3 Further Reasons to add Energiser Investments #ENGI to your Watchlist

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3 Further Reasons to add Energiser Investments #ENGI to your Watchlist

The content of this blog (or content associated with it) is not intended as investment advice, I  hold a position in the company featured below. Please do your own research.

Energiser Investments (ENGI)
Share Price: 1.875p
Market Cap: £2.32m

What Do They Do?

Energiser Investments is an Investment Company that invests in operating companies with an underlying property portfolio.

I’ve written a previous blog on Energiser Investments, you can read about it here.

3 Further Reasons to add Energiser Investments #ENGI to your Watchlist

1. Their First Investment

On 13th June 2017, Energiser Investments announced it’s first investment, into Micro Self Storage.

The share price reacted negatively but this was more down to the time frame of the investment, not the investment itself, which I happen to think is very appealing.

Self storage is a growing sector and micro self storage, whilst it’s an untapped area in the UK, is thriving in the US.

“Traditionally, self-storage facilities operate in the 40,000 sq ft upwards range and are positioned on the edge of large towns and cities, providing a self-storage service to a large catchment area. Micro Self Store will focus on micro facilities of 10,000 to 35,000 sq ft within dense urban centres such as London and on the edge of smaller towns where there is low or no competition from large operators. With the dramatic rise in the cost of residential space, the directors of Energiser believe there is strong demand for convenient, readily accessible and affordable flexible storage solutions for people who want to “self-store next door.”

Well run self storagecompanies generate a lot of cash and the margins are very high. One of the major players, in the UK, is Big Yellow Storage. Their recent final results, for the year ended 31st March 2017 showed their EBITDA margin was 68.5% and occupancy rates were around 78%.

We can expect similar margins in Micro Self Storage as it will be, “Technology driven, based on methods and processes perfected in the mature USA self-storage market. This will include digitised access to self-storage units and lockers, remote facility monitoring, and a focus on targeted digital marketing to drive sales. Digitisation will maximise customer experience and minimise the costs of operating a network of micro facilities.”

Energiser will invest up to £0.6m to launch the platform and open the first facility. The objective is to grow a network of more than 20 facilities in the next three to five years.

Dominic, the CEO made a comparison to the Gym Group, who operate smaller gyms and are more local. They have around 80 gyms and are doing very well.

Performing some back of the envelope maths, if Energiser do manage to open 20 micro self storage units, with an average rental space of 15,000 square feet, at average occupancy level of 75% and rates at around £30 peer square foot. This is the figures you get:

15,000 square feet x 75% occupancy = 11,250 square feet.

11,250 x 20 storage units = 225,000 square feet of occupied space.

225,000 = £30 per square foot rental = £6,750,000 revenue per annum.

At 50% EDITDA margin = £3,375,000.

If you put this on a price earning ratio of 10 = £33,750,000.

From where Engergiser is valued today, £2.32m, if they achieve the minimum of 20 micro self storge units, you could reasonably argue that, this could be a 10 bagger investment.

 

2. Management

Energiser Investments have an impressive management team (who hold a fair chunk of shares) as I mentioned in my previous blog post and now they’ve added to that list by bringing Paul Fahey into the fold.

Paul has founded and grown a number of successful self-storage businesses over the last 15 years. He sold Big Storage to a large listed UK operator in 2015 and continues to oversee Flexi Space (based in the north of England) and Easybox (seven facilities in Italy).

He is a past President of the Federation of European Self Storage Associations (FEDESSA), is past Chairman and a current Director of the UK Self Storage Association, and is Chairman of Self Storage Performance Management International, a specialist funding and operations adviser to self-storage operators.

Chief Executive, Dominic White, commented: “we’ve been looking at the traditional self-storage sector for some time, and have recognised the growth potential in this new sub-sector of the traditional market: micro self-storage. We’re excited to be one of the first investors in this market. With the benefit of Paul’s experience, the new platform’s management will implement international self-storage best-practice operations and highly digitised processes from the start.”

Paul Fahey commented: “we expect this to be a fast growing segment within the wider self-storage category. With Energiser as the platform’s cornerstone investor and the new management team’s sector knowledge and operating experience, we expect to see the business grow rapidly”.

 

3. Market Cap

As I mentioned in reason 1 above, the share price reacted negatively to Energiser’s first investment. This, I believe, was not due to the investment itself but more because of the the time frame of the investment. A lot of money invested on AIM is by traders who are notoriously impatient and are simply not prepared to wait longer than a month, in an attempt, to see a return on their money.

Energiser stated, “The funding will be used to immediately launch Micro Self Store and open a micro self-storage facility in the first half of the next financial year”.

Maybe people misread this release but this doesn’t mean there won’t be any news between now and next year. They will obviously update the market on how progress is going, in relation to finding and acquiring suitable premises. There maybe even more, unexpected, news in the pipeline (related or unrelated to micro self storage) but the first half of the next financial year is when they hope to start earning revenue.

Once this first micro self storage unit is up and running efficiently, as Dominic explained on the podcast, they will roll out their strategy in order to grow a network of more than 20 facilities in the next three to five years. If they do achieve this, I wouldnt rule out them being a target for bigger, more established player in the self storage market.

Meanwhile, it’s possible to take advantage of AIM investor’s impatience. The current market cap of Energiser Investments is below £2.5m. I can’t see it staying this low for long, especially when they start announcing the progress they’re making in this growing sector.

Energiser Investments have honed in on a high margin, highly cash generative model that is, as yet, untapped in the UK and by bringing on board Paul Fahey they now have the expertise to exploit this gap in the market.

If they do what they say they are going to do, then at a £2.32m market cap I see this as a great investment opportunity and the management have plenty of skin in the game to suggest, they also believe this to be the case.

You can listen to my recent interview with, CEO, Dominic White below.

 

The content of this blog (or content associated with it) is not intended as investment advice, I  hold a position in the company featured below. Please do your own research.

 

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The content of this blog (or content associated with it) is not intended as investment advice, I  hold a position in the company featured above. Please do your own research.