Seeking Alpha
Recommended for you:
Large-cap, event-driven, value
Profile| Send Message|
( followers)  

Textainer Group (NYSE:TGH) is the world's largest (based on fleet size) provider of intermodal containers on lease, with a total fleet of more than 1.3 million containers, representing over 2,000,000 TEU. The company leases containers to more than 300 shipping lines and other leasers, including each of the world's top 20 container lines, as measured by the total TEU capacity of their container vessels. The company provides its services worldwide via a network of 14 regional and area offices and over 300 independent depots in more than 130 locations. The company principally leases dry freight containers.

Trencor, a company publicly traded on the JSE Limited (the "JSE") in Johannesburg, South Africa, and its affiliates currently have a beneficiary interest in a majority of the company's issued and outstanding common shares and will continue to have a majority interest after giving effect to this offering.

Revenue

The company generates revenue from four segments:

  • Container Ownership (representing 52% of its fleet as of June 30, 2007)
  • Container Management (representing the remaining 48% of its fleet as of June 30, 2007)
  • Container Resale (of its owned and managed containers and as a trader)
  • Military Management
  • Leasing of its own containers generate maximum revenues for company
  • Competition

    The company competes with approximately ten other large or medium size container leasing companies, many smaller leasers, companies and financial institutions offering finance leases, and promoters of container ownership and leasing as a tax-efficient investment. It is common for shipping lines to utilize several leasing companies to meet their container needs.

    Customers/Industries Served

    The company's main customers are cargo shipping lines which take the company's containers on lease.

    Financials

    The company shows nearly 8% revenue growth in H1 2007 as compare to H1 2006, mainly due to 54% growth in management frees due acquisition made in July 2006. Operating expenses are lower by nearly 5% mainly due to low depreciation.

    Valuation/Offer Value

    At the offer price of $20 per share, company shares are available at PE nearly 14 (annualizing First half FY 2007)

    Company/Industry Expectations

    (These are just assumptions; the company could perform differently)

    The industry is expected to grow at 9-10% (under current economic conditions. The company is expected grow in tandem with industry.

    Negatives

  • Industry growth depends, to a great extent, on global economic growth; any slowdown can affect the industry, as well as the company, in a big way.
  • Competition is intense.
  • The company operates a big fleet of containers, which needs excellent operational management.
  • Any slowdown in world trade can affect the company adversely in big way.
  • Positives

  • Size: The company operates a fleet of more than 1.3 million containers, representing over 2,000,000 TEU.
  • Leading position: The company is a leader in its industry with a long operational history.
  • Global presence: The company provides its services worldwide via a network of 14 regional and area offices and over 300 independent depots in more than 130 locations. This type of geographical reach will isolate the company from any country/industry specific slowdown.
  • Strong relationships: The company leases containers to more than 300 shipping lines and other leasers, including each of the world's top 20 container lines.
  • Rising bilateral and multilateral trades: More and more countries are signing bilateral and multilateral trade agreements to promote trade; this will result in more import-export of cargo and increase demand for containers.
  • Recent acquisition: On July 23, 2007, the company purchased, for $56.0 million, the exclusive rights to manage the container fleet of Capital Lease Limited, Hong Kong. This is the eighth largest container leasing company as measured by fleet size with over 500,000 TEU in its fleet. This is a big acquisition and has raised the company's fleet size by more than 30%, although since this is a management contract the revenues will be low but the margins will be high. The benefit of this acquisition is expected to start coming in from last quarter of FY 2007.
  • Proceeds will be used by company to fund/repay cost of its recent acquisition and debt repayment and will make the company's balance sheet stronger.
  • This article reflects the personal view of the author about the company and one must read the offer prospectus and consult a financial adviser before making any investment decision.

    Source: Textainer Group IPO: Size Really Does Matter