Thursday, September 12, 2013

Stock analysis: Textainer Group Holdings

Textainer Group Holdings Limited and its subsidiaries (“Textainer”) is the world's largest lessor of intermodal containers based on fleet size. The Company began operations in 1979 and as of the most recent quarter end had more than 1.9 million containers, representing more than 2.8 million TEU, in its owned and managed fleet. Textainer leases dry freight, refrigerated, and specialized containers. Each year the company is one of the largest purchasers of new containers as well as one of the largest sellers of used containers. Textainer leases containers to approximately 400 shipping lines and other lessees and sells containers to more than 1,000 customers worldwide and provides services worldwide via a network of regional and area offices, as well as independent depots. (Source: Financial Tear Sheet TGH, as of September 7)


Revenue and earnings growth
Since 2006 total revenue has grown at 14% CAGR. In the first 6 months of 2013 revenue has grown 9% compared to the first 6 months in 2012. Earnings Before Interest Tax Depreciation Amortization (EBITDA) has grown even faster in this period, about 20% CAGR.


According to TGH the container trade has grown roughly between 1.5 and 2.5x the growth in global GDP. Global growth in GDP is therefore one of the key determinants in the financial well being of TGH. If BRIC-countries are not contributing to GDP growth, that’s bad for business. Although economic indicators in US-markets are looking better, the Euro-zone is still lacking. Times are still uncertain but the advantage is that TGH can react quickly to changes in supply/demand conditions. TGH has been profitable for the last 27 years which shows consistent business performance.

Debt
TGH carries a significant amount of debt. The ratio of debt to equity has increased in recent years to 2.3 although this ratio has been quite stable over the last 6 quarters. This ratio is higher than I’d normally like, but the interest coverage ratio has been constant at 4-4.5x which is usually regarded as enough. The debt is used to increase assets (containers) and is not used to fund regular operations. Even so, I’d like to monitor these debt levels closely.

Cash-flow
Cash-flow is negative in the last quarters. Even though cash from operations is positive and growing on a TTM-basis, the capital expenditures on new containers puts cash-flow in the red numbers. This money is raised by issuing long-term debt as mentioned above.

Dividend
TGH has paid at least stable dividends for 24 consecutive years and has increased it on an annual basis since 7 years. It’s a dividend challenger on David Fish’ CCC-list. The stock currently yields 5.4%. Its 5-year DGR is 52% which is obviously quite high although the payout-ratio (based on EPS) is a respectable 47%.

Outstanding shares
The number of outstanding shares has increased from 49M in 2011 to 56M in 2013. I am not overly fond of this development since it dilutes the ownership of the company.

Valuation
  • Price/sales-ratio: in the last 7 quarters the price to sale ratio has moved between an average bandwidth of 3.2 – 4.0x revenue per share. With the last quarter revenue per share (LTM) of $9.2 this puts the valuation of the company between $30 and $37 per share.
  • Price/earnings-ratio: in the last 7 quarters the price to sale ratio has moved between an average bandwidth of 7.6 – 9.5x earnings per share. With the last quarter earnings per share (LTM) of $3.77 this puts the valuation of the company between $28 and $36 per share. The PE-ratio has steadily increased in the last quarters, so compared to the end of 2011 the current stock price is relatively high.
  • Dividend yield: in the last 8 quarters the dividend yield has moved between an average bandwidth of 4.5 - 5.7%. With its latest quarterly dividend increase to $0.47 this puts the valuation of the company between $33 and $42 per share.
  • Dividend Discount Cash Flow-analysis: using an earnings growth rate of 6% for the next 10 years (conservative!) and half of that as perpetual growth thereafter, using a 10-year dividend growth rate of 12% and 3% as perpetual dividend growth rate, the estimated fair value of the stock is around $50 (considering a holding period of 30 years).

Summary
Textainer is growing revenues and earnings on a consistent basis. The properties of this dividend stock are great, high current yield and high dividend growth rate. Debt levels and the increase in outstanding shares need to be monitored but according to different valuation methods TGH seems to be fairly valued at this point. If you think that the global economy shows signs of recovery than TGH just might be a nice stock for you as a dividend growth investor.


What do you think of TGH? Do you like this company enough to add it to your portfolio?

2 comments:

  1. VIRUS REMOVAL

    Is Your Computer Sluggish or Plagued With a Virus? – If So you Need Online Tech Repairs
    As a leader in online computer repair, Online Tech Repairs Inc has the experience to deliver professional system optimization and virus removal.Headquartered in Great Neck, New York our certified technicians have been providing online computer repair and virus removal for customers around the world since 2004.
    Our three step system is easy to use; and provides you a safe, unobtrusive, and cost effective alternative to your computer service needs. By using state-of-the-art technology our computer experts can diagnose, and repair your computer system through the internet, no matter where you are.
    Our technician will guide you through the installation of Online Tech Repair Inc secure software. This software allows your dedicated computer expert to see and operate your computer just as if he was in the room with you. That means you don't have to unplug everything and bring it to our shop, or have a stranger tramping through your home.
    From our remote location the Online Tech Repairs.com expert can handle any computer issue you want addressed, like:
    • - System Optimization
    • - How it works Software Installations or Upgrades
    • - How it works Virus Removal
    • - How it works Home Network Set-ups
    Just to name a few.
    If you are unsure of what the problem may be, that is okay. We can run a complete diagnostic on your system and fix the problems we encounter. When we are done our software is removed; leaving you with a safe, secure and properly functioning system. The whole process usually takes less than an hour. You probably couldn't even get your computer to your local repair shop that fast!
    Call us now for a FREE COMPUTER DIAGONISTIC using DISCOUNT CODE (otr214424@gmail.com) on +1-914-613-3786 or chat with us on www.onlinetechrepairs.com.

    ReplyDelete
  2. Problem: HP Printer not connecting to my laptop.
    I had an issue while connecting my 2 year old HP printer to my brother's laptop that I had borrowed for starting my own business. I used a quick google search to fix the problem but that did not help me.
    I then decided to get professional help to solve my problem. After having received many quotations from various companies, i decided to go ahead with Online Tech Repair (www.onlinetechrepairs.com).
    Reasons I chose them over the others:
    1) They were extremely friendly and patient with me during my initial discussions and responded promptly to my request.
    2) Their prices were extremely reasonable.
    3) They were ready and willing to walk me through the entire process step by step and were on call with me till i got it fixed.
    How did they do it
    1) They first asked me to state my problem clearly and asked me a few questions. This was done to detect any physical connectivity issues with the printer.
    2) After having answered this, they confirmed that the printer and the laptop were functioning correctly.
    3) They then, asked me if they could access my laptop remotely to troubleshoot the problem and fix it. I agreed.
    4) One of the tech support executives accessed my laptop and started troubleshooting.
    5) I sat back and watched as the tech support executive was navigating my laptop to spot the issue. The issue was fixed.
    6) I was told that it was due to an older version of the driver that had been installed.
    My Experience
    I loved the entire friendly conversation that took place with them. They understood my needs clearly and acted upon the solution immediately. Being a technical noob, i sometimes find it difficult to communicate with tech support teams. It was a very
    different experience with the guys at Online Tech Repairs. You can check out their website www.onlinetechrepairs.com or call them on 1-914-613-3786.
    Would definitely recommend this service to anyone who needs help fixing their computers.
    Thanks a ton guys. Great Job....!!

    ReplyDelete