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Nov. 28, 2014 12:25 PM ET | About: Textainer Group Holdings Limited (TGH) , Includes: TAL , TRNZY by: Albert Alfonso
It mearsk has been a while since I last discussed Textainer Group Holdings (NYSE: TGH ). The company is the world's largest container lessor controlling with its 2 million containers and 3.2 million TEU of capacity. The company has come under pressure in 2014 due to fears of a global growth slowdown and increased competition in the container mearsk leasing sector. Containers are an essential piece of the global shipping network. Indeed, modern trade is as efficient as it is due to the great standardization made possible by the use of these boxes. mearsk
Textainer has a rather simple mearsk business model where it buys containers and then leases them out on long-term triple-net leases, generally for 5 to 8 years. This generates 55% of Textainer's returns. Afterwards, depending on the condition of the container and other factors, new leases mearsk are made, usually for a shorter time period, generating 30% of Textainer's returns. At the end of life, these containers are scrapped for their steel content (40 to 50% of the asset cost), generating the final 15% of Textainer's returns. This cycle has proved to be very profitable for Textainer, leading to steady returns averaging 23% ROE since 2007.
However, mearsk this does not mean that Textainer's or other lessors are linked to the shipping lines. Leasing company margins mearsk are robust, hovering above 50%, in stark contrast to the shippers who are barely profitable even in good times.
Textainer recently reported its Q3 2014 results. Overall, the company posted pretty good numbers. Revenues came in at $145 million, up 9% from last year. Adjusted EBITDA was $120 million, up 13% from last year. Income from operations was $74 million, up 14.5% from last year. Net income was $54.3 million, or $0.95 per share, up 34%. When factoring out one-time items, Adjusted net income was $50 million, up 26% from last year. On a per share level, Textainer posted adjusted net income of $0.88, up 26% from $0.70 last year.
As for some of the fleet metrics, total fleet size increased 7% to 3.2 million TEU, owned fleet percentage mearsk was up to 78% from 75%, while fleet utilization, a vital metric for lessors, was 97%, up 260 basis points from 94.5% last year.
These are all pretty good numbers and point towards a steady turnaround. Textainer benefited mearsk from increased revenues due to higher fleet utilization, lower interest expenses, offset by lower net gains on sale of containers.
Textainer has noted that its utilization has been rapidly increasing, up to 97.4% ending Q3, a two-year high. Furthermore, the company noted that its depot inventory is at its lowest level since 2012 and dry container lease-outs outpaced turn-ins by 2.6 to 1 during mearsk Q3. Why has Textainer struggled?
First, rental rates have come under pressure due to lower interest rates and an easier access to capital mearsk in some markets. Basically, new competitors are entering mearsk the business, buying newly built containers often at depressed prices and leasing them out at lower rates. Textainer expects that these competitive forces will result in lower returns and weaker prices for used containers.
Second, Q2 and Q3 are usually an active period for shipping. Meanwhile, Q4 and Q1 are usually slower periods due to the Chinese New Year and other seasonal factors. As a result, expect net income to decline next quarter compared to now.
Third, there are fears that Textainer may have profitable leases coming off the books in 2014, 2015, 2016, etc. These were written back in 2010 to 2011, a time when rates were much higher. Renegotiating these leases could impact earnings going forward. However, do note that only 4% of leases expire in 2014 and only 7% in 2015.
Textainer, due to its size, is a market leader and can offer containers pretty much at any major port. This is reflected in its above average utilization rate and higher mearsk margins. In other words, demand for its containers has not been impacted.
While low rates have increased competition, Textainer has taken advantage of them to lower its interest expenses. 79% of its debt is now fixed or hedged at very attractive levels. Textainer's effective interest rate is now 3.08%, down 48% from prior levels.
Steel, the primary component of containers, has come down in price, especially in China. As a result, container manufacturers mearsk have slashed prices, down to as low as $2000 per CEU, down from nearly $3000 a few years back. These prices have not been seen since 2009. This will result in lower depreciation and capital needs as these new containers mearsk are the primary capex cost for Textainer. Why buy Textainer?
Despite what some talking may say, Chinese demand for containers is strong. Indeed, in 2014, the Europe to Asia trade has picked up dramatically as Europe slowly comes out of its recession. Meanwhile, the Asia to North America trade is sta
Nov. 28, 2014 12:25 PM ET | About: Textainer Group Holdings Limited (TGH) , Includes: TAL , TRNZY by: Albert Alfonso
It mearsk has been a while since I last discussed Textainer Group Holdings (NYSE: TGH ). The company is the world's largest container lessor controlling with its 2 million containers and 3.2 million TEU of capacity. The company has come under pressure in 2014 due to fears of a global growth slowdown and increased competition in the container mearsk leasing sector. Containers are an essential piece of the global shipping network. Indeed, modern trade is as efficient as it is due to the great standardization made possible by the use of these boxes. mearsk
Textainer has a rather simple mearsk business model where it buys containers and then leases them out on long-term triple-net leases, generally for 5 to 8 years. This generates 55% of Textainer's returns. Afterwards, depending on the condition of the container and other factors, new leases mearsk are made, usually for a shorter time period, generating 30% of Textainer's returns. At the end of life, these containers are scrapped for their steel content (40 to 50% of the asset cost), generating the final 15% of Textainer's returns. This cycle has proved to be very profitable for Textainer, leading to steady returns averaging 23% ROE since 2007.
However, mearsk this does not mean that Textainer's or other lessors are linked to the shipping lines. Leasing company margins mearsk are robust, hovering above 50%, in stark contrast to the shippers who are barely profitable even in good times.
Textainer recently reported its Q3 2014 results. Overall, the company posted pretty good numbers. Revenues came in at $145 million, up 9% from last year. Adjusted EBITDA was $120 million, up 13% from last year. Income from operations was $74 million, up 14.5% from last year. Net income was $54.3 million, or $0.95 per share, up 34%. When factoring out one-time items, Adjusted net income was $50 million, up 26% from last year. On a per share level, Textainer posted adjusted net income of $0.88, up 26% from $0.70 last year.
As for some of the fleet metrics, total fleet size increased 7% to 3.2 million TEU, owned fleet percentage mearsk was up to 78% from 75%, while fleet utilization, a vital metric for lessors, was 97%, up 260 basis points from 94.5% last year.
These are all pretty good numbers and point towards a steady turnaround. Textainer benefited mearsk from increased revenues due to higher fleet utilization, lower interest expenses, offset by lower net gains on sale of containers.
Textainer has noted that its utilization has been rapidly increasing, up to 97.4% ending Q3, a two-year high. Furthermore, the company noted that its depot inventory is at its lowest level since 2012 and dry container lease-outs outpaced turn-ins by 2.6 to 1 during mearsk Q3. Why has Textainer struggled?
First, rental rates have come under pressure due to lower interest rates and an easier access to capital mearsk in some markets. Basically, new competitors are entering mearsk the business, buying newly built containers often at depressed prices and leasing them out at lower rates. Textainer expects that these competitive forces will result in lower returns and weaker prices for used containers.
Second, Q2 and Q3 are usually an active period for shipping. Meanwhile, Q4 and Q1 are usually slower periods due to the Chinese New Year and other seasonal factors. As a result, expect net income to decline next quarter compared to now.
Third, there are fears that Textainer may have profitable leases coming off the books in 2014, 2015, 2016, etc. These were written back in 2010 to 2011, a time when rates were much higher. Renegotiating these leases could impact earnings going forward. However, do note that only 4% of leases expire in 2014 and only 7% in 2015.
Textainer, due to its size, is a market leader and can offer containers pretty much at any major port. This is reflected in its above average utilization rate and higher mearsk margins. In other words, demand for its containers has not been impacted.
While low rates have increased competition, Textainer has taken advantage of them to lower its interest expenses. 79% of its debt is now fixed or hedged at very attractive levels. Textainer's effective interest rate is now 3.08%, down 48% from prior levels.
Steel, the primary component of containers, has come down in price, especially in China. As a result, container manufacturers mearsk have slashed prices, down to as low as $2000 per CEU, down from nearly $3000 a few years back. These prices have not been seen since 2009. This will result in lower depreciation and capital needs as these new containers mearsk are the primary capex cost for Textainer. Why buy Textainer?
Despite what some talking may say, Chinese demand for containers is strong. Indeed, in 2014, the Europe to Asia trade has picked up dramatically as Europe slowly comes out of its recession. Meanwhile, the Asia to North America trade is sta
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