Amerco Inc (NYSE: UHAL)
Business:
AMERCO is a
do-it-yourself moving and storage operator through its subsidiary, U-Haul
International, Inc. (U-Haul), which has been in business for more than 72 years.
The company owns and rents U-Haul trucks, trailers and self-storage facilities.
It also sells U-Haul brand boxes, tape, and other moving and self-storage
products and services for do-it-yourself moving and storage through its
distribution outlets, as well as uhaul.com and eMove Websites.
The Company operates
through three major segments: Moving and Storage, Property and Casualty
Insurance, and Life Insurance.
Background:
The company was founded
in 1945 as a sole proprietorship under the name "U-Haul Trailer Rental
Company" and has rented trailers ever since. Starting in 1959, they rented
trucks on a one-way and in-town basis exclusively through independent U-Haul
dealers. In 1974, the company began developing a network of U-Haul managed
retail stores, through which they rent out trucks and trailers, self-storage
rooms and portable moving and storage units, and sell moving and self-storage
products and services to complement the independent dealer network. The company
rents their orange and white U-Haul trucks and trailers through a network of
over 2,065 company operated retail moving stores and approximately 21,000
independent U-Haul dealers. Moving and storage customers get services through
their distribution outlets and through uhaul.com® and eMove® websites. The
company has a broad geographic coverage throughout the United States and Canada
with their extensive selection of U-Haul brand moving equipment rentals,
self-storage rooms, portable moving and storage units and related moving and
storage products and services, which provide customers with convenient
“one-stop” shopping.
Business
Objectives:
The objective is to
provide long term value for customers and shareholders through owning and
utilizing properties (moving trucks and self-storage) by solving customer needs
and desires along with their property casualty and life insurance operations.
Moving
and Storage Operating Segment:
Moving and Storage
operating segment (“Moving and Storage”) consists of the rental of trucks,
trailers, portable moving and storage units, specialty rental items and
self-storage spaces primarily to the household mover as well as sales of moving
supplies, towing accessories and propane. Operations are conducted under the
registered trade name U-Haul® throughout the United States and Canada. As of March
31, 2020, rental fleet consisted of more than 176,000 trucks, 127,000 trailers
and 41,000 towing devices. U-Haul is North America’s largest seller and
installer of hitches and towing systems. In addition to towing U-Haul
equipment, these hitching and towing systems can tow jet skis, motorcycles,
boats, campers and horse trailers. Each year, more than one million customers
visit U-Haul locations for expertise on complete towing systems, trailer
rentals and the latest in towing accessories. U-Haul has one of North America’s
largest propane refilling networks, with over 1,200 locations providing this
convenient service. U-Haul implemented associated products/services like U-Box,
‘Moving help’ over the years to help their customers and get more revenue.
U-Haul is also one of
the largest North American operators of self-storage business and has been a
leader in the self-storage industry since 1974. U-Haul owns more than 42
million square feet (over 1745 locations) and manages another 22 million square
feet of storage spaces for third parties with locations in 49 states and 10
Canadian provinces. Occupancy rates for their self-storage facilities are 67.7%
as of March 2020. It was 68.7% at March of 2019; the occupancy level decrease
is attributed to the increase in the development of storage capacity in 2019. The
current pipeline of developments will result in the company having more than
50M sqft in storage.
Here are the economics
on additional occupancy: 1% increase in storage revenue from here increases the
annual cash flow by more than $5 million. The properties achieve 90% occupancy
rates when they are around 5 years old. Around 60% of their storage properties
are at least 5 years old and have occupancy rates over 80%. The company doesn’t
separate the profitability metrics between moving and storage division, the
combined results of moving and self-storage are presented below.
Moving
and Storage Operating Segment Historical Financials ($M USD):
2019
|
2018
|
2017
|
2016
|
2015
|
|
Revenues
|
3657
|
3545
|
3290
|
3113
|
2984.5
|
Earnings from operations
|
472
|
569.2
|
712.7
|
688.9
|
813.1
|
Repwest
Property and Casualty Insurance:
Property and Casualty
Insurance operating segment (“Property and Casualty Insurance”) provides loss
adjusting and claims handling for U-Haul through regional offices across the
United States and Canada. Property and Casualty Insurance also underwrites components
of the Safemove®, Safetow®, Safemove Plus®, Safestore Mobile® and Safestor®
protection packages to U-Haul customers. They attempt to price their products
to be a good value to their customers. The business plan for Property and
Casualty Insurance includes offering property and casualty products in other
U-Haul related programs.
Segment
Historical Financials ($M USD):
2019
|
2018
|
2017
|
2016
|
2015
|
|
Revenues
|
89
|
75.8
|
74.5
|
69
|
64.8
|
Earnings from operations
|
42.8
|
27.4
|
25.8
|
27.2
|
24.5
|
Oxford
Life Insurance Company:
Life Insurance provides
life and health insurance products primarily to the senior market through the
direct writing and reinsuring of life insurance, Medicare supplement and
annuity policies.
Segment
Historical Financials ($M USD):
2019
|
2018
|
2017
|
2016
|
2015
|
|
Revenues
|
241.4
|
154.7
|
243.8
|
245.6
|
231.2
|
Earnings from operations
|
26.3
|
25.4
|
27.9
|
27.6
|
29.8
|
Management
& Incentives:
Edward Joe Shoen is the
CEO and President of AMERCO. He has been a CEO for more than 2 decades, and he doesn’t
get paid a lot. He has never sold a single share and he is a regular purchaser
of the company’s shares.
Management is incentivized
to drive the business efficiently and prosper as the Shoen family owns more
than 42.3% of the shares and company ESOP owns 6.3% the shares outstanding. The
management and employees’ welfare are directly correlated with the business development
over time and eventual stock price reflection/appreciation along with passive shareholders.
Consolidated
Historical Financials ($M USD):
2019
|
2018
|
2017
|
2016
|
2015
|
|
Revenues
|
3,978.80
|
3,768.70
|
3,601.10
|
3,421.80
|
3,275.50
|
Earnings from Operations
|
540.1
|
620.9
|
765.2
|
742.3
|
866.6
|
Net Earnings
|
442
|
370.8
|
790.5
|
398.4
|
489
|
Cash flow from Operations
|
1075.5
|
975.5
|
937.6
|
1020.06
|
1040.98
|
Maintenance Cap Expenses (Assumption)
|
460
|
440
|
420
|
400
|
380
|
Total Cap Expenses
|
1766.6
|
1571.1
|
898.3
|
1144.5
|
1255.3
|
Free Cash Flow
|
615.5
|
535.5
|
517.6
|
620.06
|
660.98
|
Property, Plant and Equipment, Net
|
7,843.00
|
7,933.90
|
6,816.70
|
5,957.70
|
5,017.50
|
Total Assets
|
13,438.02
|
11,891.71
|
10,747.40
|
9,405.80
|
8,109.30
|
Debt
|
4,621.29
|
4,163.32
|
3,513.00
|
3,262.90
|
2,647.40
|
Stockholders’ Equity
|
4,220.72
|
3,692.39
|
3,413.17
|
2,619.70
|
2,251.40
|
Number of Common Shares Outstanding(M)
|
19.6
|
19.59
|
19.58
|
19.58
|
19.59
|
Return on Equity
|
10.47%
|
10.04%
|
23.16%
|
15.21%
|
21.72%
|
Return on Assets
|
3.29%
|
3.12%
|
7.36%
|
4.24%
|
6.03%
|
Valuation:
I have taken multiple approaches to highlight the value of the company.
Multiples:
Stock Price- $310; Market
Cap – $6,100M
Free Cash flow – $615M
Price/Free Cash flow ~ 10
Conservative
Parts valuation:
The Insurance divisions:
Book value or 10 times
Operating profits ~ $ 600M - 800M
Self-Storage Division:
Recreation value:
Average price per sqft
- $150
Worth = 42.5M * 150 = $6,375M
or
Cap Rate @ 6%, 65% FFO margin, 80% occupancy, $17 Rent/Sqft:
Worth = $6,250M
Debt
~ $4B;
Equity Value ~$2.3B
U-Haul Moving/supplies:
15 times Free cash flow
= 15*$500M =~ $7500M
Total ~ $10B – $11B
Potential
Cumulative profits in next 5 years:
I believe the company will
generate $3.5B to $4.5B in cumulative after-tax free cash flows in the next 5
years; which is 60% of the market cap today. That will either be kept in the
balance sheet or reinvested in profitable assets. If they bought back the
shares, they can retire more than 60% of the shares outstanding.
Large
shareholders:
Shareholders
|
Number of shares
|
Percentage of shares outstanding
|
Willow Grove Holdings LP &
Foster Road LLC
|
8,309,584
|
42.3
|
AMERCO ESOP
|
1,235,428
|
6.3
|
Vanguard Group Inc
|
673,981
|
3.4
|
Wellington Management Company LLP
|
477,647
|
2.4
|
Dimensional Fund Advisors, Inc.
|
471,294
|
2.4
|
Pamet Capital Management, LP
|
394,610
|
2
|
Competitive
Advantages:
- Low cost operation with highest utilization of self-moving fleets with real estates purchased decades ago.
- Self-storage operation is developing nicely and it is at the beginning stages in terms of free cash flow acceleration.
- The profitable insurance businesses provide additional profits, diversifications and insights into customer demand.
- Holding company structure allows the profits to be directed where it has highest potential with the durable operation.
Risks:
- General economic downturn may hinder the growth of the business as the truck fleet and storage utilization may go down. Although people tend to move a little more during downturns, they will likely use more of the company’s fleet and storage. This could be counter cyclical.
- Aggressive growth plans of the management may put the company in stress, although there has never been a precedent.
- Competitors like Budget and Penske may try price discounts aggressively to take more market share, although AMERCO’s strength and reach to customer is getting better over the years.
Summary:
- Profitable business with high return on Invested capital, the ability and opportunity to re-invest the profits at attractive ROI.
- Management is capable and company has shareholder friendly co-owners, and the business is priced attractive multiples of their current free cash flows.
- Customers choose self-moving and storage products based on convenience, price and level of service. U-Haul thrives to excel on all the above by offering cheapest possible price per unit rentals, increasing the number of dealerships in their network every year.
- Company is a dominant and efficient player with top market share in B2C self-moving market, produces stream of cash flows.
- The company has been developing a top-notch, self-storage facilities over 4 decades and produces excellent returns on invested capital over time.
- Efficiently managed and majority owned by Shoen family/Edward Joe Shoen.
- The business is selling in the market currently for 10 times of its free cash flow.
Disclosure: I own a significant
position in the shares of this company.
