proportion of sales, and there is no reason to imagine why this won’t happen in due course. For now, we wait for positive signs on this front.
SELL: BP (BP.)
Chief executive Bernard Looney says BP will not be split up as competitors and investors move toward “legacy” and “green” listed entity models, writes Alex Hamer.
The strength of oil and gas at the moment is obvious: just check forecourt prices or your energy bill. BP has bet on this to continue, announcing a share buyback programme for the rest of the year well above its surplus cash level in the third quarter.
Looney said the company was a “cash machine at these prices”.
Investors will get a share of $1.25bn (£920m), following quickly on from the $1.4bn programme announced after its half-year results.
Unlike last quarter, the buyback figure was above BP’s surplus cash for the period. Chief financial officer Murray Auchincloss said “confidence” was the reason the company had lifted the buyback programme beyond its 60 per cent surplus cash plan. He said commodity prices, projects ramping up and a higher level of earnings from its stake in Rosneft drove this confidence.
BP’s preferred profit measure, underlying replacement cost profit, was 18 per cent above the previous quarter at $3.3bn. The company registered a $2.5bn pre-tax loss for the period but this was largely down to a gas price-driven non-cash accounting hit of $6.1bn based on changes to forecasts.
Much of the focus of the results was on the hydrocarbon-driven profits, and Looney said the company would continue to invest in new oil and gas capacity. “We will deliver on our targets of reducing production [but] that does not mean there will not be new investment,” he said.
Looney also made clear he would not go looking for greater investor interest through green spin-offs. Italian major Eni plans a spin-off to help fund green spending, while at the end of October Dan Loeb at Third Point announced he had taken a stake in Royal Dutch Shell and called for the group to be split into a “legacy” business and a renewables business.
BP said it had increased its “electrons sold” by 45 per cent in the UK in the quarter. The company’s low carbon energy capital expenditure was $336m in the September quarter, compared with $43m the year before. Oil production and operations capex is around $1bn a quarter.
BP is raking in the cash and sending plenty of this to shareholders. We remain bearish in the long term, however.
Denial of responsibility! Swiftheadline is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – firstname.lastname@example.org. The content will be deleted within 24 hours.