By Ian Gilson, CFA
On November 7, 2012 AMERCO (UHAL) reported its second fiscal quarter 2013 results. Revenue was another record and very close to our estimates, as shown below.
The company also announced a special cash dividend of $5 a share, payable on November 30, 2012 to stockholders of record as of November 19, 2012.
Revenue was driven by improving local and one-way transactions. Truck utilization improved which caused the operating expense ratio as percentage of rental revenue to improve slightly Y/Y. U-Haul has been adding to its fleet, net of sales, which has a benefit of reducing maintenance expenses and provides vehicles for growth. Repair and maintenance work done in prior quarters had a positive impact in the second quarter. The self moving industry continues to be highly competitive and pricing is not improving. It has been reported that Budget (part of Avis Budget) has been cutting back on its truck rental fleet but no firm details are available at this time.
The self storage division has been buying facilities so units and square feet increased in the quarter. However, occupancy also increased as did rental revenue per square foot. Self storage revenue increased by nearly 12% Y/Y. E-Box growth continues.
Oxford Life Insurance introduced some new products in the quarter that impacted liabilities from investment contracts on the balance sheet, which increased by $134 million in the second quarter and had a positive impact on cash
AMERCO has benefitted from declining interest rates. Both lease expense and interest expense has been constant over the last few quarters. With $52 million a quarter of combined lease and interest expense, down slightly from the first quarter, good financial management has been a positive factor for many years.
The Hurricane Sandy affected operations at about 100 stores on the Eastern US. All but one have reopened. AMERCO carries liability insurance and business interruption insurance. The December quarter is impacted by seasonal factors in the North East and business is slow in the third and fourth quarters. We have reduced our fourth quarter revenue estimate by $5 but the impact of "Sandy" cannot be quantified at this time.
At the current price the stock is selling at a lower valuation than most of its peer group yet it has the highest return on equity. We believe that the stock will outperform its peer group, and the overall market, over the next six months. Our valuation methods use Earnings Before Interest Taxes Depreciation Amortization (EBITDA) and EBITDA plus Lease expense (EBITDAL) since the company can buy (using borrowed moneys and generating depreciation) or lease depending on the lowest cost to the company.
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