Share pickers haven’t got long to act, but I consider Big Yellow Group (LSE: BYG) to be a brilliant mid-cap to buy before December. The self-storage giant is set to release half-year results tomorrow (Tuesday, 19 November), and I’m expecting nothing but another splendid set of trading numbers.
The self-storage market continues to defy the broader slowdown in Briton’s spending habits. Rival operator SafeStore reported last week that like-for-like revenues on these shores were up a solid 3.8% in the three months to October.
Big Yellow advised on its own financials back in mid-July that like-for-like sales were up an even better 4.4% in the quarter ended June.
Share price boom
Multiple social and demographic factors – from the growth in tenants moving homes to a steady rise in the ‘hoarding’ culture across the western world – mean that demand for these spaces keeps on rising, and the likes of Big Yellow are riding this trend through aggressive expansion.
Over the past month or so the FTSE 250 business has had planning permission approved for new sites in Hove and Queensbury to boost its pipeline and help it build its current estate of around 100 stores.
The company’s share price has risen a whopping 111% over the past half decade and the stage appears set for more significant gains over the next decade at least, in my opinion, with another hefty rise possibly in the offing following tomorrow’s update.
Big Yellow might be expensive on paper (it currently trades on a forward price-to-earnings ratio of 27.2 times), but I consider the firm worthy of such a rating given its stable profits outlook, particularly in politically and economically uncertain times like these.
City analysts forecast annual earnings improvements of 6% and 7% in the fiscal years to March 2019 and 2020 respectively.
Hot dividend growth
Big Yellow’s appeal as a hot dividend grower helps to take the edge off the elevated P/E multiple. The company raised the total payout 8% in the last financial year to 33.2p per share, taking the total rise over the past five years to 53%.
And thanks to the company’s bright bottom-line picture and ability to throw out lots of cash, the number crunchers expect more hefty dividend rises in the medium term at least. Incidentally, operating cash flow boomed 14% year on year in fiscal 2019, to £71.8m.
A total reward of 35.2p per share is forecasted for this year and a 37.8p one predicted for the following period, figures which yield a decent 3% and 3.2% respectively.
Okay, these figures might trail the forward average of 3.3% by a hair but they still smash the current rate of inflation in the UK of around 1.5%, not to mention some of the returns on offer from other investment products like Cash ISAs.
Besides, the prospect of some increasingly meaty dividend cheques over the long term make Big Yellow a tempting income share to buy right now.