The JSE — thankfully, at this delicate juncture for our country — is not short on rand hedge options.
One counter that might be slightly overlooked is international container management group Textainer, which until the end of 2019 was part-owned by Trencor (which is now a dollar-based cash shell).
When it comes to default rand hedges, Textainer — with a primary listing on the New York Stock Exchange and secondary listing on the JSE — does not get grouped into that usual basket of British American Tobacco, AB InBev, Richemont, Prosus and the big mining stocks.
That said, Textainer had sped to a 12-month high at the time of going to press — which coincided with the rand’s mid-May rattling. The easy money on Textainer has been made, but there might still be some upside, especially in the jittery conditions characterising the JSE.
Textainer is a leader in its niche, leasing containers to about 200 customers, including the world’s leading shipping lines. The fleet comprises mainly standard dry freight, refrigerated intermodal containers and dry freight specials. The group also leases tank containers — via its relationship with Trifleet Leasing — and, interestingly, is a supplier of containers to the US military.
The recent weakness in the rand has pushed up the prices of larger hedge stocks markedly. Luxury brands conglomerate Richemont, for instance, has run very hard.
Textainer has ticked up as well, but IM reckons there is still good value on offer here. On an earnings multiple basis, Textainer is trading at a trailing multiple of 6.5 and a forward multiple of 6.8.
The modest rating might reflect investor caution around the shipping market holding up. Grindrod Shipping is trading at an earnings multiple of less than three. There might also be some lingering scepticism around Textainer’s turnaround after some glaring underperformance against its peers in the recent past.
Fortunately, there are the first-quarter numbers to end-March to work through, and hopefully chart a growth path for the financial year ahead.
Textainer’s average and current utilisation rate for the first quarter was a reassuring 98.8%. The first quarter, it must be noted, is usually a slow part of the trading year for the group.
So if we simply — and obviously quite conservatively — annualise out the “slow” first quarter’s earnings ($1.24 a share) then, at an exchange rate of R19/$, Textainer would produce about R95 a share in earnings. Last year the group managed R102 a share in rand-based earnings.
There might also be some lingering scepticism around Textainer’s turnaround after some glaring underperformance against its peers in the recent past
Perhaps a conservative assessment of Textainer is prudent. President and CEO Olivier Ghesquiere notes that after two years of surging container demand and significant fleet expansion, the industry is experiencing a healthy consolidation phase with limited new container production.
Importantly, he adds: “We have instead been focusing on optimising capital allocation and operational efficiency, with a particular focus on lease renewals and disposal of older sales age containers. As a result, our utilisation rate remains very firm at 98.8% … and will remain elevated for the coming quarters, ensuring stable cash flows are available to optimise our balance sheet and continue to return capital to shareholders.”
Ghesquiere says Textainer remains optimistic that the market environment will start showing positive momentum with the onset of the traditional summer peak season.
What’s more, he says, resale prices for older containers have now stabilised, and this should continue to provide normalised earnings support.
One other potential positive is that Textainer reckons that the current drop in cargo volume, largely driven by management of inventory levels, will soon correct itself and lead to higher cargo volumes over the coming months.
Prospects for the industry also need to be viewed against the backdrop of a proposed $4.7bn buyout of Triton International, Textainer’s larger rival, by infrastructure investment specialists Brookfield. Some sceptics might argue that private investor participation in the container sector might well herald the top of cycle. That’s debatable.
What this deal will do, though, is divert investor attention to Textainer after Triton is taken out of the public eye. In fact, you probably can’t rule out Textainer itself being looked at by potential suitors.
In the meantime, Textainer looks happy to buy back its own shares — having snapped up another 1.27-million during the first quarter. There is still more than $81m in share buyback capacity left over at the end of the first quarter. The quarterly dividend declarations (US30c a share for the first quarter) are useful too.
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