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Berenberg says investors should wait for 'more attractive' entry point in Big Yellow
With Big Yellow continuing to deliver "excellent returns", year after year, analysts at Berenberg saw little reason to doubt the continuation of the firm's success story but, with the company's shares trading at all-time highs, the broker believes that investors should await a "more attractive" entry point before increasing their holdings.
Berenberg downgraded its stance on the Surrey-based self-storage company to 'hold' on Tuesday, even as it upped its target price from 920p to 1,000p in order to account for Big Yellow's updated development pipeline.
Big Yellow has increasingly benefited from its "leading position in a structurally growing segment of the UK real estate market" and has delivered earnings growth of around 13% every year since 2007 at the same time as having increased its total lettable space by 2.1m square feet and its total occupied space by 2m square feet.
At the same time, Big Yellow has enjoyed a "significant operational gearing benefit", expanding its margins from 48% in 2007 to 61% in 2018, the German broker said.
"Looking ahead, we see little reason to doubt the continuation of this success story. However, with the company's shares trading at all-time highs while our earnings forecasts fall to single-digit levels of growth, we believe that investors should await a more attractive entry point," Berenberg added.
Berenberg said the "most significant" revelation in Big Yellow's latest results was its commentary regarding the firm's medium-term growth strategy, announcing that it was aiming to have 100 stores in the UK at scale, versus the 74 presently in operation, meaning that with a current development pipeline of ten new stores, the company would need to acquire 16 further sites over the next five years.