Time to move Trencor boxes?

In February this year Trencor's share price was still trekking under R40, but it has since shifted up sharply to settle around the R52 mark.

Also, Trencor last week closed the discount on its 60% US-held container management business, Textainer, to around 10%. The discount has been stretched close to 20% in recent months.

The R9,2bn holding in Textainer is worth around R52/share for Trencor and there's another R800m (450c/share) in long-term debtors and net cash of around R600m (400c/share).

Trencor could be considering proposals to unbundle its stake in Textainer to its shareholders. It would be logical, since Mobile Industries, Trencor's pyramid holding company, unbundled its holding in Trencor to shareholders in late 2010.

After Trencor's AGM in mid-June, the directors issued a statement on Sens indicating that "following the group restructuring at the Mobile Industries level early last year, Trencor continues to examine ways to enhance shareholder value and optimise group structure".

It would seem, however, that the process of unlocking value and simplifying the group structure - which almost certainly would need to include provisions for a secondary listing of Textainer on the JSE - may unfold slowly.

Trencor chairman Neil Jowell says it is inappropriate to comment at this stage on any specific alternative. "That could only be done in due course as part of a formal announcement or announcements on the outcome of our investigation."

He stresses that many factors would affect the optimal timing of restructuring alternatives. "Thus timing is under continuous review by the Trencor board, but no deadline has been set."

Still, it is a case of "when" rather than "if", as the role of Trencor as a shareholder of reference for Textainer - which listed on the NYSE Euronext in late 2007 - has certainly diminished. Jowell says the reaffirmation of Textainer's position as a global leader in the container leasing industry and a continued good performance as a NYSE Euronext-listed company made the collapse of the Mobile Industries structure appropriate. "These same factors have caused Trencor's role as 'stable' shareholder of reference to decline in importance over the last few years, though it is still of value."

Textainer's recent profit performances may also be a big factor in the discount closing up. The report for the second quarter, released last week, showed Textainer in a buoyant mood with a 98% utilisation rate for its fleet of 2,6m containers (currently split on a 60% owned and 40% managed basis).

In the investors' conference call Textainer directors conceded there could be a slight softening in the utilisation rate in the next two quarters. But they believed the utilisation would remain high for the trading periods as tight supply conditions were likely with new container production down 15% and indications that July orders for new containers were limited.

It would be perfect timing for Trencor to initiate an unbundling, with Textainer seemingly riding a strong and long wave of demand. Textainer CEO Phil Brewer says the company benefited from an opportunistic (US760m) investment in new containers late last year and early this year. "Many of our customers are shifting to leasing in lieu of buying containers. We are benefiting from the strong demand created by this very positive secular trend in the industry."

Underlining management's confidence was the decision by Textainer to pay 47% of its normalised income as a dividend, which reinforces the company's policy to pay 40%-50% of its income to shareholders.

The dividend policy (43% of income has been distributed to shareholders since 2007) makes Textainer a rather attractive hard-currency yield in the hands of local shareholders, even if the price for a Trencor ticket is stiffer.

Source: Financial Mail