UHAL

AMERCO—An Undervalued $7Billion Company

Hidden in Plain Sight

Long Investment Idea Price Target: $502/share

Alexandra Esparza MBA Candidate at the Yale School of Management, May 4, 2016

Company Background

•  Staying Power: Founded by Schoen family in 1945

•  Largest DIY mover in the US, with ~ 50% market share; one of the largest storage players nationally as well

• High brand recognition; name synonymous with moving

•  Focused on improving core DIY business and track record of execution

Business Segments

• Moving and Storage: comprised of AMERCO, U-Haul, and Real

Estate and the subsidiaries of U- Haul and Real Estate

• Property and Casualty Insurance/ Repwest

• Life Insurance, comprised of Oxford and its subsidiaries

Key Metrics • Market  Cap:  $6.90B    • P/E  ~14x  on  Consensus  Fiscal  Year  16  • Generated  $22.74  in  the  12  months  ending  12/31/2015,  trailing  PE  of  15.61    

•  LTM  EV/EBITDA  of    0.24    •  Thinly  traded  (average  3  month  volume  is  60k  shares  per  day)          

*Fiscal  year  ends  3/31/16  ,  FY  15  denotes  full  year  ending  on  12/31/15  Based  on  Closing  Values  as  of  5/02/2016    

Value Creation, but Under the Radar •  Virtually uncovered by the Street – only one sell-side analyst covers

•  Orphaned company, doesn’t fall into a distinct coverage bucket •  Thin volumes and limited institutional interest •  Market sees a company in the unattractive “Moving Industry” – in reality it is a differentiated DIY company with

other optionality attracting a different customer

•  3 year CAGR of 7% •  Earnings in 9 months ended 12/31/15 up 25.6% y/y •  Margin Expansion since 2010 and ongoing: EBITDA Margin +33% in 2015, +36% in LTM; Profit

margin ~14% in LTM

•  Founding family has ~50% stake, speaks to skin in the game, have been able to execute

•  Relatively clean balance sheet, and a special dividend every year since 2011  

The Best at What They Do -  The most storage coverage in NA, 50% market

share in otherwise fragmented DIY moving space

-  Competitive moat from largest network, best-

of-breed product, entrenched brand awareness and goodwill.

-  Ryder and Penske now focused on B2B space

not B2B, U-Haul continues to dominate -  High barriers to entry given real estate portfolio

and largest fleet of trucks of any mover

-  Not just another moving company : owns the DIY ecosystem, lots of profitable add-ons

-  Innovating on secular trends in the moving

industry (i.e. Pick-up U-Boxes)      

Source:AMERCO    

Millennial Engagement Drives Growth •  Millennials are now the largest US demographic segment, with ~75mm, and a median age of 25 •  Millennials increasingly moving in cities; evidence that they delayed marriage but may follow Gen Z

to suburbs, potential great market for DIY movers that is underappreciated. Set to capture any uptick in family formation or moving in this demographic as there is pessimism around this group.

•  High affinity for DIY, and can be expected to prefer U-Haul’s lower prices relative to full service

movers •  Evidence suggests this generation is more willing to take on DIY projects vs. previous generations •  DIY makes sense for anyone with fewer positions, smaller apartments, no need for a full service mover

•  U-Haul especially practical for short-distance moves in in urban environments, where millennials tend to live.

•  Way for the consumer to save money, but brand isn’t just a “low-end” solution

•  Ongoing negative customer perception of big moving companies/brokers/carriers, strong brand is reassuring to this demographic – first in Google search for moving truck

#UHAULFAMOUS: >7,200 Posts

U-Haul Positioned to Take Advantage of Demographic Shifts

•  Building out tech presence: app UX is strong and easy to use •  Implemented marketplace for moving helpers, with room for tech integration •  Can continue to consolidate fragmented DIY space which is appropriate for this large demographic •  Seamless moving experience (cited as one of the most stressful life experiences)

•  Storage units delivered to customer’s door •  Scheduling via app •  All supplies and add-ons available at U-Haul point of sale

•  Limited opportunity for “Uberization” of this need in sharing economy: •  I don’t have a truck, a hitch and a storage box lying around and neither do any of my friends, company working on having

a best of breed consumer interface, fleet utilization tech pretty commoditized

•  Engaging millennial users with Instagram truck graphics campaign; improves the user experience and promotes brand awareness in a very effective and clever way  

UI is Easy to Use and Differentiating

High Brand Awareness is Extremely Valuable

•  Convenience: •  Consumers are generally ignorant about the moving industry, too many options, lots of

scams, unwilling to do research •  Preference for known, safe brand •  Moving is a huge pain-point, and the most seamless experience wins •  Point of Sale supply purchases; one-stop experience

•  Pricing: •  Packing supplies are cheaper vs. competitors, and experience significantly cheaper vs. full-

service movers •  Still, U-Haul can afford a high markup on supplies

•  Real Competitive Differentiation: •  Penske and Ryder mostly focuses on business rentals; U-Haul is the only large player in

the DIY space. •  Storage centers also act as rental centers/creates an integrated solution, only full supply

chain solution for the consumer  

Other Businesses

• Oxford Life Insurance – caters to aging boomer demographic • AMERCO Real Estate Company – manages the storage units • Repwest - Property and Casualty Insurance– serves moving

consumers •  Strong cross-selling platform at point-of-sale

Revenue Growth By Segment

    2012   2013   2014   2015                      Self  Moving  Equipment  Rentals     8.48%   5.32%   10.63%   9.77%                      Self-­‐Storage  Revenues     11.33%   13.61%   19.08%   16.14%                      

Self-­‐Moving  and  Self-­‐Storage  Products     4.03%   3.40%   5.91%   4.27%                      Property  Management  Fees     5.12%   4.78%   0.47%   3.46%                      Life  Insurance     34.09%   -­‐35.83%   -­‐11.34%   -­‐1.15%                      Property  and  Casualty  Insurance     6.28%   5.24%   19.54%   13.16%                      Investment  and  Interest  Income     17.22%   12.71%   -­‐4.00%   6.45%  

Other  Revenue     41.49%   24.22%   64.83%   -­‐0.37%  Totals     11.58%   1.85%   10.81%   8.44%  

Valuation and Upside

•  Limited direct comps, but industry analysis suggests opportunity for multiple expansion by 4+ turns

•  Rental providers such as MINI trading at ~21x FY16 estimates

•  Storage peers such as CUBE trading at 23.34x EV/EBITDA estimates

•  Current discount valuation: •  14x FY16 street P/E estimates •  12x FY17* estimates of $29.55/share

•  17x on FY17 yields price target of $502/share, plus potential for other corporate actions

*Ending 3/15/17

Catalysts

• Additional Wall Street coverage, re-rating, greater visibility of the company

• Potential opportunity to spin-off real estate assets or insurance

businesses •  Spin-real estate into REIT, but maintain operating benefits (potentially

analogous to recent DRI/FCPT spin) • Uptick in dynamism and increased moving activity in the US and

Canada

 

Risks

• Slowdown in moving or homebuilding generally • Americans overall may be moving for jobs less, and Millennials

may not ultimately move out of cities as they form households • Disruptive tech-driven innovation in the logistics space by

competitors

• High concentration of family ownership and thin volume