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Strategies & Market Trends : Dividend investing for retirement -- Ignore unavailable to you. Want to Upgrade?

To: bruwin who wrote (13640)	12/29/2012 1:27:49 PM
From: E_K_S	1 Recommendation Read Replies (1) \| Respond to of 34328

Hi Bruwin - Re: Textainer Group Holdings Limited (TGH) As always you are looking inside the company to determine any change in their fundamental structure. Remember TGH is a leasing company. They buy assets (different types of containers) that come along with secured leases (usually 2-3 year term leases at specific rates). TGH has two separate businesses. One is to manage and lease their company owned assets and second to manage and operate the logistics of 3rd parties. For this second operation they charge a fee for service. TGH makes more money when they buy the assets and lease them similar to the rail car industry that Buffet and Ichan operate. If you look at their presentation, TGH continues to grow by acquisition w/ accretive buys starting in the early 90's where they have/are building out their own company owned and operated fleet of containers. Typically a 3rd party will buy containers that will be financed through a bank in a lease-back agreement. They will hire TGH to manage the logistics and scheduling function for the customer usually through a fee for service contract over the life of the assets (ie containers). TGH has had a strategy to build their company fleet owned containers as a percent of their total operation from less than 50% to now over 71%. This growth by acquisition has been calculated by management. It utilizes their debt facility to increase their total return but in a conservative (making accretive buys) and profitable way. As a result, their overall debt will increase but it is still well below the sector average when compared to BOX and/or CAP. Yes, this is a long term metric to watch but since the use of debt does increase BV and generates increased revenues that allows for increased EPS and higher future dividend payments, for me, it's a good use of resources. Notice that the company can buy these assets sometimes at a discount to "fair salvage value" and there is no "goodwill" associated with these acquisitions. So the kicker is that it's more profitable to buy the 3rd party lease back contracts from the banks (essentially assuming the debt obligations) than to buy these containers from a manufacturer off the shelf. I think you will find that their debt expense does increase after these acquisitions but these deals are accretive to EPS and the BV of the company increases too. BV has increased every year in the past 5 years. EPS positive and growing every year for past 7 years The Graham fair value number is $38.41/share. This calculation uses 2012 EPS of $3.77/share and a $17.41/share BV. Therefore, the stock is selling 24% below it's GN value. I tend to load up my buys when a stock is selling between 30% and 50% below it's Graham No. value. My last buy in a similar sector (ie rail car leases) was Trinity Industries Inc. (TRN. I started to acquire shares earlier this year in the $28.00/share price range. The Graham No. value was calculated at $38.00/share or 35% undervalued from the current price. Since then TRN has rallied to $36.00/share. I see the same opportunity with Textainer Group Holdings Limited (TGH) but with a better dividend growth opportunity. EKS