General Finance Corporation
(NASDAQ:GFN)
CEO and President: Ronald Valenta
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WSR: Good day from Wall Street, this is Juan Costello, Senior Analyst with The Wall Street Reporter, and joining us today is Ronald Valenta, the CEO and President for General Finance Corporation. The company trades on NASDAQ and their ticker symbol is GFN.
Thanks for joining us today, there, Ron.
Ronald Valenta: Thank you. Thank you for having me.
WSR: Any time; and so starting off, give us a brief history and overview of the company for some of our listeners that are new to your story.
Ronald Valenta: General Finance Corporation is a parent company of businesses that operate in the mobile storage, modular space and liquid containment industries, which we collectively refer to as the portable service industries. We went public in 2006; we made our first acquisition in 2007, and bought our second firm in 2008.
Our two primary investments consist of a little bit over 50% ownership in Royal Wolf Limited, the leading provider of portable storage solutions in the Asia-Pacific regions of Australia and New Zealand. Our second investment is a wholly-owned subsidiary, Pac-Van, Inc., which is based in Indianapolis, and is a regional provider of portable storage, office, and liquid storage tank containers, mobile offices, and modular buildings in North America.
Royal Wolf is also a public company, and trades on the Australian Stock Exchange, ASX, under the ticker symbol RWH, and after completing their IPO in May of 2011, they now have a market cap that’s a little over $230 million. Royal Wolf focuses on three primary product segments of the portable container market. The first of which is mobile storage, the second, portable buildings, and the third, freight containers.
We are today the market leader in the region, with an approximate combined market share in excess of 35%, and we are the only firm with national capabilities in both Australia and New Zealand. We have a well-diversified base of blue chip customers and sell into nineteen different industries.
Pac-Van, our wholly-owned U.S. subsidiary, is a regional provider of portable storage, office, and liquid storage tank containers, mobile offices, and modular buildings in North America, operating 28 facilities in 18 states in the United States and in one province in Canada. Pac-Van’s newest product line is portable liquid storage tank containers. These containers sell into a number of existing and new end markets for us, some of which are chemical, industrial, environmental remediation, oil and gas exploration, waste water treatment, and waste management.
In addition to being in the portable storage, office, and liquid tank container markets, Pac-Van operates in the modular space industry, where we provide mobile offices and modular buildings, which involves the rental and sale of factory-built structures that we deliver and install at customer locations. We serve a broad range of industries including construction, energy, services, retail, manufacturing, transportation, utilities, and government. And then recently, we made a small investment in a frac tank manufacturer in Texas.
WSR: Well, great. What were some of the drivers that are behind the company’s recently announced Q3 results?
Ronald Valenta: The growth at Royal Wolf, over the last 5 years has been the result of building upon their market leading position in that part of the world, and they’ve done that through both organic growth and strategic tuck-in acquisitions. They’ve also benefited from an economy that’s been a little bit more vibrant than the United States. They never really quite experienced the recession that we had here.
Recently, we’ve had a lot of success in the mining industry where we have provided full mining camps to customers at remote locations, and we’ve also benefited from the rebuilding process that is occurring in Christchurch, New Zealand, where they had that very large and devastating earthquake last year.
At Pac-Van, again, our North American operations, we are seeing a gradual increase in demand across most of our end markets. We’re very excited about the new portable liquid storage tank container product line where we have entered into new markets and new industries. We see some very good long term growth prospects in oil and gas, waste water treatment, and environmental remediation. So, we have experienced very strong growth in both venues that has been driven by our investment in our lease fleet, coupled with very high levels of fleet utilization and moderate lease rate increases.
WSR: Well, good. What are some of the trends right now in the sector, and how well-positioned is the company to capitalize on them?
Ronald Valenta: In the Pan Pacific, our customers really want to be served not only at a local level, but also at a regional and national level, and there we have the only national footprint in those markets, so we’re benefiting from our size and our scale. As well, in both venues, energy is a focus of ours, the energy industry, and we’re seeing very strong demand in the mining sector. So, we continue to see organic growth opportunities, and then when you couple that with our ability to acquire and our current balance sheet, we would look to continue to consolidate the industry in the venues in which we are participating.
WSR: What are some of the other factors that makes the company unique from some of the other players in sector?
Ronald Valenta: We currently have in-house design and engineering capabilities that allow us to meet the specialized needs of some of our customers. It also enables us to introduce new products quickly into the market and really differentiate ourselves from our competition. Our current track record includes eleven new product lines that we brought out over the last five years, which gives us a reputational edge over our competition. We also, through the recent downturn, now have a battle seasoned management team that has a very strong reputation for excellent customer service.
WSR: Certainly. Perhaps you could walk us through your background and experience there, Ron, and talk a little bit about the management over at General Finance Corp.
Ronald Valenta: I’d love to. I currently have approximately 25 years of experience in senior management roles in the domestic storage container industry. Prior to joining General Finance Corporation, I was the CEO and founder of a company called the Mobile Storage Group, and I had performed in that role for about 15 years. They were a U.S.-based portable storage company. We actually started that business with four containers and then eventually became the second largest domestic storage container business in the U.S. and within an 18-month period of time, we became the largest storage container company in the United Kingdom. Eventually, the company, Mobile Storage, ended up merging with Mobile Mini, and the enterprise value at the point in time of the merger, was approximately $700 million. The Royal Wolf management team also has a very deep level of experience in the portable container, logistics and equipment leasing industries. Our CEO, Bob Allen, joined us in 2004 and has been the CEO since 2006. He has over 30 years of experience in the sector, and we’re very happy to have him with us. He also has led the Company through a very strong growth phase during his tenure that included 12 acquisitions, and again, the 11 new product introductions. His next four senior executives have an average of over 15 years of experience in the sector and represent a very strong management team.
In North America, we’re led by Ted Mourouzis, who has been with the company over 15 years, and has led Pac-Van through all different types of business cycles and of course most recently, through this big downturn in the U.S. His six senior managers have worked for Pac-Van for an average of over 12 years. He and his team have done a great job in managing through what has been a very challenging recession, and now they have returned to a growth mode, which we’re very pleased to see.
WSR: What are some of the goals and milestones there that you and the team are hoping to accomplish over the course of the next year for GFN?
Ronald Valenta: We would like Royal Wolf to continue to build upon their market leadership position, again, both through organic growth, the rollout of new products, and through accretive acquisitions. Our growth initiatives really focus on our markets where we’re seeing strong demand or where we are under-represented.
We will continue to invest capital into both the construction and natural resources sectors, again, particularly in mining where we’ve had quite a bit of success in the last 12 to 18 months. And then, lastly, we will do accretive acquisitions and strategic acquisitions as they become available, both in Australia and New Zealand.
In North America, Pac-Van’s focus is really three-fold. The first of which is to increase market penetration in the attractive storage and office container space; the second of which is to pursue accretive acquisitions that enhance our position in existing markets or expand our geographic footprint. Recently, we bought a company in Canada, which is now a wholly-owned subsidiary of Pac-Van. It’s based in the Edmonton Alberta region, where we find a market that has many of the same attributes that we see in Australia. We plan to introduce several of the products that have been successful in Australia into Canada, as we look for additional growth opportunities.
And then lastly, we want to focus on rolling out new products or enter into new markets that are healthy. Again, most recently, we have entered into the liquid storage tank container market, and that is certainly an example of moving to products that are in high demand and entering into growth markets.
WSR: Right, and when it comes to investors and the financial community, Ron, do you believe that the General Finance Corp. story and your message and the company’s upside are completely understood and appreciated by them and if not, what do you wish investors better understood about the company?
Ronald Valenta: First of all, I don’t think that General Finance Corp. is really receiving full credit for our majority ownership stake in Royal Wolf, a very good company with a strong growth profile and a market leading position in what we like to think of as a very attractive industry. So, if you look at the value of our ownership in Royal Wolf today and what it would be worth in terms of the equivalent value of our stock, it is $5.50 per share of GFN stock, and yet our stock today is trading at $4.50. So this implies that the market is ascribing very little or even negative value to our North American operations, which is clearly not our belief.
I think another thing that investors sometimes fail to appreciate is that our business does generate a lot of cash flow from operations, and we have very little maintenance capital expenditures, so with that in mind, we choose every year to reinvest our excess cash flow into fleet, to further grow and become more profitable. So, on the surface, it appears that we don’t generate free cash flow, but in fact, it’s really our choice to grow through profitable fleet investment.
And then lastly, I think another aspect of our business that sometimes gets overlooked is really looking at the leasing model. As we continue to do more leasing, currently 56% of our revenues is from leasing, it generates higher margins, and with those higher margins we become more profitable. So our leasing model with its higher margins sometimes get overlooked, and that’s one of the drivers of our long-term growth.
WSR: Surely, and so once again, joining us today, is Ronald Valenta, the CEO and President for General Finance Corporation. The company trades on NASDAQ — ticker symbol is GFN; currently trading at $4.50 a share. The market cap is north of $99 million, and before we conclude here, Ron, to briefly recap some of your key points, why do you believe investors should consider GFN as a good investment opportunity today?
Ronald Valenta: Well, I think first of all, we have a group of very seasoned managers that have proven experience in all types of business cycles within the sector. At the parent level, we also have a seasoned team, and we believe that our strategies are well thought out and that we have a disciplined growth plan in place. Our investment activity is also focused on the very attractive container asset class.
We have been delivering consistent growth and profitability. We have a 50% ownership stake in a great company, Royal Wolf, with a market leading position in two venues, both Australia and New Zealand. In terms of North America, Pac-Van has weathered one of the worst economic periods that our country has faced, and is now really benefiting from its strategic initiatives. And finally, based on a sum of the parts methodology, we believe that our stock offers an attractive value proposition to current and future investors.
WSR: Well, we certainly look forward to continuing to track the company’s growth, and report on your upcoming progress, and we’d like to thank you for taking the time to join us today, Ron, and update our investor audience on General Finance Corp.
Ronald Valenta: Thank you very much for having me today.