Provider of portable storage solutions and offers a range of portable storage products in varying lengths and widths with an assortment of proprietary security systems, multiple doors, electrical wiring and shelving.
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They have strong assets that more than make up for debt. Those assets have good resale value. They are dependent on the economy.
The Company is starting a very interesting growth initiative. Presently they are mostly a Company that serves commercial markets. Very soon, they will be opening about 7 warehouse locations to serve the home market. This would increase their annual target market from $2 billion to $10 billion.
You might wonder why they haven’t done this in the past. Most customers don’t want their home furniture to be stored in an outside yard. So Mini-mobile will open 7 warehouse locations to build their home storage business. I think this will be very good for them.
They were able to reduce debt by 18% which saved them $10.1 million. As they pay down debt, and barring another recession, their earnings should go up without a lot of sales growth. I think the long-term potential of the Company is very interesting.
Their debt is dropping, but must still seem high to investors. They have about $700 million in debt and only 2 million in cash. However, they have over a $1 billion in fleet assets. These steel units last 50 years and don’t lose their value. A fresh coat of paint and they can sell an older unit for nearly the price of a new one. Once these units pay for themselves, they become very neat cash flow producing assets that just keep making money.
Because these units keep their value, they can ramp their business up or down as necessary. Their plan for the home consumer market is really interesting. It increases their market. And they can advertise the greater safety of their units which are often setting at construction sites. They are made of steel and have better locking systems than many of the existing home competitors’ units. It will also help them increase utilization. Plus they have always gotten calls from home owners wondering if they rent home units. In the past, they have had to say No and send them to competitors. That is about to change.
The new warehouses will go into existing markets, so they will be able to leverage their advertising. Also home users might increase their commercial business through referrals or from home owners that also own businesses. I see no downside to this new growth strategy.
Cash flow is strong. TTM cash flow excluding the sale of assets was $1.65 per share which gives them a cash flow yield of 7.3% which is good in my opinion. Of course with $108 oil prices we could slip back into another recession which wouldn’t help them. The price is volatile, but their long-term potential is very good in my opinion.
Penalties for paying off debt really hurt earnings last year and took a small bite this year, but it is worth it. Their business will also carry high depreciation expenses on their fleet which hurt earnings, but has no effect on cash flow. Depreciation is added back to cash flow, but since net income is the first line item of cash flow, it has no net effect, so cash flow is substantially higher than earnings and it is what we should use to value the company. As they pay down debt, earnings will go up since they will be paying less interest expense.
But for now it is best to focus on cash flow. But in time, barring a recession, earnings should go up nicely, even if they are slow to grow revenues. But with their new growth initiatives, revenues are likely to start going up nicely in the next few years too, again barring another deep oil driven recession.