On today’s TSX Breakouts report, there are 32 stocks on the positive breakouts list (stocks with positive price momentum), and 14 stocks are on the negative breakouts list (stocks with negative price momentum).
Discussed today is a stock whose share price is just 2 per cent away from reappearing on the positive breakouts list. This small-cap stock has delivered strong earnings growth and robust returns to investors. The stock has a unanimous buy recommendation from six analysts. The company’s business model is attractive given its low capital spending requirements, high margins, and strong cash flow generation.
The security highlighted below is StorageVault Canada Inc. (SVI-X).
A brief outline is provided below that may serve as a springboard for further fundamental research when conducting your own due diligence.
The company
Headquartered in Toronto, StorageVault operates storage centres across the country, providing self-storage facilities, portable storage containers, moving containers, and storage for boats, RV’s, trailers and cars. The company operates 199 storage locations (149 corporate owned and 50 third-party owned stores) in seven provinces: Ontario, Alberta, Quebec, B.C., Manitoba, Saskatchewan and Nova Scotia.
The company has operations under the following banners: Access Storage, Storage For Your Life, Depotium Mini-Entrepots, and Sentinel Storage. Its portable storage operations includes brand names, Cubeit and PUPS containers. The company has an attractive business model with low capital spending requirements (yearly maintenance capital spending accounts for between 4 per cent and 5 per cent of revenue) and strong cash flow generation. The company offers customers short and long-term contracts. Generally, storage spaces are rented under weekly or monthly rental terms. For SVI, the average rental period is over 17 months.
Management’s main objectives include acquisition growth with a focus on urban markets, organic growth through rent increases and high occupancy, and expansion at its existing store locations and with its portable storage business. The company operates in a highly fragmented market, which has provided SVI with growth opportunities. In the second quarter earnings release, the chief financial officer Iqbal Khan remarked, “After successfully closing the Real Storage transaction in Q2 [second quarter], bringing total acquisitions for the year to $346.5-million, we continue to focus on integrating and improving our operational performance.” In Feb., the company announced the $275-million purchase of Real Storage, acquiring 38 stores – 25 in Ontario, 11 in Alberta, one in B.C. and one in Manitoba.
On Aug. 15, the company reported solid second-quarter financial results. Revenue was $34.3-million, up 48 per cent year-over-year from $23.2-million reported during the same period last year. Same-store NOI (net operating income) increased 7.2 per cent year-over-year. AFFO (adjusted funds from operations) came in at 3 cents per share, narrowly ahead of the Street’s expectations.
The company does not host earnings calls.
The stock trades on the TSX Venture Exchange.
Dividend policy
Management is focused on growth, and as a result, the dividend yield is quite low. The company pays its shareholders a quarterly dividend of 0.00264 cents per share, or approximately 1 cent per share on a yearly basis. This translates to a current annualized yield of 0.3 per cent. In Aug., the company announced a 0.5 per cent dividend increase, raising the dividend to its current level of 0.00264 cents per share from 0.002627 cents per share.
Analysts’ recommendations
This small-cap stock with a market capitalization of $1.1-billion has recommendations by six analysts, of which all are buy recommendations.
The firms providing recent research coverage on the company are as follows in alphabetical order: Canaccord Genuity, Cormark Securities, Industrial Alliance Securities, National Bank Financial, Raymond James and TD Securities.
Revised recommendations
In August, two analysts revised their expectations – both higher. Canaccord’s Brendon Abrams upgraded his recommendation to a “buy” from a “hold” and lifted his target price to $3.50 from $3. Tal Woolley, an analyst at National Bank Financial, bumped his target price up to $3.50 from $3.25.
Financial forecasts
The consensus FFO per share estimates are 9 cents for 2019 and 12 cents for 2020. The consensus AFFO per share estimates are 10 cents for 2019 and 12 cents for 2020.
Financial forecasts have ticked down slightly. For instance, three months ago, the consensus FFO per share estimates were just over 10 cents for 2019 and 13 cents for 2020. The consensus AFFO per share estimates were 11 cents for 2019 and 13 cents for 2020.
Valuation
The stock is trading at a price-to-AFFO multiple of over 25 times the 2020 consensus estimate.
There are no direct peers that are publicly traded in Canada. However, in the U.S., Public Storage Inc. (PSA-NYSE) trades at a forward P/AFFO multiple of 24.9 times the 2020 consensus estimate, and ExtraSpace Storage Inc. (EXR-NYSE) trades at a forward price-to-AFFO multiple of 24.2 times the 2020 consensus estimate.
The consensus one-year target price is $3.44, suggesting the stock price has 9 per cent upside potential over the next 12 months. Individual target prices are as follows in numerical order: $3.25 (the low on the Street is from Brad Sturges, the analyst at Industrial Alliance Securities), $3.40 and four at $3.50.
Insider transaction activity
So far, in the second half of 2019, only one insider has reported a trade in the public market. On Aug. 15, John Drake sold 45,000 shares at a price per share of $2.90, eliminating this portfolio’s position, Mr. Drake is not on the company’s executive management team nor the company’s board of directors.
Chart watch
From mid-2017 to mid-2019, the share price was consolidating, trading sideways, principally between $2.20 and $2.80. However, after the company reported its second-quarter financial results in August, the stock price broke out of this trading range, rising above $3.
Year-to-date, the share price is up 32 per cent. The share price has provided long-term investors with attractive returns, rising more than 160 per cent in the past three years.
In terms of key resistance and support levels, the stock price has initial resistance between $3.20 and $3.25, close to its record closing high of $3.22 reached on Aug. 28. After that, there is a ceiling of resistance around $3.50. Looking at the downside, there is initial technical support around $3, near its 50-day moving average (at $3.01). Failing that, there is support around $2.75, close to its 200-day moving average (at $2.77).
This small-cap security has reasonable liquidity. The three-month historical daily average trading volume is approximately 352,000 shares.
The Breakouts file is a technical analysis screen intended to identify companies that are technically breaking out. In addition, this report highlights a company’s dividend policy, analysts’ recommendations, financial forecasts, and provides a brief technical analysis for a security to provide readers with more information.
If a stock appears on the positive breakouts list, this indicates positive price momentum, and that a company may be worthwhile for investors to look at the fundamentals in order to determine if the recent price strength is warranted and will continue. If a security appears on the negative breakouts list, this indicates negative price momentum, and may be indicative of either deteriorating fundamentals or perhaps indicates a buying opportunity.
Securities screened are from the S&P/TSX composite index, the S&P/TSX Small Cap index, as well as Canadian small cap stocks outside of these indexes that have a minimum market capitalization of $200-million.
A technical analysis screen does not replace fundamental analysis, but can help identify companies worth having a closer look at.
Jennifer Dowty