In any of the industries I study, I look to find a company that has a leading position in their market. As an added bonus, I love to see a company that not only leads, but dominates the industry through its leadership status. Throughout history, many companies have developed a wide moat simply by being the top dog in a growing industry, and that appears to be the case for Textainer Group Holdings Limited (NYSE:TGH), leader of the container leasing industry.
A Booming Industry
The status of the global shipping industry by fleet type:
See that tiny sliver of "11" on the chart back in 1980? Well that was container ship capacity then, and it is well over 162 now. Posting a 9% CAGR over the last 30 years, the movement towards container ships has been a rapid one. Furthermore, growth accelerated to 11% over the final 5 years of the chart. Representing the core of many container businesses' operations, this global container shipping growth has lead to many happy shareholders over the last year. With Textainer, TAL International Group, Inc. (NYSE:TAL), and CAI International Inc (NYSE:CAP) all within 3% of their 52-week highs, and seacube container leasing ltd (NYSE:BOX)'s recent agreement to be acquired by the Ontario Teachers' Pension Plan, it seems as if investors have finally taken notice of the industry's profitability.
With this growth being seen throughout the industry, however, does Textainer's leadership position make it the best investment of the group? Let's start by looking at their current operations.
So Many Containers
|Company||TEU (000's)||Market Cap||Rev.||10 Yr. Rev. Growth||3 Yr. Rev. Growth||10 Yr. EPS Growth||3 Yr. EPS Growth|
|TAL||1,625||1.36B||572M||6%||16%||14% (9 Years)||26%|
|SeaCube||930||464M||195M||-4% (5 Years)||12%||4% (5 Years)||10%|
Sorry for all the horrendous numbers, but long story short, Textainer is the leader in Twenty-foot equivalent units (TEU's) and has some of the most consistent growth rates of the group. With only one year of a shrinking EPS, the company shows its resiliency in an industry where others have struggled to grow year in and year out.
Despite having slightly lower revenues than TAL, Textainer manages a larger fleet, and more importantly generates more of its income from long term contracts. By generally selling 5 year leases to its customers, Textainer has created an incredibly sticky business. With long term contracts composing 80% of company revenues, Textainer is able to hold a "stickiness advantage" over TAL, which only has a 68% margin.