October 28, 2010, 3:46 pm

BOX - Seacube

updated 10/28 to account for slashed pricing to $10:

BOX - net debt will remain same at $700 million even with slash in pricing. appears Fortress will not take out money from BOX pre-ipo as planned. sharecount increases by a shade under 1 million, so eps estimates closer to $1.40-$1.45 for 2010.

Quick look at BOX and the two direct competitors trading:

BOX - $223 market cap, trading 1.6 X's revenues, 7 1/2 X's 2010 estimates and yielding 7.3%. $700 million net debt.

TAL - $817 million cap, 2.3 X's revenues, 14 1/2 X's earnings..$1.4 billion in net debt. Yielding an annualized 6% based on increased divvy announced today.

TGH - $1.22 billion cap, trading 4 X's revenues, 10 1/2 X's earnings. $615 million in net debt. yielding 4.2%.

all these companies doing essentially the exact same thing in the exact same space. BOX appears to be very well run based on profit margins through economic trough, so no management discount and/or premium here compared to other two. pretty straightforward, either TAL/TGH coming way back in, or BOX is going to rise. got to be one or the other.

in this market in this day and age, you just don't often see a dislocation in valuation this large....and this is not a 'better mousetrap' type sector at all. really rare to see an obvious valuation differential this large, with only explanation being no one wanted what Fortress was trying to sell them no matter unless it was at rock bottom prices. this should take care of itself in the market sooner than later...and with TAL reporting strong today, doubt TAL/TGH sell-off hard in the short run to match BOX valuation metrics...I believe we will see BOX at $15+ sooner than later. I am not the only one that sees this big of a valuation differential.

Original pre-ipo piece based on $16-$18 range:

BOX - SeaCube Container Leasing

BOX - SeaCube Container Leasing plans on offering 8.7 million shares(assuming over-allotments) at a range of $16-$18. Insiders will be selling 5.75 million shares in the deal. JP Morgan, Citi, Deutsche Bank and Wells Fargo are leading the deal, Credit Suisse, Dahlman Rose, DnB, DVB and Nomura co-managing. post-ipo BOX will have 19.3 million shares outstanding for a market cap of $328 million on a pricing of $17. Ipo proceeds will be used to repay debt.

Private equity firm Fortress(FIG) will own 52% of BOX post-ipo. Fortress is the selling shareholder here. **Note that Fortress attempted to bring their container properties public in early 2008 under the name SeaCastle. The market cap at the time was to be over $2 billion. Thankfully it got shelved as that market cap would have been under hefty pressure from the get go. SeaCastle would have had over $3 billion in debt on ipo, brought on by leveraging containers as well as via the leveraged buyout nature of Fortress acquisitions. Post-ipo, BOX will have $700 million in net debt.

**BOX does plan on paying a quarterly dividend. Initial quarterly dividend will be $0.20. At an annualized $0.80, BOX would yield 4.7% annually on a pricing of $17.

From the prospectus:

'We are one of the world's largest container leasing companies based on total assets.'

International shipping containers used on ships, rail and trucks. BOX acquires containers with the intention of leasing them and eventually selling a portion of them in up markets. Leases are generally under long term leases of 5 to 8 years to shipping companies. 58% of leases are directly financed to own by BOX. Average length left on leases of all containers are 3.8 years.

BOX owns and/or manages 507,013 units, representing 795,039 TEU's(twenty foot equivalent containers).

**BOX is the world's largest lessor of refrigerated containers with a 28% market share. 53% of assets are refrigerated units with 44% dry containers.

As far as total containers, BOX is the 6th largest in the world.

Capacity utilization of 98% as of 6/30/10. In a tough 2009 environment, BOX managed a 96.5% utilization rate. Pretty impressive.

Net write off of just 0.44% of billings over the past 6 1/2 years. When combined with strong capacity utilization rates, this looks to be a very well run operation.

Customers - 160 shipping lines, including all of the world's top 20. Largest customers include APL, CMA-CGM, CSAV, Hanjin, MSC and Maersk Line. CSAV accounts for 16% of revenues, Mediterranean Shipping 15%.

Majority of business for BOX containers is transporting goods from Asia for use in the US.

Growth plans - BOX has been growing aggressively acquiring $1.9 billion in containers since 2004. While pretty solidly leveraged post-ipo, BOX still has access to over $300 million in credit lines going forward. This sector works quite a bit like the REIT ipos we have seen. Instead of leveraging property mortgages to increase cash flows, BOX leverages on containers which provide cash flows on top of debt taken on. In addition to continuing to leverage to increase containers owned, BOX does plan to pursue acquisitions.

Trends - 2009 was the only year in the past 30 in which worldwide container trade did not grow. The worlds fleet of containers has shrunk 4% since the beginning of 2009. BOX believes this brings about an opportunity for them as demand increases. 45% of worldwide containers are leased.

While capacity utilization has been strong for BOX, leasing rates ebb/flow based on supply and demand. Very cyclical sector overall, highly dependent on the US consumer.


$700 million in net debt post-ipo.

Revenues have been in decline. As noted above, while capacity utilization has remained strong, pricing has been weak. In addition in 2008, BOX sold approximately 8% of their container inventory.

Revenues were $239 million in 2008, $142 million in 2009 and should decline again in 2010.

2010 - $140 million, a slight decrease from 2009. 54% operating margins. Debt servicing will eat up 60% of operating earnings. The debt definitely hinders BOX. This is a sector that always has substantial debt as they tend to leverage their containers to improve cash flows. However some of this debt was laid on by Fortress while acquiring assets. In addition Fortress is making up the bulk of selling in this deal, taking away money that BOX could use to pay down debt. Lastly Fortress paid themselves $60 million in 2009, money that could have gone to reduce debt. The selling of containers in '09 has reduced debt, however it also negatively impacted revenues.

BOX will have little in taxes post-ipo. Net margins of 22%. EPS of $1.60. On a pricing of $17, BOX would trade 11 X's 2010 estimates.

Quick look at two larger competitors TAL and TGH:

TAL - $758 million market cap, 2010 revenues of $362 million currently trading at 13 X's 2010 estimates. Highly leveraged with $1.4 billion in debt.

TGH - $1.16 billion market cap, 2010 revenues of $308 million currently trading 10 X's 2010 estimates. Better balance sheet than TAL with $615 million in net debt.

BOX - $328 million market cap on a $17 pricing. 2010 revenues of $140 million trading at 11 X's 2010 estimates. $700 million in net debt.

Conclusion - Typically avoid highly leveraged sectors such as this. It does appear as if the underwriting group and Fortress are bringing this one public at a pretty attractive valuation. The market cap here appears to be a bit low for BOX revenue and cash flow base when put beside the competition. Also, the sector has been in a solid uptrend stock wise since the March '09 market bottom. Not my cup of tea, but range here looks priced to work over time. Do not expect much short term however.

October 21, 2010, 7:46 am

VRA - Vera Bradley


VRA - Vera Bradley

VRA - Vera Bradley plans on offering 12.65 million shares(assuming over-allotments) at a range of $14-$16. Insiders will be selling 8.65 million shares in the deal making of the majority of shares offered. Baird and Piper Jaffray are leading the deal, Wells Fargo, KeyBanc, and Lazard are co-managing. Post-ipo VRA will have 40.5 million shares outstanding for a market cap of $608 million on a pricing of $15. Ipo proceeds will go to insiders as VRA shifts from an 'S' corporation to a public company.

Co-Founder Barbara Bradley Baekgaard will own 26% of VRA post-ipo.

From the prospectus:

'Vera Bradley is a leading designer, producer, marketer and retailer of stylish and highly-functional accessories for women.'

28 year old VRA primarily sells women's handbags.

I like the company description from VRA: 'Our brand vision is accessible luxury that inspires a casual, fun and family-oriented lifestyle.' Wonder how much they paid a marketing agency to come up with that line? 'accessible luxury' means fashion at a reasonable price.

VRA's bags seem to be defined as a bit flashy with a myriad of colors and designs. Pricepoints range from $20-$80 with most of the handbags in the $50-$60 range.

Handbags can be viewed here:


Indirect and direct sales channels.

Indirect - 3,300 independent retailers sell VRA handbags and accessories, nearly all in the US. In 2005/2006 VRA shifted most of manufacturing offshore.

Direct - 31 Vera Bradley branded stores, two outlets, verabradley.com and annual outlet sale at Indiana HQ. First store was opened in 2007. Same store sales increases have been quite impressive of late. 2009 saw a 36% same store sales increase and first 6 months of current fiscal year has seen an additional 26% same store sales increase.

Currently indirect revenues account for approximately 60% of total revenues while direct revenues make up 40%. Expect direct revenues to annually increase as a % of revenues as VRA opens new stores.

Growth plans - VRA believes that there is support in the US for up to 300 retail stores. VRA plans on opening 9 full priced and 3 outlet stores in 2011, 14-16 stores in 2012 and 14-20 stores annually thereafter. Very aggressive growth plans when one considers they've just 31 full price stores currently.

Handbags make up 52% of revenues, accessories 32%. Accessories include wallets, ID cases, eyeglass cases, cosmetics, paper and gift products and eyewear.

Competitors include Coach, Nine West, Liz Claiborne and Dooney & Bourke.


One red mark on this deal is the existence of $80 million in net debt post-ipo.

Fiscal year ends 1/31 annually.

40% tax rate. In number below I plugged in the 40% tax rate for 2010. Pre-ipo VRA has been a pass through 'S' Corporation and did not pay corporate income taxes.

VRA has been profitable since at least 2005.

With the global economic slowdown growth was negligible from 2007-2009. First 2 quarters of 2010(FY ending 1/31/11) have been outstanding however. As noted above same store sales growth has been very impressive recently and indirect sales channels have also been quite strong. The impressive first two quarters of the current fiscal year have been strong enough alone to recommend this deal in range.

2010(ending 1/31/11) - Revenues should grow 27% to $367 million. Gross margins strong at 59%. Operating margins of 19%. Plugging in debt servicing and taxes, net margins at 11%. EPS of $1.02. On a pricing of $15, VRA would trade 15 X's 2010 earnings.

2011 - Aggressive store opening plans for 2011 should help boost revenues. I would be uncomfortable plugging in recent same store sales increases going into 2011. It could happen of course, but I'd rather scale that back to mid single digits as opposed to the 20%+ same store sales increases of the past 18 months. In addition forecasting for 2011 is difficult until we see the holiday 2010 numbers early next year.Revenues should increase by 15%-20% in 2011 to $435 million. Gross margins should remain roughly the same at 59%. Economies of scale do kick in a bit, improving operating margins to 20%-21%. Net after tax margins of 12%. EPS of $1.25-$1.30. On a pricing of $15, VRA would trade 12 X's 2011 earnings.

Conclusion - Based on recent growth and impressive same store sales increases, the range here looks quite attractive. Deal should definitely work off pricing. Longer term success will be determined by VRA's aggressive store opening plans. If these stores are a 'hit' and same store sales continue to be solid, pricing range here will be left far behind in a few years. If VRA ends up adding to their debt to fund lackluster new store opening there will be problems. That will be decided later however. Short and mid-term, this deal looks priced to work in the $14-$16 range.

October 19, 2010, 6:54 am

SHP - ShangPharma

SHP - ShangPharma

SHP - ShangPharma plans on offering 6.6 million ADS(assuming over-allotments) at a range of $14.50-$16.50. Insiders will be selling 3.4 million ADS in the offering. Citi and JP Morgan are leading the deal, William Blair and Oppenheimer co-managing. Post-ipo SHP will have 18.65 million shares outstanding for a market cap of $289 million on a pricing of $15.50. Ipo proceeds will be used to expand services.

Chairman of the Board and CEO Michael Xin Hui will own 55% of SHP post-ipo.

From the prospectus:

'We are a leading China-based pharmaceutical and biotechnology research and development, or R&D, outsourcing company.'

Competitor to WX, an ipo from a few years back.

Discovery, pre-clinical and clinical pharmaceutical trials for drug candidates. The pattern in recent years has been for biotech and pharmaceutical companies to outsource their early stage discovery and pre-clinical work to cheaper labor countries such as China while keeping clinical stage trials closer to home.

100+ customers including all of the top 10 worldwide pharmaceuticals and biotechs.

Top 10 customers in 2008 and 2009 have remained as customers in 2010. Good sign.

Ipo monies will be used to essentially double lab space to nearly 1 million total square feet.

Draw here is low cost labor and large amount of lab space with proven company.

Sector - The worldwide CRO space had been a swift growth area for much of the decade. However the credit crisis left available discovery/clinical trial dollars in short supply due to credit tightening. The China CRO market continued to expand however due to the cheaper costs of doing business. If anything, the global credit crisis helped the shorter and longer term outlook for China outsourcing. In a difficult clinical discovery and trial worldwide environment, the China CRO market grew 27% from 2007-2009.


Approximately $2 per share in cash post-ipo. Bulk of cash will be used to expand lab space.

SHP has been operationally profitable since at least 2006.

15% tax rate.

2009 - $72 million in revenues, 33% gross margins. 14% operating margins. Net margins of 12.5^]% when currency hedges factored in. EPS of $0.53.

2010 - Good first two quarters to 2010. $88 million in revenues, a 22% increase over 2009. Gross margins slight improvement to 34.5%. Operating margins of 15%. Net margins of 14.5%. EPS of $0.70. On a pricing of $15.50, SHP would trade 22 X's 2010 estimates.

Comparison between SHP and WX.

WX - $1.16 billion market cap. WX currently trades 17 X's 2010 estimates with a 20% revenues growth rate in 2010. WX ipo'd just near the top of the last worldwide CRO growth story and slid with the sector through most of 2008 and into 2009. Stock is pretty much flat in 2010, in what has been a pretty tough sector for the group of stocks.

SHP - $289 million market cap on a $15.50 pricing. At $15.50 would trade 22 X's 2010 estimates with a 22% growth rate. Due to smaller revenue base on ipo, SHP should be able to outgrow WX top/bottom line over the next few years.

Conclusion - We've seen some massive China outsourcing IT ipo success stories from VIT to CIS to HSFT. The CRO sector has been a bit tougher due to the costs involved in conducted new drug discovery and trials. The sector still has not completely recovered from the credit crisis. This has effected SHP/WX. While each will be able to show nice growth in 2010, that growth is a bit muted still due to the slower discovery/trial plans of the large pharmas/biotechs. I like the sector longer term, shorter term SHP appears priced about right. I like this deal over time, would not expect too much short term here.

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