UHAL Maintains Moderate Buy Rec
AMERCO Inc. (UHAL) is the parent company of U-HAUL International, the largest consumer truck rental company in the world. It is also the second-largest self-storage company in North America.
The problems of the auto industry have impacted AMERCO's revenue and earnings. Self-Moving revenue was slightly below our estimate ($390A vs. $400E) as was pretax income ($48 vs. $50). We expect some of the problems to continue and have adjusted our numbers. We rate the stock a Buy and reduced our price target to $60 a share.
As suggested in our 4Q08 report, discounting was less in the June quarter. This reduction may also have been due to the Budget rental trucks cutting back on discounting due to its impact on revenue. Avis Budget Group Inc. (CAR) reported an 8% decline in truck rental revenue despite an increase in rental days.
Revenue was impacted by problems at General Motors (GM). Production cutbacks and a strike at a major parts supplier meant that Uhaul did not receive the expected number of new trucks. This caused a slight reduction in fleet size which reduced revenue by about $7 to $10 million (Zacks estimate).
The increase in commissions suggest that the company dealers were hit worse that the affiliated dealers. Uhaul was unable to cut back on vehicle sales enough to compensate for the lack of new trucks. Since older trucks have higher repair costs than new trucks, keeping the old ones in service would reduce margins slightly. Of greater impact is the decline in used truck prices as a result of the increase in petrol prices and consumers selling trucks in favor of smaller vehicles.
Agilysys Downgraded to Hold
Agilysys, Inc. (AGYS) posted disappointing first quarter results as a result of weakness in its TSG group as customers deferred purchase decisions.
We are not surprised that AGYS is facing greater pressure than its peers given its exposure to the retail and hospitality industries, but are puzzled as to why the portion of its business not exposed to these two verticals is performing the weakest. The company still expects to hit its full year guidance, but we are skeptical of a quick recovery and downgrade the shares to Hold as a result.
Although there are a limited number of comparable companies, the three most similar trade in a range of 6 to 15 times current year EBITDA and 1 to 12 times out year EBITDA. This range is consistent with the company s acquisition criteria as it expects to pay approximately 10 times EBITDA for acquisitions.
Agilysys fiscal year that is most comparable with its competitor's current fiscal year is fiscal 2009, which ends in March of 2009. We believe the company will reach normalized EBITDA margins of over 6% by fiscal 2010, equal to EBITDA of $3.65 per share.
