uhal - valuewalk€¦ · value creation, but under the radar • virtually uncovered by the street...
TRANSCRIPT
UHAL
AMERCO—An Undervalued $7Billion Company
Hidden in Plain Sight
Long Investment Idea Price Target: $502/share
Alexandra Esparza MBA Candidate at the Yale School of Management, May 4, 2016
Company Background
• Staying Power: Founded by Schoen family in 1945
• Largest DIY mover in the US, with ~ 50% market share; one of the largest storage players nationally as well
• High brand recognition; name synonymous with moving
• Focused on improving core DIY business and track record of execution
Business Segments
• Moving and Storage: comprised of AMERCO, U-Haul, and Real
Estate and the subsidiaries of U- Haul and Real Estate
• Property and Casualty Insurance/ Repwest
• Life Insurance, comprised of Oxford and its subsidiaries
Key Metrics • Market Cap: $6.90B • P/E ~14x on Consensus Fiscal Year 16 • Generated $22.74 in the 12 months ending 12/31/2015, trailing PE of 15.61
• LTM EV/EBITDA of 0.24 • Thinly traded (average 3 month volume is 60k shares per day)
*Fiscal year ends 3/31/16 , FY 15 denotes full year ending on 12/31/15 Based on Closing Values as of 5/02/2016
Value Creation, but Under the Radar • Virtually uncovered by the Street – only one sell-side analyst covers
• Orphaned company, doesn’t fall into a distinct coverage bucket • Thin volumes and limited institutional interest • Market sees a company in the unattractive “Moving Industry” – in reality it is a differentiated DIY company with
other optionality attracting a different customer
• 3 year CAGR of 7% • Earnings in 9 months ended 12/31/15 up 25.6% y/y • Margin Expansion since 2010 and ongoing: EBITDA Margin +33% in 2015, +36% in LTM; Profit
margin ~14% in LTM
• Founding family has ~50% stake, speaks to skin in the game, have been able to execute
• Relatively clean balance sheet, and a special dividend every year since 2011
The Best at What They Do - The most storage coverage in NA, 50% market
share in otherwise fragmented DIY moving space
- Competitive moat from largest network, best-
of-breed product, entrenched brand awareness and goodwill.
- Ryder and Penske now focused on B2B space
not B2B, U-Haul continues to dominate - High barriers to entry given real estate portfolio
and largest fleet of trucks of any mover
- Not just another moving company : owns the DIY ecosystem, lots of profitable add-ons
- Innovating on secular trends in the moving
industry (i.e. Pick-up U-Boxes)
Source:AMERCO
Millennial Engagement Drives Growth • Millennials are now the largest US demographic segment, with ~75mm, and a median age of 25 • Millennials increasingly moving in cities; evidence that they delayed marriage but may follow Gen Z
to suburbs, potential great market for DIY movers that is underappreciated. Set to capture any uptick in family formation or moving in this demographic as there is pessimism around this group.
• High affinity for DIY, and can be expected to prefer U-Haul’s lower prices relative to full service
movers • Evidence suggests this generation is more willing to take on DIY projects vs. previous generations • DIY makes sense for anyone with fewer positions, smaller apartments, no need for a full service mover
• U-Haul especially practical for short-distance moves in in urban environments, where millennials tend to live.
• Way for the consumer to save money, but brand isn’t just a “low-end” solution
• Ongoing negative customer perception of big moving companies/brokers/carriers, strong brand is reassuring to this demographic – first in Google search for moving truck
#UHAULFAMOUS: >7,200 Posts
U-Haul Positioned to Take Advantage of Demographic Shifts
• Building out tech presence: app UX is strong and easy to use • Implemented marketplace for moving helpers, with room for tech integration • Can continue to consolidate fragmented DIY space which is appropriate for this large demographic • Seamless moving experience (cited as one of the most stressful life experiences)
• Storage units delivered to customer’s door • Scheduling via app • All supplies and add-ons available at U-Haul point of sale
• Limited opportunity for “Uberization” of this need in sharing economy: • I don’t have a truck, a hitch and a storage box lying around and neither do any of my friends, company working on having
a best of breed consumer interface, fleet utilization tech pretty commoditized
• Engaging millennial users with Instagram truck graphics campaign; improves the user experience and promotes brand awareness in a very effective and clever way
UI is Easy to Use and Differentiating
High Brand Awareness is Extremely Valuable
• Convenience: • Consumers are generally ignorant about the moving industry, too many options, lots of
scams, unwilling to do research • Preference for known, safe brand • Moving is a huge pain-point, and the most seamless experience wins • Point of Sale supply purchases; one-stop experience
• Pricing: • Packing supplies are cheaper vs. competitors, and experience significantly cheaper vs. full-
service movers • Still, U-Haul can afford a high markup on supplies
• Real Competitive Differentiation: • Penske and Ryder mostly focuses on business rentals; U-Haul is the only large player in
the DIY space. • Storage centers also act as rental centers/creates an integrated solution, only full supply
chain solution for the consumer
Other Businesses
• Oxford Life Insurance – caters to aging boomer demographic • AMERCO Real Estate Company – manages the storage units • Repwest - Property and Casualty Insurance– serves moving
consumers • Strong cross-selling platform at point-of-sale
Revenue Growth By Segment
2012 2013 2014 2015 Self Moving Equipment Rentals 8.48% 5.32% 10.63% 9.77% Self-‐Storage Revenues 11.33% 13.61% 19.08% 16.14%
Self-‐Moving and Self-‐Storage Products 4.03% 3.40% 5.91% 4.27% Property Management Fees 5.12% 4.78% 0.47% 3.46% Life Insurance 34.09% -‐35.83% -‐11.34% -‐1.15% Property and Casualty Insurance 6.28% 5.24% 19.54% 13.16% Investment and Interest Income 17.22% 12.71% -‐4.00% 6.45%
Other Revenue 41.49% 24.22% 64.83% -‐0.37% Totals 11.58% 1.85% 10.81% 8.44%
Valuation and Upside
• Limited direct comps, but industry analysis suggests opportunity for multiple expansion by 4+ turns
• Rental providers such as MINI trading at ~21x FY16 estimates
• Storage peers such as CUBE trading at 23.34x EV/EBITDA estimates
• Current discount valuation: • 14x FY16 street P/E estimates • 12x FY17* estimates of $29.55/share
• 17x on FY17 yields price target of $502/share, plus potential for other corporate actions
*Ending 3/15/17
Catalysts
• Additional Wall Street coverage, re-rating, greater visibility of the company
• Potential opportunity to spin-off real estate assets or insurance
businesses • Spin-real estate into REIT, but maintain operating benefits (potentially
analogous to recent DRI/FCPT spin) • Uptick in dynamism and increased moving activity in the US and
Canada
Risks
• Slowdown in moving or homebuilding generally • Americans overall may be moving for jobs less, and Millennials
may not ultimately move out of cities as they form households • Disruptive tech-driven innovation in the logistics space by
competitors
• High concentration of family ownership and thin volume