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Is NSR cheap at its current price?

02042020_NSR

Is NSR cheap at its current price?

COVID-19 has thrown the investing rule book out the window for now. Having patiently held cash for two years amid an unwillingness to participate in the unbridled enthusiasm that saw shares trade at record multiples despite declining prospects, we are now finding once-in-a-decade opportunities.

The business cycle has been resurrected.  As a consequence of COVID-19’s spread, corporate earnings will plunge, and unemployment will surge. Historically, however these experiences have been perfectly normal and most importantly, temporary.

For the US market to merely revert to its long-term average valuation, a 56 per cent decline from the February 2020 all-time high is required. So, the recent weakness is nothing like ‘blood- in the streets’ we have experienced previously.

Most importantly, even the deepest sell-off ultimately passes. If you imagine hibernating for five years, you would awaken to a world that won’t be talking about Coronavirus. The world will have moved on.

National Storage REIT (ASX:NSR) is the largest storage property owner in Australia. Compared to the US, Australia is under-penetrated in the storage market. The US has 8-10 square feet of self-storage per capita. Australia has just 1-2 square feet per capita. This differential represents a multi-year growth story. Meanwhile Asia is at the very beginning of its own storage journey.

NSR owns 150 assets with quoting, contracting and receiving payment in advance fully automated. While some sites are at full capacity, some are leveraged to suburban expansion and others have potential for residential development. In other words, there are any number of value-realising opportunities.

When the US-listed Public Storage recently walked away from a $2.40-per-share take-over offer for NSR, the stock plunged. But longer-term investors should keep in mind management have recently purchased shares, the stock is trading at a discount to net tangible assets and Warburg Pincus and Gaw Capital Partners were also interested in buying NSR and may one-day return.

The Montgomery Small Companies Fund own shares in National Storage REIT. This article was prepared 06 April with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade National Storage REIT companies you should seek financial advice.

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Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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6 Comments

  1. Can you see any correlation as 100 year repeat of the 1900s Dow Industrials chart. Just google 1900s chart, and see 100yr repeat match of 1907_2007 peak, and 1920_2020 peak.. And 100yr flu match. Can it rally from 2022-29 then get the 1929 crash repeat 100yr match ? Historial charts show early new decade dips, and late decade peaks. Can you see the slingshot being pulled back to fire up in 2022 ?

    • Hi David, I have seen dozens, if not hundreds, of these types of simple overlays/correlations. I have seen very few repeat as anticipated. Probably best to read the blogs here from our team and stick to the fundamental merit of buying high quality businesses, those with bright long term prospects, when available at bargain prices.

  2. Roger, are we looking at the same stock ? Commsec’s historical financial data shows that for the past three years, ROE has been -70.50%, -112.80% and -72.50%. At $0.10 NTA, the stock is not trading at a discount to net tangible assets according to this.

  3. Yep, I expect property to fall a lot but having said that I have maintained that position for 20 years and so far been wrong . Is this a situation of the final straw that broke the camels back – will know for sure by end of year.

  4. Roger, if I remember correctly NSR own most of their properties rather than rent them. If land values crash (looks likely) might their assets also crash?

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