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Aug. 13, 2014 9:19 AM ET | About: Textainer Group Holdings Limited (TGH) by: Robin Nieland
Summary TGH has released its 2nd-quarter results, and I feel ambivalent about it. Revenue and utilization increased, but net income dropped. In the past 10 quarters, the interest coverage ratio has declined from over 4x to under 3x, based on the most recent earnings release for Q2 2014. Estimated earnings projections for the next 5 years are around 5%-6% per annum. yang ming schedule The lack of a recent dividend increase seems to suggest management is also slightly conservative about future cash flows. Geopolitical tensions around the world and trade sanctions between Russia and the rest of the world could impact business operations. Considering the current valuation, yang ming schedule it's a hold for me.
Last year in August, I initiated a position in Textainer Group Holdings (NYSE: TGH ) in my DGI portfolio , at around $34 per share. Currently, the share price is at the same level, while yielding 5%. The Dow Jones Industrial Average Total Return index (DJITR) gained around 8% during the same period. This so-called underperformance has not changed my outlook about TGH, but I am still closely monitoring the progress of the company. This article is meant to give an update about the company's fundamentals and what the future might look like as a shareholder. Introduction
Textainer Group Holdings Limited and its subsidiaries ("Textainer") is the world's yang ming schedule largest lessor yang ming schedule of intermodal containers based on fleet size. Textainer has more than 2 million containers, representing more than 3 million TEU, in its owned and managed fleet. Textainer leases dry freight, dry freight specialized, and refrigerated containers. Textainer 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, sells containers to more than 1,200 customers and provides services worldwide via a network of regional and area offices, as well as independent depots. Revenue and earnings growth
Since 2006, total revenue has grown at 13% CAGR. In the first 6 months of 2014, revenue has grown 6% compared to the first 6 months of 2013, which suggests that TGH isn't growing revenues as fast as it used to. Earnings Before Interest Tax Depreciation Amortization (EBITDA) has grown 18% per annum since 2006. As a percentage of revenues, the EBITDA margin yang ming schedule increased to over 80% in the past few years. Apparently, TGH is able to convert sales into earnings more efficiently.
But do higher sales and earnings automatically lead to higher cash flows? In general, cash flow is used to finance yang ming schedule organic growth, pay dividends and/or to buy back shares. In the past years, TGH spent a lot of money in capital expenditures (MUTF: yang ming schedule CAPEX ) to increase its fleet size. Even though cash flow from operations doubled in the last 4 years to $370 million, it was hardly enough to cover CAPEX, not to even mention dividends or a buyback program. TGH issued debt to finance the investments in new containers.
As mentioned, TGH issued almost $2 billion in debt to finance growth opportunities. The ratio of debt-to-equity has increased in recent years to 2.3, although this ratio has been quite stable over the last 10 quarters. According to the Investor Relations presentation, TGH uses "low leverage relative to public peers" like TAL and CAI. Even though the debt is used to increase assets (containers), and is not used to fund regular operations. I monitor these debt levels yang ming schedule closely by means of the interest coverage ratio. According to Investopedia , the interest coverage ratio:
... is a financial ratio that provides a quick picture of a company's ability to pay the interest charges on its debt. The ratio indicates how many times the interest could be paid from available earnings, thereby providing a sense of the safety margin a company has for paying its interest for any period.
In the past 10 quarters, the interest coverage ratio has declined from over 4x to under 3x, based on the most recent earnings release for Q2 2014. The higher interest expense in Q2 2014 is partly due to the $6.4 million write-off of unamortized debt issuance costs related to the refinancing of debt. As a result of the recent refinancing, yang ming schedule TGH reduced its funding costs by 39 basis points year-over-year. If management is right, we should expect an increase in the interest coverage ratio in the next quarters. Dividend
TGH has paid stable dividends for 24 consecutive years, and has increased it on an annual basis for 7 straight years. It's a dividend challenger on David Fish's CCC-list . The stock currently yields 5.5%. Its 5-year DGR is 15%, which is obviously quite high, although the payout ratio (based on EPS) has hovered around the 50% mark in the last 3-4 years. Estimated earnings projections for the next 5 years are lower at around 5%-6% per a
Aug. 13, 2014 9:19 AM ET | About: Textainer Group Holdings Limited (TGH) by: Robin Nieland
Summary TGH has released its 2nd-quarter results, and I feel ambivalent about it. Revenue and utilization increased, but net income dropped. In the past 10 quarters, the interest coverage ratio has declined from over 4x to under 3x, based on the most recent earnings release for Q2 2014. Estimated earnings projections for the next 5 years are around 5%-6% per annum. yang ming schedule The lack of a recent dividend increase seems to suggest management is also slightly conservative about future cash flows. Geopolitical tensions around the world and trade sanctions between Russia and the rest of the world could impact business operations. Considering the current valuation, yang ming schedule it's a hold for me.
Last year in August, I initiated a position in Textainer Group Holdings (NYSE: TGH ) in my DGI portfolio , at around $34 per share. Currently, the share price is at the same level, while yielding 5%. The Dow Jones Industrial Average Total Return index (DJITR) gained around 8% during the same period. This so-called underperformance has not changed my outlook about TGH, but I am still closely monitoring the progress of the company. This article is meant to give an update about the company's fundamentals and what the future might look like as a shareholder. Introduction
Textainer Group Holdings Limited and its subsidiaries ("Textainer") is the world's yang ming schedule largest lessor yang ming schedule of intermodal containers based on fleet size. Textainer has more than 2 million containers, representing more than 3 million TEU, in its owned and managed fleet. Textainer leases dry freight, dry freight specialized, and refrigerated containers. Textainer 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, sells containers to more than 1,200 customers and provides services worldwide via a network of regional and area offices, as well as independent depots. Revenue and earnings growth
Since 2006, total revenue has grown at 13% CAGR. In the first 6 months of 2014, revenue has grown 6% compared to the first 6 months of 2013, which suggests that TGH isn't growing revenues as fast as it used to. Earnings Before Interest Tax Depreciation Amortization (EBITDA) has grown 18% per annum since 2006. As a percentage of revenues, the EBITDA margin yang ming schedule increased to over 80% in the past few years. Apparently, TGH is able to convert sales into earnings more efficiently.
But do higher sales and earnings automatically lead to higher cash flows? In general, cash flow is used to finance yang ming schedule organic growth, pay dividends and/or to buy back shares. In the past years, TGH spent a lot of money in capital expenditures (MUTF: yang ming schedule CAPEX ) to increase its fleet size. Even though cash flow from operations doubled in the last 4 years to $370 million, it was hardly enough to cover CAPEX, not to even mention dividends or a buyback program. TGH issued debt to finance the investments in new containers.
As mentioned, TGH issued almost $2 billion in debt to finance growth opportunities. The ratio of debt-to-equity has increased in recent years to 2.3, although this ratio has been quite stable over the last 10 quarters. According to the Investor Relations presentation, TGH uses "low leverage relative to public peers" like TAL and CAI. Even though the debt is used to increase assets (containers), and is not used to fund regular operations. I monitor these debt levels yang ming schedule closely by means of the interest coverage ratio. According to Investopedia , the interest coverage ratio:
... is a financial ratio that provides a quick picture of a company's ability to pay the interest charges on its debt. The ratio indicates how many times the interest could be paid from available earnings, thereby providing a sense of the safety margin a company has for paying its interest for any period.
In the past 10 quarters, the interest coverage ratio has declined from over 4x to under 3x, based on the most recent earnings release for Q2 2014. The higher interest expense in Q2 2014 is partly due to the $6.4 million write-off of unamortized debt issuance costs related to the refinancing of debt. As a result of the recent refinancing, yang ming schedule TGH reduced its funding costs by 39 basis points year-over-year. If management is right, we should expect an increase in the interest coverage ratio in the next quarters. Dividend
TGH has paid stable dividends for 24 consecutive years, and has increased it on an annual basis for 7 straight years. It's a dividend challenger on David Fish's CCC-list . The stock currently yields 5.5%. Its 5-year DGR is 15%, which is obviously quite high, although the payout ratio (based on EPS) has hovered around the 50% mark in the last 3-4 years. Estimated earnings projections for the next 5 years are lower at around 5%-6% per a
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