2023-05-03 04:00:00 ET
Summary
- All else equal, we prefer to invest with owner-operators as their economic incentives are aligned with shareholders.
- Our channel checks and scuttlebutt research inform our view that U-Haul's moving products and services are second to none in customer experience and value proposition.
- We believe U-Haul's shares are undervalued.
The following segment was excerpted from this fund letter.
U-Haul Holding Company ( UHAL )
U-Haul Holding Company (U-Haul) is North America's largest do-it-yourself moving company, one of the largest owners of self-storage real estate in the United States, and a high-quality business that has grown its market-leading position for decades by putting customers first. U-Haul is one of North America's most recognizable brands and can be thought of as a royalty on consumer moving. All else equal, we prefer to invest with owner-operators as their economic incentives are aligned with shareholders. The Shoen family controls U-Haul with about 50% of the voting common stock. Joe Shoen is U-Haul's CEO. Joe's father, Leonard Shoen, founded U-Haul in 1945. We believe U-Haul's intrinsic value is more than 40% greater than its March 31 share price.
U-Haul's consumer moving products include truck, van, cargo trailer, moving box, self-storage real estate rentals, moving insurance, packing supplies, trailer accessories, and an online marketplace for moving labor. U-Haul also sells WebSelfStorage, a web-based platform for self-storage facility management that connects users to U-Haul's network of 5,000+ owned, operated, or affiliated self-storage facilities. Our channel checks and scuttlebutt research inform our view that U-Haul's moving products and services are second to none in customer experience and value proposition.
U-Haul holds an unassailable market position in a mature but growing industry, where the company's vast distribution network and preference to pass lower costs to customers act as strong economic moats. U-Haul's products can be accessed at over 23,000 locations (2,000 U-Haul owned / 21,000 independent dealer locations). Recognizing the power of its distribution network, U-Haul began offering propane tank refills at its stores in 1984. In just three years, by 1987, U-Haul was the largest propane retailer in the United States! Further, U-Haul's customer-focused approach drives loyalty and market share gains, sustaining a virtuous circle of lower prices and increased market share. It would be expensive, difficult, and require decades of commercial discipline for any competitor to challenge U-Haul's market position.
In April 2022, U-Haul's Board of Directors formed a special committee to enhance "the marketability and liquidity of the Company's stock." The committee acted quickly. In October 2022, the company changed the name of its parent company from "Amerco" to "U-Haul Holding Company", did a 10-for1 stock split with nine shares of non-voting common stock and one share of voting stock distributed to existing stockholders, and announced a dividend on the new non-voting stock. U-Haul's decisive actions piqued our interest and helped convince us that U-Haul was committed to creating shareholder value by helping public markets recognize the company's intrinsic value.
We believe U-Haul's shares are undervalued. Our variant view is driven by:
- Undervalued Asset (Self-Storage Real Estate Portfolio) : U-Haul owns a 55 million square feet self-storage real estate portfolio. We conservatively value this real estate at $10 billion [1] , roughly equal to U-Haul's current market capitalization. Valuing the real estate at $10 billion implies investors get the rest of U-Haul's impressive business (trucks, equipment, brand/customer goodwill) for less than 5x after-tax operating earnings.
- Understated Earnings Power : GAAP accounting understates U-Haul's earnings power. GAAP depreciates U-Haul's self-storage real estate too aggressively, resulting in GAAP earnings that are 10%+ lower than true earnings power. GAAP approximates maintenance capital expense to depreciate U-Haul's trucks and equipment, but it is not an appropriate estimate for real estate.
- Strong Returns on Capital : U-Haul generates sustainable 11%+ after-tax returns on capital despite the capital-intensive and commodity nature of its business. This is important because the company is currently investing all operating cash flow into growing its self-storage real estate portfolio, and its truck and equipment fleet.
- Attractive Valuation : As of March 31, U-Haul traded at 11x trailing GAAP earnings and 6x trailing EBITDA, a low valuation for a business of this quality and durability, and a substantial discount to the sum of its parts. We believe U-Haul's intrinsic value is at least 40% greater than its share price and is compounding at 10% annually driven by profitable growth.
IMPORTANT DISCLOSURESSilver Beech Capital Management, LLC ("Silver Beech") is a New York limited liability company that serves as the investment manager to Silver Beech Capital, LP (the "Fund"), a Delaware limited partnership. The principals of Silver Beech are James Hollier, who serves as the portfolio manager and managing partner of the Fund, and James Kovacs, who serves as the managing partner of the Fund. All performance results presented herein refers to the performance of an unrestricted investor in the Fund since its inception. Net performance is presented net of the highest performance allocation in effect at the time (20%) above a 6% hurdle rate, the highest actual management fees (1.0%) charged at the time, and net of other expenses, and includes the reinvestment of all dividends, interest, and capital gains. Performance for investors who subscribed on different dates, or who pay different fees would necessarily be different from the performance presented herein. The rate of return is calculated on a "time-weighted" rate of return basis, which minimizes the effect of cash flows on the investment performance of the Fund. All monthly performance data presented herein reflects unaudited data unless otherwise specified, and as such its accuracy cannot be guaranteed. Cumulative returns for the "January 1, 2021 - March 31, 2023" period include the audited returns of Silver Beech's portfolio manager prior to Fund launch. Past performance is not necessarily indicative of future results. All securities transactions involve substantial risk of loss. The material presented is compiled from sources thought to be reliable, including in certain instances, from outside sources, but accuracy and completeness cannot be guaranteed. Any opinions expressed herein reflect the judgment of Silver Beech and are subject to change. The information in this letter is for discussion purposes only. Nothing contained herein should be construed as an offer to sell, or a solicitation of an offer to buy or sell any security or investment strategy or a recommendation as to the advisability of investing in, purchasing or selling any security or investment strategy, which may only be made in the Fund's confidential offering memorandum and operative documents (collectively, the "Offering Documents"). Before making an investment decision with respect to the Fund, prospective investors are advised to read the Offering Documents carefully, which contain important information, including a description of the Fund's risks, investment program, fees, expenses, redemption and withdrawal limitations, standard of care and exculpation, etc. Prospective investors should also consult with their tax and financial advisors as well as legal counsel. The Offering Documents are the sole documents on which a potential investor is entitled to rely in evaluating an investment in the Fund. The information in this letter does not take into account the particular investment objectives, restrictions, or financial, legal or tax situation of any specific prospective investor, and an investment in the Fund may not be suitable for many prospective investors. This letter is not intended to be, nor should it be construed or used as, investment, tax, or legal advice. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. |
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
For further details see:
Silver Beech Capital - U-Haul Holding Co.: Intrinsic Value Is More Than 40% Greater