Stay Long Weekend: Sohn Shine
Just Stay Long
We are back with another Stay Long Weekend.
This week, we review all of the ideas from this year’s Sohn Conference—plus we share a pitch for a moving truck rental/self-storage business (too obvious?).
Let’s get to it.
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The 2023 Sohn Conference recently featured professional investors pitching their favorite stocks to help raise money for medical research. Here are the stock-specific highlights:
Divya Nettimi, founder and CIO of Avala Global, pitched Sony (SONY) as undervalued due to its diversified businesses, including gaming, image sensors, and music. Nettimi predicts that Sony's stock could rise 50% by the end of fiscal year 2024.
Mala Gaonkar, founder of SurgoCap Partners, pitched the London Stock Exchange (LSE) as a data-services business that has benefited from its acquisition of Refinitiv. Gaonkar believes that LSE's revenue can grow at high single digits.
David Rosen of Rubric Capital pitched Talen Energy (TLN), which he believes is significantly undervalued and a beneficiary of the Inflation Reduction Act's incentives for nuclear power.
Aaron Davis, co-founder and CEO of Boxer Capital, pitched Mirati Therapeutics (MRTX), a cancer drug company with an undervalued drug pipeline, including the FDA-approved drug Krazati.
Scott Goodwin, co-founder of Diameter Capital Partners, recommended Level 3 secured and unsecured bonds, citing the company's favorable revenue mix compared to other communications companies.
David Einhorn of Greenlight Partners pitched Vitesco Technologies Group (VCISF), an auto parts company transitioning to EV parts.
Andrew Weiss, founder and CEO of Weiss Asset Management, likes Korean holding companies, including SK Square Co. (067160.KS), Samsung C&T Corp. (028260.KS), and LG Corp. (003550.KS). While acknowledging governance issues, Weiss believes they are overstated.
Next, we wanted to highlight this pitch from Bright Ideas for U-Haul (UHAL). U-Haul is the ubiquitous provider of moving trucks (pictured below). The company also operates a sizeable self-storage business, which enjoys a symbiotic relationship with the truck rental business.
In their own words:
U-Haul’s business, quality, and management are underestimated by the market. U-Haul (formerly Amerco) is the dominant do-it-yourself-moving (truck rental) and a top self-storage company established in the 1940s by Joe Shoen’s (current CEO) father. As of the latest report, the company has 189,000 trucks, 128,000 trailers, 46,000 towing devices ~22,000 independent dealers, ~2,200 owned stores, and 55M rentable sq. ft of storage.
I value the moving business at ~$42 per share and the storage business at ~$51 per share in a conservative base case scenario vs the current blended share price of $54.70. Taking the total net debt out gives me a value of ~$77 in my base case or ~41% upside. I also believe my bull case has a higher chance to occur than the bear case which you will see in the sum of the parts model later.
The company has strong, honest, experienced, and aligned management (family and employees own >50% of shares and have voting control) which has handily outperformed the market over time. Management thinks extremely long-term, resists the Wall St imperative, and has a strong capital allocation philosophy.
UHAL is the only game in town when it comes to the rental truck business in DIY moving and I believe has a greater than 60% market share. They have created a wide moat due to their network effect and brand in what should be a commodity offering. This business’s moat and cash flow have allowed them to expand into self-storage at attractive return levels. They have unique advantages in storage due to their moving business, and storage is a great cash-flowing business already. As storage growth continues, the overall business becomes higher margin, less capital intensive, and less cyclical over time. These characteristics typically result in multiple expansions especially given the increasing share liquidity and new potential sell-side coverage.
I believe there is an advantage in this name to doing the work and understanding the business. The company has financials with a lack of important disclosures (mainly the separation of moving and storage margins, but also not breaking out large expense line items), does not placate wall street, has low liquidity, no sell-side coverage, and is facing some shorter-term cyclical and comparable-related headwinds. There are no direct peers with both moving and storage, and there is no actual free cash flow returning to shareholders as it is usually spent on storage and increasing fleet. Given the above, in order to invest, you must think long-term, trust management, and be okay with large swings in reported metrics each period that you may not be able to perfectly model or explain. This takes out the vast majority of investors who are either focused on the short-term, have liquidity constraints, need management access, or need to accurately forecast the business on a micro level.
The company describes its own investment thesis far more succinctly than I do (and I agree with all below):
1. The leader in DIY moving and storage markets.
a. Most diverse product offering.
b. Largest fleet of rental equipment.
c. Ubiquitous brand name recognition.
d. Unmatched network of moving locations throughout North America.
2. Significant financial strength
a. Capex – ample opportunities to invest in growth.
b. Cash – conservative balance sheet to fund reinvestment.
c. Debt – manageable maturity schedule.
3. Long-term focus
a. Significant Shoen family ownership.
b. Managed to maximize long-term value.
The shares have pulled back from highs and are at an attractive discount to intrinsic value. Since I originally purchased shares (roughly around ~$45), management has made a few near-term value-enhancing moves:
1) A stock split to create liquidity in the shares as well as pay a consistent dividend to UHAL.B holders. I believe the lack of liquidity is the main reason this is not a more widely owned name. These new shares are non-voting, but the enterprise has always been family-controlled, so in essence, nothing has changed here. They do trade at a wide discount, which I don’t believe is warranted.
2) Changed the company name from Amerco to U-Haul. This is more symbolic but incrementally helpful to new investors or analysts discovering the business.
3) A desire to onboard sell-side coverage and be somewhat more interested in telling their story to the market. I believe this can be a very big deal in the short term.
Click through to read the rest of their detailed pitch.
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Until next time! - EP