October 7, 2022

Few companies are as effective as U-Haul, which is virtually synonymous with rental trucks used by do-it-yourself movers. And some companies Amerco . anonymous as,
U-Haul’s parents.

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But if investors take a closer look at Amerco, they’ll have a lot to like. U-Haul’s market position is nearly impenetrable, with nearly 10 times the number of rental locations as one of its top rivals, Penske. Amerco has also quietly built a large self-storage business to supplement its rental operations, and that value is not reflected in its stock price. Shares of Amerco (ticker: UHAL), which are down 29% this year at $515, look cheap, earning just nine times their $57 per share earnings in its fiscal year that ended March.

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However, Amerco could not catch the attention of Wall Street. There are no profit projections for the current fiscal as there is almost no analyst coverage of the stock despite a market value of $10 billion.

The company, led by its strong-willed chairman and chairman, Joe Shoen, doesn’t cater to the investment community. It pays a minuscule, sub-1% dividend, doesn’t buy back stock, provides limited financial disclosure, and refuses to change its non-descript name to U-Hall, raising its profile. could.

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No one can force change. The Shoen family controls the company, owning more than half the stock. A trust controlled by Joe Shoen and his brother Mark holds a 43% stake. Amerco fans say that, in addition to capital management, 73-year-old Joe Shoen has managed a great business over 35 years. A cost-conscious leader, he made $1 million last year, modest by CEO standards.

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“Amerco is one of those great businesses that is completely unknown on Wall Street. The brand is ubiquitous,” says Steve Galbraith, chief investment officer at Kindred Capital Advisors, a Norwalk, Conn., investment manager who owns the stock. He believes the shares are worth 50% more than their current price—not strange, considering they peaked at $769 last November.

Others are even faster. “Given the continuity of the business and how low its competition is, Amarco should trade slightly above the market multiple,” says Bill Smed, co-manager of Smed Value Fund (SMVLX). At the market multiple, the stock would trade near $1,000.

It’s hard to overstate how impressive the U-Haul is. The company says that one in five Americans move each year and that 75% move “do it yourself”. There is no data on the truck-rental market share, but it is believed to hold over 50% in U-Haul. Rivals include Penske and Avis Budget Group (CAR). U-Haul rents trucks and trailers (that are towed behind vehicles) at more than 23,000 US locations.

U-Haul does very little advertising, in large part because its trucks and trailers are rolling up billboards for its services. It gives rental price on local demand. Reflecting migration from California, a three-day truck rental from Los Angeles to Phoenix later this month costs $566, while the reverse trip is only $199. All told, the truck-rental business’s revenue has grown at a 9% annual rate over the past decade.

U-Haul’s self-storage business is also impressive. The industry has exploded over the past decade, and leaders like public storage (PSA) have generated massive returns. “The American public’s ability to hoard junk is unbelievable, and people are incredibly bad about purges,” Smed says.

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Sales from U-Haul’s storage operations have grown at a 16.5% clip over the past decade; Its footprint has quadrupled to nearly 50 million square feet. Amerco is building self-storage features on most of its 2,000-plus company-owned rental sites because people often find they have unnecessary stuff when they move. The company spent $1 billion on the business in its fiscal year 2022.

Based on valuations from companies like Life Storage (LSI), Galbraith thinks U-Haul’s self-storage unit, which generates about $700 million in annual revenue, could be worth most of Amerco’s market value. Therefore, investors aren’t paying much for the truck-rental operation, which generates most of the $5.7 billion in annual sales. Given the strength of Amerco’s business, Galbraith and Smead believe that, if the Shoen family ever wants to sell, Berkshire Hathaway (BRK.B) will be a willing buyer.

After net income nearly doubled to $1.1 billion in fiscal 2022, some investors wondered whether Amerco was “earning more.” But profits in the June quarter stood at $17 per share, a turnaround from a year-ago level. One investor beef is Amarco’s refusal to offer regular dividends, which Galbraith says limits the pool of potential investors. He thinks he can pay $10 a year — a 2% yield. Its periodic dividend — characterized as special — totaled $1.50 in the previous year.

Craig Inman, a portfolio manager at Artisan Partners, praises Shoen and his team, but also thinks Amarco should boost its payouts. One option would be a mix of regular dividends and a variable tied to profits—a combination becoming more common.

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On the conference call, Shawn has been non-committal on dividends. For stock repurchases, he told baron’s In an email, “While there are economic calculations that support buybacks, our general approach is to reinvest in the business so that we can better serve customers.” When asked about the difference between Amerco’s intrinsic value and stock price, Shion replied, “There is no such thing as being off the table. I believe we can do better to communicate with investors and are striving to do so.”

Shareholders can politely appreciate that effort. But buybacks and hefty dividends will probably get a standing ovation.

write to Andrew Berry [email protected] Feather