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On Monday, HSBC upgraded Big Yellow Group Plc (LON:BYG:LN) (OTC: BYLOF) stock from Hold to Buy, adjusting the price target upward to GBP11.56 from GBP11.32. The revision follows Big Yellow (OTC:YELLQ)’s third-quarter trading update, which showed a year-over-year improvement in occupancy rates and a rise in move-ins.
Big Yellow’s trading update on January 17, 2025, revealed that despite entering its seasonally weaker quarter, the company experienced a 2% increase in overall move-ins, with business move-ins climbing by 9% compared to the same period the previous year. The company’s management has also successfully navigated cost pressures, with expectations of a 3-4% increase in costs for FY26, a significant reduction from the 10% hike reported in the first half of FY25.
HSBC’s analyst highlighted Big Yellow’s effective cost management strategies, including mitigating the impact of the National Living Wage (NLW) increase set for April 2025, which is estimated to be around GBP0.5 million. The company plans to offset this cost by reducing store headcount.
Additionally, Big Yellow has reduced its reliance on recruitment agencies, which has led to a substantial decrease in hiring expenses. Costs have dropped from approximately GBP4,000 per recruit in the 12 months to September 2023 to GBP1,200. This change is partly attributed to a loosening labor market, with 90% of new hires now being sourced directly by the company.
HSBC’s positive outlook on Big Yellow is backed by these strategic measures, which have not only improved operational efficiency but also positioned the company for sustained growth amid a challenging economic environment.
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