Financial Mail - Investors Monthly - - Contents - Marc Hasenfuss

THE push by Tren­cor for an in­ward list­ing of its con­trol­ling stake in New York Stock Ex­change-listed con­tainer leas­ing spe­cial­ist Tex­tainer on the JSE is a wel­come devel­op­ment.

By all ac­counts de­lib­er­a­tions in this re­gard should be fi­nalised by year the end of the year — a devel­op­ment that will hope­fully co­in­cide with an im­proved profit per­for­mance.

Tex­tainer is the world’s sec­ond-largest con­tainer leas­ing com­pany. It was pre­vi­ously the big­gest, but its reluctance to em­bark on cor­po­rate ac­tion meant that Tri­ton emerged as the big dog (af­ter merg­ing with ri­val TAL in mid-2016).

Some pun­ters would ar­gue that size does not mat­ter. But in Tex­tainer’s case size is a crit­i­cal is­sue, as Tri­ton has emerged as the top-rated con­tainer leas­ing com­pany by a fair stretch.

Tex­tainer’s share price has been un­der wa­ter in the past 18 months, though the com­pany has ad­mit­tedly been rocked by the sink­ing of the Han­jin ship­ping line. Long-time Tren­cor share­holder Chris Lo­gan, speak­ing at the com­pany’s AGM last month, noted suc­cinctly that Tex­tainer was once the “Rolls-Royce” of the con­tainer leas­ing sec­tor but now was viewed as the “Bee­tle”.

Some of the sta­tis­tics pub­lished in Tex­tainer’s most re­cent quar­terly up­date are telling. Its price to net as­set value (NAV) was 0.8 times — well be­hind those of Tri­ton (1.9 times) and CAI (1.1 times). That Tex­tainer’s pre­sen­ta­tion openly dis­closes this lag might sug­gest that direc­tors are con­fi­dent that the com­pany can play catch-up in the short to medium term.

In­di­ca­tions are that con­tainer leas­ing rates have firmed, but the crit­i­cal ques­tion is the tim­ing of Tex­tainer’s ac­qui­si­tion of new con­tain­ers, which was ini­tially re­strained in terms of bor­row­ing pow­ers af­ter the Han­jin dis­as­ter.

Tri­ton and CAI have been more ac­tive in buy­ing con­tain­ers than Tex­tainer in re­cent quar­ters, though Tren­cor chair­man David Nurek gave the re­as­sur­ance that the com­pany has now en­tered the new con­tainer market with vigour.

The in­ward list­ing of Tex­tainer seems a fait ac­com­pli, judg­ing by the body lan­guage of the Tren­cor direc­tors

The in­ward list­ing of Tex­tainer seems a fait ac­com­pli, judg­ing by the body lan­guage of the Tren­cor direc­tors at the AGM. The me­chan­ics of the un­bundling might throw out a few per­mu­ta­tions, how­ever.

The ob­vi­ous pro­posal would be to un­bun­dle the Tex­tainer stake to Tren­cor share­hold­ers. But there is a ques­tion of how Tren­cor will deal with its other as­sets. A value break­down at the end of De­cem­ber 2016 shows that Tex­tainer ac­counted for about R15.60/share of Tren­cor’s NAV of R31.57/share. But the in­vest­ment in spe­cial­ist con­tainer com­pany TAC is worth more than R1bn (around 600c/share) and there is also cash of about R1.6bn (worth R840c/share) and other as­sets of R238m (135c/share).

First prize would be for Tex­tainer to take aboard the stake in TAC with the cash pre­sum­ably easy to dis­trib­ute to share­hold­ers in form of div­i­dends (un­til the Tren­cor shell can be dis­man­tled and delisted from the JSE).

In truth, the in­ward list­ing of Tex­tainer is a ne­ces­sity, and a rather ur­gent ini­tia­tive in terms of cutting un­nec­es­sary costs and avoid­ing frus­trat­ing de­lays in is­su­ing fi­nan­cial results.

These costs and de­lays are caused by con­found­ing cir­cum­stances that re­quire Tren­cor to con­vert US Gaap (gen­er­ally ac­cepted ac­count­ing prin­ci­ples) to IFRS (in­ter­na­tional fi­nan­cial re­port­ing stan­dards). It has meant that Tren­cor has strug­gled to pro­duce fi­nan­cial results by stip­u­lated JSE re­port­ing dead­lines. Con­se­quently the com­pany’s shares have been un­der threat of sus­pen­sion by the bourse.

The au­dit­ing pro­ce­dure is Kafkaesque. To be able to fi­nalise the de­pre­ci­a­tion of fleet and im­pair­ment num­bers in the au­dited fi­nan­cial state­ments to meet IFRS guide­lines, in­de­pen­dent au­di­tors need to be en­gaged to sur­vey Tex­tainer’s 2.5m-strong con­tainer fleet. Each con­tainer is as­sessed in­di­vid­u­ally — an au­dit­ing task that was eu­phemisti­cally de­scribed by Tren­cor’s direc­tors as a “dy­namic model”.

The bot­tom line is that it costs Tren­cor tens of mil­lions of rand to pro­duce the de­pre­ci­a­tion and im­pair­ment fig­ures. The “im­por­tance” of these fig­ures was sar­cas­ti­cally un­der­lined by Nurke at the AGM when he asked the as­sem­bled share­hold­ers: “Hands up, who looks at these two fig­ures?”

Re­shap­ing the Tren­cor/Tex­tainer struc­ture should im­me­di­ately un­lock value for share­hold­ers. Of course, the X fac­tor is whether Tex­tainer, which will no longer have an an­chor share­holder, might in its state of rel­a­tive op­er­a­tional vul­ner­a­bil­ity be more sus­cep­ti­ble to cor­po­rate ac­tion.

At this del­i­cate junc­ture reck­ons Tren­cor is a share worth tuck­ing away.

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