The recent share price performance of storage firm Big Yellow Group (LSE: BYG) shows just how profitable even some of the dullest businesses can be for investors. Before this morning, the stock was up 24% since the dark days of last October.
While some of this will be due to the general bounce in markets in 2019, I suspect investors continue to be enticed by the firms simple business model and fairly predictable earnings stream.
Today, the mid-cap announced a 7% increase in revenue in the year to the end of March (to a little over 125m) as a result of a rise in occupancy and rates at its 99 units.
This was regarded as positive by executive chairman Nicholas Vetch, especially as activity levels on the final quarter were impacted by consumer uncertainty with regard to Brexit.Adjusted pre-tax profit came in 10% higher at 67.5m.
Thanks to last years placing, Big Yellow has 65.3m to build new units. It acquired seven sites for development in London and the South East over the last year, bringing its pipeline to 12.
This is expected to provide a steady increase in capacity over the next few years and make a significant contribution to future revenue growth, according to the company. The firm continues to target an occupancy rate of 90% at its sites.
Dividends are also growing nicely. This mornings 6% increase to the final dividend (16.5p) brought the total payout for the year to 33.2p, giving Big Yellow a trailing yield of 3.1% at the current share price.
You can get more elsewhere but the growth in demand for rental accommodation (particularly in the capital), coupled with the tendency of many to hoard rather than throw away, leads me to believe these cash returns are likely to continue growing.
Big Yellows stock trades on 25 times forecast earnings for its new financial year.Thats undeniably expensive and Id much prefer to begin building a position on any general market weakness.
Notwithstanding this, Id be far more likely to buy the FTSE 250 constituent over something like Purplebricks (LSE: PURP).
Back-tracking
Like many of my Foolish colleagues, Ive been bearish on the online estate agent for some time. Last July, for example, I remarked that the companys desire to enter overseas was risky since the business model was still far from proven in the UK. Recent news from the company appears to have borne this out.
Earlier this month, it was announced that Purplebricks would be leaving the Australian market and that its presence in the US would be materially scaled back with a huge reduction in marketing spend.
Put simply, things havent gone as well as expected. Cue the departure of founder and CEO Michael Bruce and a further dive in the share price.
While some might see a bargain at this level (97p), Id caution those tempted to invest to question whether theyre anchored to the companys former value. The promotion of former vice-president of sales, Phil Felice, to interim CEO in the States, does little to suggest it will ever reach these heights again.
It may be a market leader, but the fact that people are expected to pay (albeit cheaper) fees to Purplebricks, regardless of whether their property sells, isnt inviting in a subdued market.
And without clarity on our EU departure, I cant see things changing anytime soon.