Post-Jowell options to the fore
More to Trencor than just Textainer
The timely release of an updated NAV breakdown reminds investors that there is more to Trencor than just Textainer
The share price of Trencor, which owns a majority stake in New York Stock Exchange-listed container-leasing business Textainer, has climbed more than 40% in the past six months.
Trencor is one of the oldest and purest rand hedges on the JSE, but it has perhaps reached a corporate crossroads after the last two executives representing the founding Jowell family retired late last year.
Many investors have mulled possible outcomes, including a takeover of Trencor or, more enticingly, an unbundling of the Textainer shareholding (which might have to be tagged to a secondary listing on the JSE).
The shift upwards in Trencor’s share price has been helped by the weaker rand/dollar exchange rate, which tends to mask the travails at Textainer. Textainer’s shares are at the same level as in May last year, which contrasts with the share price performance of some of its biggest competitors. Larger rival Triton International’s share price has doubled over the same period, while CAI International has been even sprightlier.
Investors’ concerns about Textainer’s relative underperformance were quite evident at a recent investment presentation of first-quarter results for 2017. Lease rental income crept up by roughly 1% to US$107.6m, while container impairments (a key indicator, as containers are sold on) declined 73% to just $3.8m. The gains on container sales increased 22% to $4m, with the encouraging news that new container prices are above $2,200 per container equivalent unit — 75% higher than a year ago. Used container prices increased more than 50% since reaching a low point in August 2016.
However, Textainer reported a net loss of $7m for the quarter, despite utilisation averaging 95%.
Operational issues have been clouded by the bankruptcy of sizeable client Hanjin Shipping, which held 114,000 Textainer containers on lease (about 6.4% of the total fleet). The problem is that Textainer has incurred significant upfront costs for the "recovery, repair and repositioning" of the containers leased to Hanjin.
Textainer CEO Philip Brewer said the company had $80m of insurance after a $5m deductible to cover the majority of its Hanjin losses. "We made an initial insurance claim in April 2017 and expect to receive initial payments by the end of May 2017. We believe our final claim will exceed our insurance coverage by $10m-$20m and that final resolution of the claim will occur later in 2017."
Brewer said the reactivation of recovered Hanjin containers and settlement of the insurance claim would bolster Textainer’s financial position and contribute to improved results.
Some investors at the quarterly presentation pressed hard to gauge whether Textainer would continue lagging its main competitors — but the only certainty is that the Hanjin bankruptcy will continue to drag on performance, with money spent on recovering containers rather than investing in new leasing capacity.
Last week Trencor released additional information on the Hanjin situation, the gist being that there will be a charge against after-tax profits of between R64m and R128m. This reflects the shortfall in the insurance cover.
With more uncertainty around the lingering Hanjin matter, local investors can start taking a closer look at Trencor as a proxy for Textainer’s longer-term recovery.
The timely release of an updated net asset value (NAV) breakdown — purportedly due to investor queries — reminds investors that there is more to Trencor than just Textainer.
The valuations were based on a spot exchange rate of R13.58/$ and the price of Textainer’s shares — $7.45 — as at the end of 2016.
Trencor’s shareholding in Textainer was calculated at R2.76bn, which is equivalent to about R15.60/share.
The beneficiary interest in marine container specialist TAC is valued at just over R1bn or R6.04/share, and Trencor’s cash balance of close to R1.5bn is worth about R8.40.
The bottom line is that the "hard" NAV underpin at Trencor is R5.6bn, or R31.37/share.
What is quite surprising is how the make-up of Trencor’s NAV has changed from the end of 2015, when the stake in Textainer was valued at about R6bn or R33.75/share. Perhaps more intriguing is the marked write-up in value at TAC from just R577m or R3.26c/share at the end of 2015 — an event that might reinforce notions that TAC is a solid specialist operation that deserves more investor attention.
The much deflated value of Textainer is bound to be a hot topic at Trencor’s AGM this year, especially as in the recent past the directors have defended the company’s reluctance to embark on corporate action to build scale and operating efficiencies.
A key contention, no doubt, remains the wisdom of Trencor maintaining its protective "parent company" role at Textainer — especially if minority shareholders are of the opinion that corporate action is a more effective way of unlocking value than waiting for the Hanjin catastrophe to recede. Questions around unbundling Trencor’s stake in Textainer are more pertinent than ever.