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UHAL: Fourth quarter moving and rental revenue spot on our estimates. Increasing target price.

By Ian Gilson, PhD, CFA


AMERCO (UHAL) announced its 2014 fiscal annual results on May 28, 2014 followed by a conference call on May 29, 2014. As shown below revenue results were close to our forecasts. We use a slightly different template for operating income than that used by the company in that other income is treated as a non operating number. Operating margins were slightly below our estimate and we had overestimated the tax rate. Overall it was a very good quarter.

U-Haul truck and rental revenue is being driven by increasing capital expenditures that are not being matched by the competition. More trucks available contribute to more transactions and the company's past investments in IT infrastructure have reduced the expenses needed to handle the transactions.

Both fleet increases and transaction increased Y/Y with no change in pricing. Since the March quarter is the seasonally low quarter all rental companies have low utilization rates and discounting does not generate much of an increase in revenue. Rental revenue per truck increased by 4% and rental revenue per location increased by 15%.

In 2015 the company intends to increase capital spending on trucks yet again but truck sales are also expected to increase so that net capital expenditure on trucks and trailers should decline. There continues to be significant potential from increased utilization but we do not expect any reduction in discounting. Much of the increase in vehicles will be mid-sized trucks that can be used in both the point-to-point and about town markets.

AMERCO nearly doubled its capital spending on storage facilities in 2014. Despite this the occupancy rate increase Y/Y in the 4Q14. Capital spending on storage is expected to be at about the same level in fiscal 2015 as it was in 2014.

We expect the positive trends of 2014 to continue through 2015. Cash generation should allow for some pay down of debt if the company cannot get good mortgage rates (which is unlikely given the expertise of the financial team). There will be some significant debt maturing this year but that could be covered by cash in hand if necessary.

We have increased our price target to $290 a share based on continued growth in revenue and cash flow and assuming no major correction in the equity markets.


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