UHAL - Amerco

[KCLarkin]

Are the owners really competent and honest?  They went bankrupt in 02-03.

 

I didn't buy the company a few years ago because of the previous "bankruptcy". Only later did I learn it wasn't an operational bankruptcy. The backstory is fascinating:

http://www.forbes.com/sites/luisakroll/2016/02/10/inside-u-hauls-rollercoaster-ride-from-nastiest-family-feud-to-market-dominance/print/

 

If nobody has written a book on Amerco, they should.

 

Edit: There is a book

https://www.amazon.ca/Birthright-Murder-U-Haul-Family-Dynasty/dp/0688112552/ref=sr_1_1?ie=UTF8&qid=1474381910&sr=8-1&keywords=Birthright%3A+Murder%2C+Greed%2C+and+Power+in+the+U-Haul+Family+Dynasty

[glorysk87]

 

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?

 

I wouldn't be too concerned about this. Think about TCI back in the day under John Malone. He was loathe to spend cash unnecessarily upgrading equipment, and his customers were almost universally dissatisfied. Yet they kept their subscriptions because of convenience and because there were very few other places to reliably get service.  And the stock price performed unbelievably well. Sounds familiar to UHAL. In fact, the management style overall sounds similar.

 

I've used UHAL probably 5 times in my life, and the equipment is never in perfect condition, but really, it doesn't have to be. As long as I can load stuff into the back of the truck, and the truck makes it to where I need to go, I'm fine with that.  If UHAL also offers the lowest price in the area, why would I ever use a different company?

[SlowAppreciation]

Any concerns over their shift to buying vehicles versus leasing them? Financing is cheap now, and some would argue there's a glut in the auto industry. Not being able to resell vehicles because of market conditions could have a very large negative impact on how they finance their operations.

 

Also, big changes on the horizon with self-driving cars. I think one could make the case for this being a big plus or a big negative for UHAL.

[winjitsu]

Not sure of this write-up was shared in this link, but worth a look

 

http://www.punchcardresearch.com/how-are-we-doing-a-second-look-at-amerco-uhal/

[chesko182]

Barron's just published a piece on U-Haul

 

http://www.barrons.com/articles/u-haul-parent-amerco-ready-to-move-1477111210

 

Interestingly I had always though this was a business Buffett would be interested in.

[JayGatsby]

Will have to dig into this more... seems interesting on face. What changed in the business in 2011? Was that when they started making the push into storage or was that when Budget started pulling out? Their revenue was totally flat for all of the 2000s and then started taking off in 2011

[SlowAppreciation]

Will have to dig into this more... seems interesting on face. What changed in the business in 2011? Was that when they started making the push into storage or was that when Budget started pulling out? Their revenue was totally flat for all of the 2000s and then started taking off in 2011

 

I know they started buying the moving trucks/vans in the past few years though I forget which year it started. I've seen some arguments that the strong used market for cars has really benefitted their earnings, though not sure if this is the exact cause or not. I've only done light work on the company so there's probably someone here who can better answer your question.

[cmlber]

Will have to dig into this more... seems interesting on face. What changed in the business in 2011? Was that when they started making the push into storage or was that when Budget started pulling out? Their revenue was totally flat for all of the 2000s and then started taking off in 2011

 

I know they started buying the moving trucks/vans in the past few years though I forget which year it started. I've seen some arguments that the strong used market for cars has really benefitted their earnings, though not sure if this is the exact cause or not. I've only done light work on the company so there's probably someone here who can better answer your question.

 

I think it's a combo of factors, 1) they started investing more in the fleet so they have a much larger, younger fleet, 2) high incremental margins so larger fleet makes the business more profitable, 3) this is a business that should be a big beneficiary of data analytics, using data to decide how much fleet should be located in each area, and using data to figure out what price points encourage movers to move fleet to where it needs to go to maximize utilization, so they've probably gotten much smarter about pricing/fleet management, 4) Budget pulling out.  So it doesn't seem like they are over earning to me, with one exception; I do think the strong used market has benefited earnings.  On an earnings call a while back the CFO said maintenance capex is probably 400-500m which is a good amount higher than they've been running.  You can also look back over time and see the average gain on disposal and average cost per new truck and estimate how much of the fleet is replaced annually and come up with a number in that 400-500m ballpark (probably on the lower end).  So I replace D&A net of gains on disposals with 450m and call that true earnings power.

[SlowAppreciation]

Just discovered that Einhorn's Greenlight Capital has a small position.

[DooDiligence]

Just discovered that Einhorn's Greenlight Capital has a small position.

 

The only time I tried to coattail him was when I did the opposite by going long Green Mountain when it went below $20.

 

I sold it ($60ish - pulled the trigger a bit too quick) slightly before Coke wasted shareholders capital by purchasing an equity stake so they'd build a SodaStream device for them (GMCR uses contract manufacturers BTW.)

 

I wish he was shorting UHAL!

[SlowAppreciation]

Will have to dig into this more... seems interesting on face. What changed in the business in 2011? Was that when they started making the push into storage or was that when Budget started pulling out? Their revenue was totally flat for all of the 2000s and then started taking off in 2011

 

I know they started buying the moving trucks/vans in the past few years though I forget which year it started. I've seen some arguments that the strong used market for cars has really benefitted their earnings, though not sure if this is the exact cause or not. I've only done light work on the company so there's probably someone here who can better answer your question.

 

I think it's a combo of factors, 1) they started investing more in the fleet so they have a much larger, younger fleet, 2) high incremental margins so larger fleet makes the business more profitable, 3) this is a business that should be a big beneficiary of data analytics, using data to decide how much fleet should be located in each area, and using data to figure out what price points encourage movers to move fleet to where it needs to go to maximize utilization, so they've probably gotten much smarter about pricing/fleet management, 4) Budget pulling out.  So it doesn't seem like they are over earning to me, with one exception; I do think the strong used market has benefited earnings.  On an earnings call a while back the CFO said maintenance capex is probably 400-500m which is a good amount higher than they've been running.  You can also look back over time and see the average gain on disposal and average cost per new truck and estimate how much of the fleet is replaced annually and come up with a number in that 400-500m ballpark (probably on the lower end).  So I replace D&A net of gains on disposals with 450m and call that true earnings power.

 

I assume maintenance capex includes new vehicle purchases, correct? And is it 400-500m the net # (i.e., new purchases less used sales), or is it gross (i.e., just new purchases)?

 

Used sales do make up a substantial part of FCF. Do you worry that the used market will dry up if/when financing gets tighter?

[SlowAppreciation]

Just keeps on drifting... getting interesting at these levels

[SlowAppreciation]

New VIC writeup highlighting the self-storage business: https://www.valueinvestorsclub.com/idea/AMERCO/139072/messages/117757#description

[chesko182]

Also, David Einhorn's Greenlight Capital increased his position by 180% this past quarter according to the latest 13F

[SlowAppreciation]

https://www.nytimes.com/2017/04/13/nyregion/self-storage-new-york-city.html

[DooDiligence]

https://www.nytimes.com/2017/04/13/nyregion/self-storage-new-york-city.html

 

1st, the soft drink restrictions & now we're dicks if we have too much stuff (isn't that kind of at odds with the whole consumerism thing?)

 

From the late 80's to the early 2000's I was a vagabond (had the same mini warehouse for well over a decade.)

 

I'd grab my sea bag out of the unit & head back to work & then 1 to 6 months later I'd toss the sea bag back in & pull out the home gear.

 

There's a balance between having too much stuff & not having a big enough place (self storage is the fulcrum that helps American's buy way more than they need.)

 

(storage units also keep a ton of stuff in pristine condition for the upcoming Zombie apocalypse...)

[Jurgis]

(storage units also keep a ton of stuff in pristine condition for the upcoming Zombie apocalypse...)

 

This is a great insight. I've already mapped inconspicuous route to the closest self storage in preparation.

Becoming UHAL shareholder might add some leverage when we need to ... uhm ... inspect the facility.

 

Warm bloodied comrades unite!  8)

[walkie518]

Amerco is getting very interesting.

 

From what I can tell, the quality of earnings has improved (ie substantive cash flow improvement) while the GAAP figures have been less exciting.

 

The massive investments that Amerco has made have yet to provide the anticipated returns, and I'm under the impression that the self-storage business will come into its own in short-time.  Public Storage has 154m sqft of self-storage and trades with a 37B mcap.  Amerco has 50m sqft of self-storage...if it's apples-to-apples, one might argue that the self-storage business should be worth a little less than a third of Public Storage?  This would mean that the self storage business should be worth at least $12B while Amerco trades at $6.7B? 

 

Maybe Amerco isn't as good as PSA.  Maybe it's worth 20% less, but the rental business earns money and the insurance lines earn money. 

 

Where am I wrong here?

[rist.tom]

@walkie Where are you getting that Amerco has 50m sqft of self-storage?  The EOY 2017 results released a few weeks ago state that they have 27.3m sqft as of March 31.  PSA's latest quarterly report says that they have 155m sqft in the US under their brand name, which accounts for over 90% of their net income.  The rest of their income is from ancillary operations and some minority investments in overseas self-storage.

 

(37B*.9) / (155/27.3) = $5.9B market cap for UHAL self-storage....which still makes UHAL quite undervalued (at least according to the multiples the market puts on another mature self-storage business)

[chesko182]

The own 27.3mm of self storage facilities but including those that they don't own they manage a total 51.4mm square feet (pg 4 of 10k)

 

Management has rejected the idea of spinning of this division as a REIT, but I'm conviced sooner or later the market will recognized the value here as self storage becomes a more significant part of the business given that it's growing at 14% and shows no signs of slowing down. In terms of their self moving business there's not much to say other than the fact that it has a huge moat in my opinion coming from the network effect of their operations and competition doesn't come close to their number of locations and trucks hence they are stepping back (budget & penske, although penske is focusing more on commercial)

 

This is one I plan to hold for the next decade!

[walkie518]

Yes, my mistake on the owned sqft...

 

The insurance lines are a little weird under the umbrella (except maybe for the rental insurance though still a very different business), but insurance could be worth $600m? 

 

Say managed self-storage is worth less than owned and managed to the point where the back-of-the-envelope is the $6B previously mentioned. 

 

Then what's the rental business worth?  10x earnings?  Put it all together and that's a lot higher than where it's trading today.

 

Does anyone have a feel as to why the market is so negative? Shoen control?  Shouldn't their ownership and recent purchases (via Willow Grove Holdings LP) be a vote of confidence? 

 

[chesko182]

One of my highest conviction ideas at the moment.

 

They posted decent numbers today for fiscal 2018: Moving revenues up 5% YoY, Self-storage up 13%. Earnings are very lumpy given tax reform, sale of a Chelsea property (they had it on the books for 5mm, sold for 195mm) one time employee bonuses, timing of truck sales, higher maintenance expenses. But with some simple assumptions of normalized earnings this stock looks very cheap. The increase in margins from the self-storage segment growth will be very meaningful in the next couple of years.

 

I am working on updating my model and write-up with the most recent numbers and happy to share here when finished, in the mean time this is just one way to look at this:

 

Three businesses: 1) Moving 2) Storage 3) Insurance

 

Current Market cap: $7bn

Self storage value: $4.5bn (31mm sq ft owned, $14.5 rev p/sqft, normalized occupancy of 90%, 55% FFO margin, 20X multiple)

Insurance value: 540mm (1X Book value to keep it simple)

That leaves the Moving segment equity value at just around $2bn.

Add moving segment debt, subtract cash to get to EV of $3.1bn, this part of the business makes around $1bn in EBITDA

So yes, you're paying 3X EV/EBITDA for the dominant DIY moving business which enjoys network effects, operating leverage and is growing nicely.

Hertz and Avis are trading at 5-6X (and they're very shitty businesses...)

 

Just a few thoughts.

 

 

[DanielGMask]

One of my highest conviction ideas at the moment.

 

They posted decent numbers today for fiscal 2018: Moving revenues up 5% YoY, Self-storage up 13%. Earnings are very lumpy given tax reform, sale of a Chelsea property (they had it on the books for 5mm, sold for 195mm) one time employee bonuses, timing of truck sales, higher maintenance expenses. But with some simple assumptions of normalized earnings this stock looks very cheap. The increase in margins from the self-storage segment growth will be very meaningful in the next couple of years.

 

I am working on updating my model and write-up with the most recent numbers and happy to share here when finished, in the mean time this is just one way to look at this:

 

Three businesses: 1) Moving 2) Storage 3) Insurance

 

Current Market cap: $7bn

Self storage value: $4.5bn (31mm sq ft owned, $14.5 rev p/sqft, normalized occupancy of 90%, 55% FFO margin, 20X multiple)

Insurance value: 540mm (1X Book value to keep it simple)

That leaves the Moving segment equity value at just around $2bn.

Add moving segment debt, subtract cash to get to EV of $3.1bn, this part of the business makes around $1bn in EBITDA

So yes, you're paying 3X EV/EBITDA for the dominant DIY moving business which enjoys network effects, operating leverage and is growing nicely.

Hertz and Avis are trading at 5-6X (and they're very shitty businesses...)

 

Just a few thoughts.

 

I’m also a shareholder! My estimate of intrinsic value is between $420-$480 compared to a stock price of $356. I like the company, the industry (both) and the management.

[cmlber]

One of my highest conviction ideas at the moment.

 

They posted decent numbers today for fiscal 2018: Moving revenues up 5% YoY, Self-storage up 13%. Earnings are very lumpy given tax reform, sale of a Chelsea property (they had it on the books for 5mm, sold for 195mm) one time employee bonuses, timing of truck sales, higher maintenance expenses. But with some simple assumptions of normalized earnings this stock looks very cheap. The increase in margins from the self-storage segment growth will be very meaningful in the next couple of years.

 

I am working on updating my model and write-up with the most recent numbers and happy to share here when finished, in the mean time this is just one way to look at this:

 

Three businesses: 1) Moving 2) Storage 3) Insurance

 

Current Market cap: $7bn

Self storage value: $4.5bn (31mm sq ft owned, $14.5 rev p/sqft, normalized occupancy of 90%, 55% FFO margin, 20X multiple)

Insurance value: 540mm (1X Book value to keep it simple)

That leaves the Moving segment equity value at just around $2bn.

Add moving segment debt, subtract cash to get to EV of $3.1bn, this part of the business makes around $1bn in EBITDA

So yes, you're paying 3X EV/EBITDA for the dominant DIY moving business which enjoys network effects, operating leverage and is growing nicely.

Hertz and Avis are trading at 5-6X (and they're very shitty businesses...)

 

Just a few thoughts.

 

The rev p/sqft and FFO margin estimates seem reasonable, but why is the storage business worth 20x EBIT?  And how are you accounting for storage segment debt?

[Spekulatius]

The results were lousy, imo. Above valuation does not take into account the net debt ( one needs to start with EV rather than market cap), which adds about $2.8B.