Lok'nStore Group Initiation of coverage

Transcription

1 Lok'nStore Group Initiation of coverage Innovating new value Support Services Lok nstore looks well placed to leverage operational scale and improve returns through the addition of new stores opened via collaborative ventures and from further bolt-on acquisitions. The company also has a strategic opportunity to increase its prices pending a proposed change to the VAT regime. These opportunities suggest growing momentum in EBITDA that is not fully represented in the valuation. Year end Revenue ( m) PBT* ( m) EPS* (p) DPS (p) P/E (x) Yield (%) 07/ /12e /13e /14e Note: *PBT and EPS are normalised, excluding intangible amortisation and exceptional items. 19 June 2012 Price p Market cap 30m Shares in issue 25.0m Free float 31% Code LOK Primary exchange AIM Other exchanges N/A Share price performance Driving innovation in self-storage Lok nstore was founded by current CEO, Andrew Jacobs, in 1995 and is one of the leading players in the UK self-storage market. The business looks well placed to grow new space through collaborative ventures with both private investors and businesses. These have the ability to enhance returns given either full-store EBITDA contributions or management fees being earned from limited capital investment in the new sites. Pricing opportunity from VAT changes Proposed changes to the VAT regime in October are likely to see the company s key competitors increase prices by at least 10% to mitigate this. Lok nstore has always charged VAT and therefore has a strategic opportunity to increase its own prices without incremental cost. A 10% increase in prices could potentially add 1m to EBITDA. Investment firepower The balance sheet is strong and benefits from 80m of property assets and a low portfolio LTV of only 31.9%. The company has drawn only 28m of a new 40m debt facility and has plenty of additional headroom remaining with which to make further investment in the development of new stores and bolt-on acquisitions. Valuation: Good value and upgrade upside Lokn Store shares trade on a calendar 2012 EV/EBITDA of 13.8x, in comparison with quoted peers Safestore on 12.6x and Big Yellow on 19.1x. We believe Lok nstore shares present good value given the growing EBITDA momentum from increasing scale in the business and potential for a significant uplift from increased prices. % 1m 3m 12m Abs Rel (local) week high/low 119p 92.5p Business description Lok'nStore is one of the UK's leading selfstorage operators with 22 stores across Southern England. It was founded by CEO Andrew Jacobs, who is also a substantial shareholder. Next events November 2012 Analysts Preliminary results Andrew Saunders +44(0) Martyn King +44(0) Roger Leboff +44(0) property@edisoninvestmentresearch.co.uk Lok'nStore Group is a research client of Edison Investment Research Limited

2 Investment summary: Innovating new value Company description: A leading innovator in self-storage Lok nstore was founded by current CEO Andrew Jacobs in 1995, and is one of the leading players in the UK self-storage market. The business now trades from 22 stores and is conservatively managed to enhance steady like-for-like growth from established stores. The company is also growing from acquisitions and recently acquired Saracen, a document storage business, for 4m. It fits well with the existing self-storage operations and has significant scope to be earnings accretive in its first full-year. The company has a joint-venture with Lidl, its first with a supermarket operator, and has also recently announced another joint-venture with private investors for a new store (to be managed on a contract) at Aldershot. The advantage of both these schemes is the increased operational scaling for the business from the additional stores and full EBITDA contributions or management fees being earned on limited capital investment on Lok nstore s part. Valuation: Re-rating potential Big Yellow, a quoted competitor, trades on a significant EV/EBITDA of 19.1x 2012 calendar multiple, reflecting its superior underlying store EBITDA margins of 63% earned from bigger stores, with more freeholds and with better pricing given a greater Central London footprint. Lok nstore currently compares favourably on a calendar multiple of 13.8x. Its shares trade on a calendar 2012 EV/EBITDA of 13.9x and we believe Lok nstore shares present value given the growing EBITDA momentum from increasing scale in the business and potential for a significant uplift from increased prices. Sensitivities: Well placed to mitigate current challenges Economy Despite the economic volatility, the self-storage industry has seen cumulative growth in rents of 7.3% since 2006 and is seeing a continued improvement in occupancy levels among established stores. The current growth in the home rental market is a positive factor for increased volumes. Pricing Pricing remains stable and Lok nstore is well positioned here as it already charges VAT on its product and has lower prices than the industry average. It therefore looks well placed to increase its own prices, without detriment to its volumes as the existing pricing discount with competitors will remain. New space The UK industry has significant scope for continued space expansion (lagging both the US and Australia in terms of space per person) and should continue to see new space rolled out in the long term. Financing Access to finance remains challenging and remains the key to expanding new space. In this regard, the industry looks unlikely to see new entrants emerging, giving incumbent players with strong finance facilities in place good opportunities to grow. Financials: Strong asset backing and low gearing The balance sheet is strong in our view and benefits from 80m of property assets across 22 stores. The company has low gearing of 65.8%, which equates to a portfolio LTV of only 31.9%. During the H1 period the company secured a new 40m five-year revolving credit facility with Lloyds TSB. This is at a rate of LIBOR % on LTV below 40% (currently 31.9%), giving an effective interest cost of between 3.1% and 3.2%. The company has drawn 28.2m of this debt ( 10m of which is fixed at LIBOR +1.2% and 10m fixed at LIBOR +1.15%) and has plenty of additional headroom remaining. 2

3 Company overview: Innovating self-storage Lok nstore is one of the UK s leading self-storage providers. It was founded by CEO Andrew Jacobs, and has grown rapidly with a current estate of 22 stores across southern England. The business was listed on Ofex in 1997 with eight stores. Following the sale of a 29% stake to leading US operator Access, the business subsequently listed on AIM and in 2001 completed a 10m fund-raising with which to expand the business. The company is achieving good growth both through acquisition and the innovative development of new stores through collaborative ventures with both private investors (attracted by inheritance tax advantages) and businesses that have the potential to add significant upside to EBITDA from new store contributions or management fees with only limited new investment by Lok nstore. In the short term, the company also has a strategic opportunity to review its prices as competitors are forced to begin charging VAT. With significant operational gearing in the business and large fixed costs, any price rises have the ability to provide a significant uplift to EBITDA. Self-storage industry The self-storage industry has grown rapidly from its early conception in the US over 50 years ago, with the UK ranking as one of the largest markets. The industry started in the UK over 25 years ago with Abbey Self Storage being the original pioneer. Since then there has been rapid expansion and subsequent consolidation in the number of market operators with around nine key players that include quoted operators Safestore, Big Yellow and Lok nstore. There are an estimated 815 self-storage facilities in the UK with a total of approximately 29.6m sq ft of space. This equates to 0.5 sq ft of space per person. Compared with similar figures of 7.4 sq ft and 1.1 sq ft respectively for the US and Australia (Self Storage Association UK Annual Survey 2012), this suggests there is still plenty of room for growth in the UK industry. Exhibit 1: UK self-storage industry leading players (no of stores) 120 Number of stores Safestore Big Yellow Access Storage King Lok'nStore Shurgard Alligator Space Maker Armadillo Source: Drivers Jonas Deloitte With storage space increasingly scarce for many households and businesses, the use of third-party facilities continues to grow. Typically, self-storage involves the leasing (usually on a monthly basis) of a lockable, secure room or unit in a standalone building specially built or adapted for the purpose. Access to the unit is restricted to the tenant, with the storage operator responsible for maintenance and security of the building and items from theft, fire etc. The operators provide additional services that include the sale of packaging products and insurance. Market drivers The market for self-storage is driven by several factors. These include the need to store items due to everyday lifestyle changes such as home renovation and moves, job relocations, travelling abroad, hobbies requiring more space, divorce and death, and homes and businesses simply outgrowing the 3

4 space they have available. Looking through the economic cycle, it is observed that the demand for new space is strongest when the economy is performing well and consumer and business confidence is high. Contrary to popular belief, the self-storage industry is not overly dependent on the fortunes of the UK housing market, with only around one-third of customers renting space due to moving house. Despite the economic volatility, the industry has proved resilient and rents in the UK self-storage sector have grown by a cumulative 7.3% since 2006, in contrast to the UK property sector in general where they have fallen by 5% over the same period. EBITDA margins suffered during the 2008/09 recession as operators cut prices to help drive volumes, but have since recovered. In Lok nstore s case 2007 EBITDA margins fell from 27.3% to 24.3% in 2009, but had progressively recovered to 30.2% by Customer base Self-storage customers can be split into two distinct groups: households and businesses. Households typically store items such as furniture, clothing, sports equipment, toys etc, with businesses storing a wide range of items including archives and files, seasonal and excess stock, trade supplies and equipment, exhibition and event equipment, and office furniture. Business customers are growing rapidly and now account for 39% of total industry space (36% in 2010). Lok nstore currently has a split of 80:20 of self-storage revenues between household and business customers and 60:40 when measured by space. The market has a number of large players and the choice of operator is both a feature of geographical location and pricing. For businesses, typically with larger storage requirements geography is often the primary driver over price. The opposite is more usually true of households, for whom pricing is often more important. While business customers are typically more valuable, Lok nstore is happy to improve occupancy through either channel and there is no strategic objective to grow one over the other. Pricing Typically pricing moves follow the underlying UK economic trends and tend to mirror the trends in consumer confidence. Industry pricing remains resilient and has recovered from a low-point seen in 2008 that reflected the difficult UK economy and falling consumer confidence. The average billed room rate has fallen back slightly to sq ft per annum but has risen by a cumulative 7.3% since Lok nstore reported a small decline of 1.2% in its prices during its recent H1 trading that we believe is consistent with its competitors. However, Lok nstore is seen a high quality, value player in the UK selfstorage market and has positioned its prices at a sizeable discount to its competitors, helping drive improved occupancy levels. At the recent interim results, the company confirmed its average price achieved for self-storage was 18.51/sq ft, giving a significant pricing advantage compared with 21.97/sq ft for the industry average. The company should continue to enjoy a sizeable pricing advantage over its competitors as it already charges VAT while most of its competitors do not. VAT changes The chancellor proposed changes to the current VAT structure on 21 March 2012 that will seek to close current loopholes and anomalies and give clarity to the industry. If approved, these changes will come into effect on 1 October Historically, the self-storage industry has been able to choose to elect for VAT or not with operators deciding on a property-by-property basis. Lok nstore has traditionally regarded itself as a self-storage operator and therefore always charged VAT, with the majority of its customers being households who cannot reclaim it in any case. Several of Lok nstore s key competitors (including Big Yellow and Safestore) have positioned themselves as property companies for tax purposes and have not historically charged VAT on their 4

5 product. Should the proposed changes be brought into effect later this year, those competitors not currently charging VAT will be forced to either increase their prices to recover this extra cost or absorb it to the detriment of margins. Big Yellow has stated it would raise prices by a minimum of 10% to its domestic customers. Lok nstore is well placed in any event and has several options of its own in response. It can either keep prices unchanged and further expand its position as the market value play and drive further occupancy, although perhaps unlikely, or increase them. We believe the most logical move would be to match competitor s price increases (by 10-15%, say). This would leave the current pricing differential unchanged and would also add around m of additional EBITDA (the equivalent contribution of three to four established stores) on an annualised basis given there are no incremental costs required to accompany the price rises. Property Lok nstore currently has 21 owned stores in its portfolio, of which 11 are freehold/long-leasehold and 10 are short-leasehold. The current operational area is approximately 1.1m sq ft of space, which would rise to 1.2m sq ft of space including pipeline stores. The company also manages another store on a third-party basis that was previously owned but sold in a property deal. The portfolio is geographically positioned across the south of the UK with the furthest north store being at Northampton. This is a conscious decision that reflects both competitive and pricing elements that the company believes would be weaker in northern UK locations. No new stores have opened in recent years, as the company has focused on the efficient operation of its existing outlets, as economic growth has moderated. The company has, however, identified several site opportunities where new value can be created. While the property portfolio has seen little change in valuation recently, reflecting more stable property yields, there are, nonetheless, opportunities for new value creation through active portfolio management with partners, typically retailers or property developers. The company has already achieved good returns from property deals on its sites at Kingston and Woking (the latter sold for 2.5m) and currently has two replacement site possibilities at Reading (53,500 sq ft) and Southampton (100,000 sq ft) and a further three new site opportunities at Maidenhead (58,000 sq ft), Portsmouth North Harbour (60,000 sq ft) and Aldershot. Of these potential new sites, Maidenhead and Aldershot are likely to be operational in At Reading, the company has planning permission for 112 flats on the site of its existing store on the A33 and also has land directly opposite with planning permission for a new, 29% larger store. The scheme should be largely self-funding, with the existing store and land being sold to a housebuilder and the cash being used by Lokn Store to construct a larger, more modern store. The plan is to migrate existing customers to the new store once it is completed and it is expected the development should get underway within two years subject to satisfactory due diligence. The proposed new store at Maidenhead is part of an innovative development with supermarket group Lidl that will see both a supermarket and Lok nstore outlet operating from the same site (60,000sq ft storage and 20,000 sq ft supermarket). This should help drive significant increase in footfall to the site, with the storage facility ideally benefiting from the supermarket s customer traffic. Again the development should be largely self-funding from Lok nstore s perspective, with Lidl contributing a large part of the development costs. It is expected that construction will get underway soon with the site opening during H113. The company also recently announced another new store is to be developed at Aldershot in jointventure with other investors that include the original landowner, Mark Shaw. The development will see 5

6 Lok nstore contributing 2.5m of the expected 3.2m build cost with the other investors contributing the balance and becoming the new store s owner. The completed store should open in 2013 and will be managed on a third-party basis by Lok nstore in exchange for a fee. We expect that further developments similar to this and at Maidenhead can create new future value for the business, helping drive increased operational scale from more stores and adding full-store EBITDA contributions or management fees from limited capital investment. Document storage In its recent interim results, the company enjoyed the first full contribution from the acquired Saracen document storage business. This was acquired for 4m in June 2011 with existing management retaining a 9.4% stake. The acquisition contributed interim revenue of 0.9m and EBITDA of 0.2m and is experiencing good sales growth. The acquisition rationale stems from significant consolidation opportunities that becoming part of a larger business can create and Lok nstore should benefit from site consolidation at Saracen (four becoming three) and also with the integration of administrative functions including finance, accounting, HR, capex and marketing etc. We expect annualised Saracen EBITDA can be improved from 0.4m to 0.7m by 2013/14 and believe there is scope for further such enhancing acquisitions to be made should they become available. Management contracts Lokn Store has one managed store, at Woking, that it used to own outright but sold in a property transaction. Additional management stores opened through joint-ventures create increased operational scale for the business at a lower entry cost while also providing attractive returns from management fees earned. The company has also recently announced it is to begin construction through a jointventure of another managed store at Aldershot, which is expected to open in 2013, and we expect to see more investments of this type. REIT conversion While Lok nstore is not currently a REIT, forthcoming changes to the legislation in July 2012 make this a possibility. Previously, REIT status has only been available to companies listed on the Main market of the London Stock Exchange and subject to an upfront conversion charge. The new rules will do away with these requirements, allowing conversion for AIM-listed companies. The key advantages to REIT status are the avoidance of corporation tax provided that 90% of earnings are paid out as a dividend and the avoidance of capital gains tax on property disposals. Aside from REIT status, self-storage companies can also elect to be treated as property companies or trading companies, which affects the treatment of property assets. Property companies treat freehold assets as investment property meaning they are not subject to depreciation. Big Yellow and Safestore treat their properties as investment properties that are not subject to depreciation, thus explaining higher conversion of EBITDA to earnings than Lok nstore, which treats its freehold assets as trading properties that are amortised over 50 years. Lok nstore currently has tax losses and also has CGT rollover relief as a trading business so there is little immediate benefit in adopting REIT status. However, we would expect the company will convert to a REIT by 2014 when it will have to start paying corporation tax. This will also allow for the change of treatment of freehold assets to investment property. 6

7 Exhibit 2: REIT status and VAT peer comparisons REIT status VAT charged Property treatment Lok'nStore No Yes Trading Big Yellow Yes No Investment Safestore No No Investment Source: Edison Investment Research Management The management team has extensive industry experience, with founder Andrew Jacobs anchoring the business as CEO. Furthermore, the board is complemented by other directors with a broad range of skills and industry experience: Andrew Jacobs CEO Andrew Jacobs established Lok'nStore in February 1995 after eight years as a stockbroker at Nomura International in London. Andrew is responsible for strategy, corporate finance and property. Simon Thomas Chairman Simon Thomas has been an executive director of Lok'nStore since 1997 after a successful career in the publishing and finance sectors. As chairman, Simon is responsible for the composition and performance of the board. Ray Davies CFO A chartered accountant, Ray Davies has held a number of senior finance positions in the construction and health and fitness sectors. Ray is responsible for finance, administration and risk management. Colin Jacobs Acquisitions director Prior to joining Lok'nStore, Colin Jacobs worked for the Courts Group in sales and marketing functions. Colin is responsible for identifying and negotiating new sites for Lok nstore. Sensitivities Economy The market for self-storage is driven by separate structural and cyclical factors. Despite the economic volatility, the self-storage industry has seen cumulative growth in rents of 7.3% since 2006 and is seeing a continued improvement in occupancy levels among established stores. While prices and margins dropped during the 2008/09 recession, impacting profits, these have since recovered and demand for space, from both businesses and private customers, remains resilient. The industry is not particularly correlated with the housing market; however the current growth in the home rental market is a positive factor for increased volumes. Pricing Pricing has improved progressively since the 2008/09 recession, albeit with ups and downs, helped by improving demand. At the recent interim results, Lokn Store confirmed its average prices edged back marginally although the overall price for self-storage was 18.51/sq ft, giving a significant pricing advantage compared with 21.97/sq ft for the industry average. The company should continue to 7

8 enjoy a sizeable pricing advantage over its competitors as it already charges VAT while most of its competitors do not, given their decision to elect themselves as property businesses and will probably have to increase their prices following proposals to change the VAT legislation, to mitigate this extra cost. New space Self-storage has grown rapidly over the past decade, helped by a ready supply of new sites for either conversion or construction of stores and easy access to finance. The UK industry also has significant scope for continued space expansion (lagging both the US and Australia in terms of space per person) and should continue to see new space rolled out in the long-term. However, in the short term, the rollout of new space in the industry is likely to slow, with only 15% of operators intending to open a new facility in 2012 compared with 24% in 2011.This is largely a feature of access to finance becoming more challenging and banks continuing to sit tight on strategic sites. Lok nstore looks well placed though to continue to expand, given it has financing facilities in place and has five current sites (two replacement and three new locations) where new stores could be developed. Financing The ability to expand the portfolio and to undertake new investment as the UK economy recovers relies upon Lok nstore having sufficient funding facilities in place. The company looks well placed in this regard, having recently secured a new 40m five-year revolving credit facility with Lloyds TSB. This is at a rate of LIBOR % on LTV below 40% (currently 31.9%) giving an effective interest cost of between 3.1% and 3.2%. The company has currently drawn 28.2m of this debt and has recently agreed interest rate swaps on 10m of this debt at 2.35% + (LIBOR +1.15%) and 10m at 2.35% + (LIBOR +1.2%), thereby locking in to an effective fixed cost of debt of around 3.55%. We forecast the LTV to remain steady at around 30% over the next two years, assuming stable property yields and debt levels. Valuation The following analysis highlights how Lok nstore compares with Big Yellow and Safestore on a P/E, EV/EBITDA, dividend yield and PNAV basis. On a P/E basis Lok nstore appears expensive relative to its peers. However, as we have already mentioned, this is a feature of different depreciation policies between the companies and therefore we believe that EV/EBITDA provides a better means of valuation comparison. On this basis, Big Yellow trades on a 19.1x 2012 calendar multiple, reflecting superior store EBITDA margins (bigger stores, more freeholds and better pricing from a greater Central London footprint). Lok nstore trades on an EV/EBITDA 2012 calendar multiple of 13.8x that we believe presents good value given the growing EBITDA momentum coming from increasing scale in the business from new stores and acquisitions along with the potential for a significant uplift from increased prices. A comparison of EBITDA UK store margins between the three quoted companies highlights some differences, with Big Yellow earning a 63% margin, Safestore 54% and Lokn Store 46% for calendar This serves as a pointer to the margins that can be achieved with the increased scale and operational gearing. Lok nstore shares offer forward dividend yields below those of its quoted competitors; however this is based on our forecast assumptions of a flat 3.0p dividend. This could be increased in our view given it is covered 2.3x by free cash flow. However, this will need to be balanced against the requirements for investment in further new stores and potential acquisitions. 8

9 The shares also look good value from a price to adjusted net asset value (PNAV) perspective trading at a 48% discount on historic calendar 2010 numbers. There is also good scope for the portfolio valuation to increase in due course, reflecting the future completion of developments at Maidenhead and Reading and this bodes well for the properties being valued off harder yields and increasing in value. We expect that potential triggers for the share price include further announcements regarding VAT changes and pricing and also news of new site progression and Saracen integration benefits. Exhibit 3: Peer group valuation comparisons (calendar years) P/E Lok'nStore Big Yellow Safestore EV/EBITDA Lok'nStore Big Yellow Safestore Dividend Yield Lok'nStore 2.5% 2.5% 2.5% Big Yellow 3.4% 3.7% 4.1% Safestore 4.6% 5.2% 5.3% PNAV Lok'nStore 0.52 Big Yellow 0.64 Safestore 0.52 Source: Edison Investment Research Financials Lok nstore recently reported encouraging interim results that reflected an enhancing contribution from the Saracen acquisition, reduced costs and a rebasing of the interim dividend. Interim sales grew by 18%, almost entirely due to the maiden contribution from Saracen, with the underlying business growing by 1.7%. The underlying self-storage business remains resilient and we conservatively expect a small increase in the full-year contribution. The company continues to achieve improved efficiencies building on a 10% reduction in staff costs achieved over the past four years and a 34% reduction in general overheads. The Saracen acquisition should benefit from the closure of one of the four sites and integration of administrative functions including finance, accounting, HR, capex and marketing etc, and this should help underpin improved annualised EBITDA from 0.4m to 0.7m over the next year. Furthermore, we have also taken a conservative approach in our forecasts to the potential EBITDA benefits from new stores (assuming the Maidenhead store opens in 2012/13e) and VAT-related pricing.the company has several pipeline stores and replacements that can potentially provide significant uplifts to EBITDA with only minimal capex required. We are forecasting group EBITDA to decline from 30.2% to 29.0% in 2011/12e due to the lower margin that the Saracen business earns. However, as cost savings are achieved, we forecast group EBITDA margins increasing to 29.2% and 30.4% in 2012/13e and 2013/14e respectively. Good progress was achieved in operating margins during the H1 period improving from 14.4% to 15.4%, reflecting the cost efficiencies described earlier. We are forecasting such margins to improve further to 15.8% for the full year (giving an operating profit of 2.0m) and 16.8% and 18.4% 9

10 respectively in the following years. Our full-year 2012e adjusted pre-tax profit forecast is 1.2m rising to 1.3m the following year driven by lower overheads and rising margins in the Saracen business. The company increased the interim dividend by 200% to 1.0p as part of a move to rebalance the interim/final payments. We forecast a final dividend of 2.0p giving an unchanged annual payment of 3.0p, which we believe is capable of being increased in time given good free cash flow cover and potential upgrades to EBITDA. The company is minded to grow the dividend but not at the expense of restricting investment opportunities. Lok nstore is a good generator of cash, producing 1.1m of operating cash flow during the H1 period. Earnings-to-cash conversion is also good and we forecast 75% for the current year. Capex levels are expected to increase over the next two years to facilitate the construction of the new Maidenhead store. We are forecasting 1.0m being spent here in 2013e in addition to 0.5m earmarked for general improvement and maintenance. During the H1 period the company secured a new 40m five-year revolving credit facility with Lloyds TSB. This is at a rate of LIBOR % on LTV below 40% (currently 31.9%) giving an effective interest cost of between 3.1% and 3.2%. The company has currently drawn 28.2m of this debt and has plenty of additional headroom remaining given only 28m of the facility is currently drawn down ( 20m of which is fixed via swaps at an effective cost of 3.55%). We forecast the LTV to remain steady at around 30% over the next two years. The company is highly asset backed with property valued at 80m across 21 owned stores as at the recent half-year. This equated to an adjusted net asset value (including the capitalised value leasehold of stores and deferred tax) of 230p (compared to the current share price of 118p). Some 52% of the stores are currently owned either freehold or on a long leasehold basis and as such we view the balance sheet as being in good shape. We forecast the company to have net borrowings of 24.4m at the current year end, implying modest portfolio LTV of just 31% and gearing of 61.9% giving scope for the company to use further leverage for investment if required. In the absence of such investment being made we are forecasting gearing to reduce to 61.3% in 2012/13e and 57.4% in 2103/14e. 10

11 Exhibit 4: Financial summary '000s e 2013e 2014e Year end July IFRS IFRS IFRS IFRS IFRS PROFIT & LOSS Revenue 10,420 10,846 12,958 13,462 13,969 Cost of Sales (7,440) (7,664) (9,410) (9,600) (9,790) Gross Profit 2,980 3,182 3,548 3,862 4,179 EBITDA 2,670 3,281 3,778 4,092 4,409 Operating Profit 920 1,566 2,048 2,262 2,569 Intangible Amortisation Exceptionals 0 (129) (150) 0 0 Other Operating Profit 920 1,437 1,898 2,262 2,569 Net Interest (490) (498) (850) (940) (940) Profit Before Tax (norm) 430 1,067 1,198 1,322 1,629 Profit Before Tax (FRS 3) ,048 1,322 1,629 Tax (210) (50) 0 0 (391) Profit After Tax (norm) 220 1,017 1,198 1,322 1,238 Profit After Tax (FRS 3) ,048 1,322 1,238 Average Number of Shares (m) EPS - normalised (p) EPS - normalised and fully diluted (p) EPS - (IFRS) (p) Dividend per share (p) Gross Margin (%) EBITDA Margin (%) Operating Margin (%) BALANCE SHEET Fixed Assets 75,040 76,537 76,400 76,240 76,080 Intangible Assets 2,860 4,419 4,260 4,100 3,940 Tangible Assets 72,180 69,175 69,170 69,170 69,170 Investments 0 2,944 2,970 2,970 2,970 Current Assets 6,620 5,709 6,828 7,431 9,330 Stocks ,110 Debtors 1,190 1,821 2,150 2,490 2,820 Cash 5,360 3,778 4,238 4,161 5,400 Other Current Liabilities (14,520) (15,271) (15,678) (15,631) (16,860) Creditors (14,520) (15,271) (15,678) (15,631) (16,860) Short term borrowings Long Term Liabilities (28,040) (28,150) (28,200) (28,200) (28,200) Long term borrowings (28,040) (28,150) (28,200) (28,200) (28,200) Other long term liabilities Net Assets 39,100 38,826 39,350 39,840 40,350 CASH FLOW Operating Cash Flow 3,472 3,601 2,778 3,092 3,409 Net Interest (490) (498) (850) (940) (940) Tax 0 0 (410) 0 0 Capex (550) (790) (750) (1,500) (500) Acquisitions/disposals 0 (3,560) Financing Dividends (330) (250) (750) (750) (750) Net Cash Flow 2,102 (1,497) 18 (98) 1,219 Opening net debt/(cash) 24,770 22,680 24,373 23,962 24,039 HP finance leases initiated Other (12) (196) Closing net debt/(cash) 22,680 24,373 23,962 24,039 22,800 Source: Edison Investment Research, company accounts 11

12 Contact details Revenue by geography 112 Hawley Lane Farnborough Hampshire GU14 8JE United Kingdom % UK Other CAGR metrics Profitability metrics Balance sheet metrics Sensitivities evaluation EPS 10-14e 47.7% EPS 12-14e 2.1% EBITDA 10-14e 11.8% EBITDA 12-14e 5.3% Sales 10-14e 7.6% Sales 12-14e 3.8% ROCE 13e 3.4 Avg ROCE 10-14e 2.5 ROE 13e 3.1 Gross margin 13e 27.7% Operating margin 13e 16.1% Gr mgn / Op mgn Gearing 13e 61.5 Interest cover 13e 2.4 CA/CL 13e 0.6 Stock turn 13e 20.8 Debtor days 13e 66.3 Creditor days 13e Litigation/regulatory Pensions Currency Stock overhang Interest rates Oil/commodity prices Management team Chairman: Simon Thomas Simon Thomas has been executive director since He has a publishing and financial background. CFO: Ray Davies A chartered accountant, Ray Davies has extensive experience in the construction and health & fitness sectors. CEO: Andrew Jacobs Andrew Jacobs was a company founder in Prior to this he was involved in investment banking. Acquisitions Director: Colin Jacobs Colin Jacobs has a retail background and is charged with identifying new space opportunities for the business. Principal shareholders (%) Laxey Partners 29.0 Andrew Jacobs 20.7 Simon Thomas 8.2 Duart Capital 5.8 Companies named in this report Safestore (SAFE.L), Big Yellow BYG.L EDISON INVESTMENT RESEARCH LIMITED Edison Investment Research is a leading international investment research company. It has won industry recognition, with awards both in Europe and internationally. The team of 90 includes over 55 analysts supported by a department of supervisory analysts, editors and assistants. Edison writes on more than 350 companies across every sector and works directly with corporates, fund managers, investment banks, brokers and other advisers. Edison s research is read by institutional investors, alternative funds and wealth managers in more than 100 countries. Edison, founded in 2003, has offices in London, New York and Sydney and is authorised and regulated by the Financial Services Authority ( DISCLAIMER Copyright 2012 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Lok'nStore Group and prepared and issued by Edison Investment Research Limited for publication in the United Kingdom. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison Investment Research Limited at the time of publication. The research in this document is intended for professional advisers in the United Kingdom for use in their roles as advisers. It is not intended for retail investors. This is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment. A marketing communication under FSA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison Investment Research Limited has a restrictive policy relating to personal dealing. Edison Investment Research Limited is authorised and regulated by the Financial Services Authority for the conduct of investment business. The company does not hold any positions in the securities mentioned in this report. However, its directors, officers, employees and contractors may have a position in any or related securities mentioned in this report. Edison Investment Research Limited or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. This communication is intended for professional clients as defined in the FSA s Conduct of Business rules (COBs 3.5). Registered in England, number Edison Investment Research is authorised and regulated by the Financial Services Authority. London +44 (0) Lincoln House, High Holborn London, WC1V 7JH, UK New York Lexington Avenue, Suite 1724 NY 10168, New York, US Sydney +61 (0) Level 33, Australia Square, 264 George St, Sydney, NSW 2000, Australia 12