Jefferies upgrades Safestore to 'buy'

(Sharecast News) - Jefferies upgraded Safestore to 'buy' from 'hold' on Thursday and lifted the price target to 875p from 682p as it took a look at the Pan European real estate sector.

Jefferies said its outlook on the stock is more positive since the company took the initial earnings hit last year and this year by growing its pipeline. It pointed out that new stores are initially earnings dilutive.

"The 40% discount to NAV looks cheap and we think the improvement in like-for-like metrics (operations) offers downside protection," the bank said.

Jefferies noted that Safestore is starting to see a small positive turn with respect to its LFL metrics, and in the last trading update, LFL group revenue rose by 3.3%, led by the UK due to robust domestic demand and space partitioning benefits.

"We think the strategy in carving up the larger units which historically were used for business purposes into smaller ones for domestic use seems to be helping as smaller units have better margins, whilst the development pipeline remains on track at the same time," the bank said.

It noted that Safestore has had to overcome substantial cost headwinds in the last year or two with cost increases driven by inflation - national living wage, NIC, business rates, energy etc - which it is offsetting by recovering top line growth post-Covid highs.

"These headwinds seem to be improving as we look forward and therefore we are turning more positive on the earnings outlook for the company with respect to its core UK and Paris market and we therefore upgrade Safestore to buy," Jefferies said.

In the same research note, Jefferies upgraded Shurgard to 'buy' from 'hold' and maintained its 'hold' rating on Big Yellow.