UHAL - Amerco

[rpadebet]

I like this business. Haven't seen any discussion here about this, so starting a thread.

 

For people interested in the background and research here are two links

 

http://kerrisdalecap.com/wp-content/uploads/2013/10/Amerco-Full-Writeup-Oct-2013.pdf

http://punchcardblog.wordpress.com/2013/07/02/amerco-uhal-and-hertz-htz-emerging-moats/

 

 

Recently they released their quarterly reports and blew out the expectations showing a 12% revenue growth, 25% EPS growth, but still trade at very low PE, EV/EBIT multiples even after the recent run up in the stock price. I think they are undervalued (especially the price doesn't do any justice to their brand name which they literally built up for no cost), though I think the multiples being assumed by Kerrisdale Capital are a bit high given this is a Asset heavy, low variable cost, cyclical business. However they seem to have built a good local network based moat in a low barrier to entry business. In addition they are continuously expanding their moat by expanding their network, adding ancillary business etc. I think this is a long term compounder as the moving business and by extension U-Haul will be around for a long time.

 

What I found more interesting though is yesterday's conference call and how the CEO and management talk down their own business.

http://seekingalpha.com/article/1819162-amerco-management-discusses-q2-2014-results-earnings-call-transcript

 

If one didn't know that the CEO has a majority of his family wealth tied to this company and that insider ownership is >50%, after listening to the call one could easily think that this guy is actively shorting his own company stock.

 

I found some of his answers truly surprising (paraphrasing and my interpretation here)

 

Q1. you guys have shown tremendous revenue, EPS growth, can we expect similar growth going forward?

CEO/Management: No, we are going to be lucky to get 5% growth going forward.

 

Q2: given the large network you guys have built, do you see a moat?

CEO/Management: This is a low barrier to entry business, anyone can get in. There is no moat.

 

Q3: Going forward, do you expect to grow revenues by raising prices (do you have pricing power)

CEO/Management: Nope. We can't raise prices. Customer have lot of alternatives. We raised prices a few decades ago and our business collapsed and we had to dig ourselves out of the hole. So we can't do that. (Evidence suggests they have premium pricing in some areas! )

 

Q4: Your competitors seem to be retreating (Budget etc). Are you increasing market share?

CEO/Management: No idea if we are increasing market share. Budget is cutting back now, but we expect them to come back later. They are right now just prioritizing their other businesses. By the way we have new competition in Enterprise. So this is a very difficult business.

 

Q5: your storage business seems to be growing great, what are your thoughts on occupancy there?

CEO/Management: Very difficult business again. Lot of competitors. Occupancy ranges from 0-85% 

 

They have been constantly pestered to change the name of their company to U-Haul from Amerco and to split the stock to allow better stock recognition and more retail liquidity, and they have ignored it all along.

 

These answers make me think, either they are being brutally honest and that our expectations are too high or more likely the management knows they are sitting on some treasure chest and doesn't want any else to know or share it .  To would be shareholders they seem to be saying, "Nothing here, please move on" .

 

Why would you not have a single positive thing to say about your business unless you are angling for a MBO or something?

 

This is the first time I have seen any management so aggressively talk down their business prospects! There is old Apple style low balling of expectations, but this is on a different playing field. A short seller couldn't make better arguments!

[radioheadok3]

I actually like that they talk down the business. They've been through some harrowing, near death events, in their time. It shows to me that they have a sober view of the business. I'd be skeptical if they came out and said that everything is great; history has not been kind to this industry - like you said, brutal competition. That said, I really like the stock and own it from $175

[Green King]

Based on the numbers the management looks like they are telling the truth. It looks like there is a bubble in this stock. So be careful you better have some rock solid research. This type of things are were the most money are lost.

 

Cheers

 

GK

[constructive]

Some of those comments seem like appropriate conservativism, others just make me question management's competence and respect for shareholders.

 

"No idea if we are increasing market share."

 

"Occupancy ranges from 0-85%"

[accutronman]

Great stock which I've owned for years. Since it basically is a family run company, they're always humble and not caught up in hype. The two items that would really propel the stock higher and which some analysts have been lobbying for are a stock split and a name change since the majority of investors don't know who/what Amerco is

[radioheadok3]

Management is highly competent, and I disagree that they are shareholder unfriendly. There is limited data available for the total self-move market and their commentary reflects that. I suppose you'd rather they guess? 0-85% occupancy makes sense if framed correctly. Some facilities are newly constructed and some are mature, hence the wide variance in occupancy. I think if you look at the numbers you can infer that they are taking share, but backing that up with empirical data is difficult. Too, if they are taking market shares, what's the incentive for them to say so? It makes more sense to quietly take market share and not celebrate it too much.

 

Not sure how you can say the stock is a bubble when they are on pace to earn some $20/share in EPS in the near future. It is a cyclical business, so perhaps ascribing a low multiple to "peak" earnings is warranted, but I find it difficult to say this is a bubble stock.

[Evolveus]

from the Q2 conference call possibly explaining management excessive sandbagging on the most recent call:

 

"Well, I — just a variety of people are starting to think this is a easy money business. So we’ll pick Enterprise. Enterprise has spent 10 years trying to get into this market. They’re doggedly pursuing it and they’re tightening it and we’re having to respond to them every day. There is — what happens is, of course, as soon as we get a little bit of success, then everyone thinks this must be a good place to put additional capital.”

 

[fareastwarriors]

http://www.bloomberg.com/news/2013-12-05/hidden-u-haul-billionaire-emerges-with-storage-empire.html

 

Hidden U-Haul Billionaire Emerges With Storage Empire

[bsned2]

I'm a little late to the UHAL party, and I'm a new value investor, but even at $290 this stock looks good to me.  Net income just keeps growing, costs as a percentage of revenue keeps decreasing.  They're doing something right.  They're not the cheapest player in the truck rental market but I think most folks don't know it.

 

So I think they're poised to just keep growing.

 

Am I wrong?

 

[Fat Pitch]

I see their gross margin increased from 15% to 41% in the last 10 years. Revenue increased 40% over the same time frame. I'm wondering if they achieved economies of scale, gained pricing power or did the competition become rational and stopped fighting for market share?

 

Next question to answer is what would it cost for someone to open their own network of rental vehicles and equipment? If the costs are too prohibitive then we are probably witnessing a crappy cyclical industry turning into a stable cash cow, but I'm having a difficult time believing this industry have high entry barriers.

 

[cubsfan]

http://www.beyondproxy.com/?s=uhal

 

an opinion about Amerco re: duplicating the network of service locations.

 

Also comment about hidden assets adding to value.

[Fat Pitch]

So it's a real estate play with a moving/storage business attached. 17,000 locations sounds like they have one in every town in America. I can see that being difficult to replicate.

 

What's interesting is that gross margins exploded during 2008-2011 while revenues remained almost constant. Looks like they just increased prices and they caught a pickup in volume starting in 2011 probably due to the labor market shifting and people needing to move.

 

I will need to do more digging.

 

[Spekulatius]

I love the self storage business, but the truck rental business not so much. I own LAACZ in the same business, which is a LP and generates most of their income in the self storage business, in addition to some real estate in downtown LA. Quite illiquid, but very well managed, very low leverage and cheap. Trades at ~10.5x EV/FFO,  a huge discount to better known peers. LAACZ is my largest position with 10% + of my portfolio, even though I generally tend to be more diversified. I am comfortable because is is very safe and well managed, imo.

[rpadebet]

Anyone still invested in this? I have a fairly decent position.

Nice steady growth since last year

 

First quarter 2016 results just out yesterday

http://www.prnewswire.com/news-releases/amerco-reports-first-quarter-fiscal-2016-financial-results-300124455.html

[valueyoda]

I came across this idea two years ago through Kerrisdale and it has been a great ride with excellent execution by management. I think the stock is now fully valued with potential downside if economy weakens. It is definitely a stock that should be archived in people's minds, as longer term it is winner.

[rpadebet]

I came across this idea two years ago through Kerrisdale and it has been a great ride with excellent execution by management. I think the stock is now fully valued with potential downside if economy weakens. It is definitely a stock that should be archived in people's minds, as longer term it is winner.

 

I am not sure if it is fully valued yet. I agree it doesn't have the discount it had a couple of years ago.

The industry they operate in is fragmented and players are relatively small compared to the size of the industry. There is a decent amount of runway.

 

Also their investments in storage space, not only contributes in enhancing competitive advantage of the moving business, but also provides a nice floor for the valuation.

[SlowAppreciation]

Starting to look more attractive. Are you guys still following it?

[glorysk87]

SlowAppreciation - you beat me to it, I was going to say the same thing. The stock's come off ~25% from it's high. Does anyone have a perspective on this? Has something about the business fundamentally changed?

 

If someone familiar with the story could give the rundown it would be highly appreciated.

[LC]

SlowAppreciation - you beat me to it, I was going to say the same thing. The stock's come off ~25% from it's high. Does anyone have a perspective on this? Has something about the business fundamentally changed?

 

If someone familiar with the story could give the rundown it would be highly appreciated.

60,000 ft perspective: the market thinks the housing market will slow down hence future demand

[chesko182]

Hey guys, just opened my account here after running into this little gem randomly and have enjoyed the different threads.

 

I've done some work on UHAL and it happens to be my biggest position as of last week, given that I have added some in the current selloff.

 

I find this story fascinating and actually quite simple. This is a family owned business operated by very competent, honest and shareholder friendly management, with a very strong brand and (I would argue) a huge moat given its extensive network that they have built in the past 60 years which is self-reinforcing as it expands (the more locations they have the more places you can conveniently move one-way) and additionally management has been reinvesting essentially all of the free cash flow into the self storage business which ties very well with the moving business and where they have a lot of experience in. The balance sheet is very clean and they generate excellent margins and high ROIC.

 

The company is undervalued no matter what  metric you look use, multiples, DCF, sum of the parts, asset values (they have a lot of real estate). In my opinion this stock should be worth between 460-520 but its also a long-term compounding story with what I believe to be a lot of growth in future years from a huge tailwind from millennials having to move into new homes, either because they keep on renting or when they finally decide to start buying houses (this is an ongoing trend), it's also a brand that resonates with them a lot.

 

As for the selloff, I wouldn't attribute much to it other than the last earnings report which came in below expectations, but it has to be noted that they're only covered by one Analyst, and the fact that it is a very under-the-radar company is the primary reason why there is such a mispricing in my opinion.

 

I wrote an article on it last year on Seeking Alpha, and thinking about writing another one more updated (Link: http://seekingalpha.com/article/3343725-amerco-the-security-i-like-best)

 

I'd love to get your thoughts on this,

Thanks

[cmlber]

As for the selloff, I wouldn't attribute much to it other than the last earnings report which came in below expectations, but it has to be noted that they're only covered by one Analyst, and the fact that it is a very under-the-radar company is the primary reason why there is such a mispricing in my opinion.

 

Depreciation net of gains on disposals was about $290 million last year.

 

The one analyst was modeling around that run rate for Q1 and the number came in at $95 million.  That's what prompted the sell.  EPS was way below "consensus" (i.e. The one analysts estimate).

 

But management has said in the past that in a normal environment maintenance capex is $400-500 million.  UHAL has been benefiting from very high resale value of trucks and in Q1 they sold fewer trucks to increase the size of the fleet (meaning lower gains on disposals recognized) and were hurt by large OEM price increases. 

 

I think the right way to think about the business is to sub d&a less gains on disposals in the income statement for $400-450 million and consider that the real earnings power. 

 

By that math it's trading around 16-17x earnings and is a much higher quality business then the average business in the S&P, so it seems very reasonably priced.  Moving as a % of the population is at an all time low and there is major operating leverage that comes from adding transactions.  A return to pre-crisis levels might increase earnings by 50%+. 

 

Without any change in the moving rate it should grow nicely just from storage investments, inflation based pricing increases, population growth, market share gains, and improvements in technology.

[oddballstocks]

Interesting name.  Never looked at the company but have used them more times than I can count.

 

I've rented trucks and almost every type of trailer they offer.  A few random thoughts:

 

1) Are these franchised?  Some locations great, most are junk with slow check out, terrible (and rude) customer service.  I got into a heated disagreement years ago when one place tried to inflate the miles we drove and gouge us for gas.  We drove about 15 miles they claimed it was 100 and just charged the credit card, it was a mess.  As a semi-frequent U-Haul customer this is the experience I expect, when it's better I'm pleased.

2) There is a high volume location near me with great customer service and knowledgable employees.  Checkout for a trailer or truck takes about 10 minutes, it's highly efficient.  I've spent 45m in the past filling in paperwork to get a flatbed trailer.

3) The equipment is terrible, absolutely terrible.  Trailer brakes usually don't work.  I had one trailer that refused to unhook from my car, had to get a car jack out and force it off.  None of the equipment is maintained.  The trucks are dreadful.

 

Yet I keep going back to these guys?  Why?  Two reasons:

1) Price, they are far and away cheapest

2) No one else rents trailers, or for the small guys that do they never have availability. 

 

I haven't used their storage lots, but it's hard to screw up storage.  I know anecdotal experience isn't all that valuable, but I think I probably made the investment case.  They have a terrible quality product but people keep using it because there is no alternative and it gets the job done.

[Simple Investor]

Are the owners really competent and honest?  They went bankrupt in 02-03.  They blamed Price water house and tried to sued them for 2.5Billion.  I'm looking into it now but there are red flags with the current owners.  Plus they ousted their dad and took control of the company (that might have been a good thing). 

http://www.wsj.com/articles/SB105633284684716900

 

[SlowAppreciation]

In my opinion this stock should be worth between 460-520 but its also a long-term compounding story with what I believe to be a lot of growth in future years from a huge tailwind from millennials having to move into new homes, either because they keep on renting or when they finally decide to start buying houses (this is an ongoing trend), it's also a brand that resonates with them a lot.

 

Thanks for your thoughts. I too like this company a lot and think there's a lot going for it. Can you expand on why you feel the brand resonates with millennials though?

 

Also, there was a writeup a few years back on UHAL on VIC but I think the author recently exited. Can't find out why though.

[SlowAppreciation]

 

1) Are these franchised?  Some locations great, most are junk with slow check out, terrible (and rude) customer service.  I got into a heated disagreement years ago when one place tried to inflate the miles we drove and gouge us for gas.  We drove about 15 miles they claimed it was 100 and just charged the credit card, it was a mess.  As a semi-frequent U-Haul customer this is the experience I expect, when it's better I'm pleased.

 

They have something like ~21k locations across the US. I believe 1.7k are company owned and 19.5k are franchised. My guess is you happened upon a franchised one.

 

 

3) The equipment is terrible, absolutely terrible.  Trailer brakes usually don't work.  I had one trailer that refused to unhook from my car, had to get a car jack out and force it off.  None of the equipment is maintained.  The trucks are dreadful.

 

Yet I keep going back to these guys?  Why?  Two reasons:

1) Price, they are far and away cheapest

2) No one else rents trailers, or for the small guys that do they never have availability. 

 

A little disheartening to hear. Even if a company does have a tremendous moat, high barriers to entry, and significant competitive advantages, it still makes me wary to invest in a company in which the end product is not enjoyed by their customers.

 

Is their service any good for situations like this, or does it really vary by location as you indicated?