Trinsy presented a "BUY" recommendation based on its undervalued stock, driven by strong growth in its Value-Added Products (VAPS) line and robust gree cash flow supporting strategic flexibility.
This was an interesting read Trinsy, the report was succinct and insightful. While I agree that WSC’s innovation and efficient business model allows them to lead the North American modular workspace solutions and portable storage solutions, I am not completely convinced whether they would be able to continue dominating these markets over the long term as I do not find WSC’s moat to be deep. The unit economics of WSC compared to its peers are impressive. However, it can be easily replicated by competitors like MGRC given enough time after their current units – which lifespans are significantly shorter than WSC’s units – become obsolete. Furthermore, the VAPS are not a unique product offering and are also provided by competitors.
Even though WSC acts as a one-stop solution, it does not make them stand out greatly from competitors as they also provide multiple solutions, albeit not as many as WSC. I think it would be useful to delve deeper into its competitive advantages and see how WSC is able to set themselves apart from their competitors. For example, comparing prices between similar product offerings or the average time taken to set up a space.
With all these being said, I agree that the scale of WSC is a key competitive advantage. MGRC having a fleet size 5x smaller but still being their closest competitor emphasizes WSC’s ability to serve their customers more efficiently than their competitors. I also think your 3 and 5 year targets are achievable as WSC's competitors are not likely to be able to catch up within this timeframe.
I’d like to know your thoughts on how WSC is undervalued, I took a quick look at WSC’s competitors (MGRC, URI, and ACO.X) and noticed that they had drastically lower LTM P/E (12.5x, 16.14x, and 13.75x respectively) compared to WSC’s LTM P/E of 259x. What is your opinion on whether WSC will still be able to lead the modular workspace solutions and portable storage solutions after 10+ years?
Thanks for the write-up Trinsy! Found it interesting that you delved into this area, and the consolidation story is also very interesting as well.
1. The management comments indicate that its economic moat precisely exists in that new customers will choose the most reputable and known company in this area, and I do not presume to know which companies are most well-known in this area. But to my knowledge, this is not a household name that will come to mind, and that would mean that when people try to search up temporary space solutions areas, they would rather do a Google search. Shouldn’t the company be focusing on SEO based outcomes, or am I missing something in how the company acquires new customers?
2. If scale is an advantage in this place, and with having a Single-Point of Contact as an investment thesis, you expect WSC to continue acquiring small players that lack access to similar offerings to expand the customer base. However, with quick market consolidation already happening among all players, would this mean
a. that small players would all be sold at premiums and each big player would pay an increasingly larger price to attain these smaller businesses, and;
b. with larger FTC scrutiny existing in this space, that would mean that larger, more aggressive competitors such as McGrath would quickly sprout up with no fear of being acquired by WSC. This would necessarily erode the economic moat that WSC would now have in time.
3. Since a trump victory has occurred, and market looking more conducive than ever for deal making, could WSC be thinking of acquiring McGrath again? Would the share price then fall as a result and would this risk be more present than ever going into 2025?
4. Stock is down since you first covered this, due to EPS miss by -0.08 in Q3 24. Do you foresee any catalysts other than earnings revisions (MS upgraded from 40 to 50 but stock still fell) or earnings results?
5. You also mentioned that McGrath is WSC’s closest competitor. Can I ask why the larger player URI is not as close a competitor as McGrath?
Thank you, Trinsy, for this insightful and well-written report on WSC! The investment thesis is clear and compelling, with a strong focus on WSC’s innovative business model and the growth of VAPS. The explanation of WSC’s refurbishment capabilities, which extend asset lifespans and reduce costs, effectively highlights a key operational advantage, while its ability to charge premium prices demonstrates a solid economic moat. The valuation scenarios, with 54% upside in the bear case and 213% in the bull case, are realistic and well-supported by thoughtful EBITDA growth and free cash flow assumptions. That said, I had a few questions as I read through the report.
First, with 86% of WSC’s revenue tied to the construction and infrastructure sectors, how might the company be impacted by an economic slowdown or cyclical downturns in these industries? What steps is WSC taking to diversify its revenue streams or mitigate this risk?
Additionally, while the report briefly touches on the failed McGrath merger, how might this impact WSC’s future growth strategy, particularly its ability to expand into the education sector where McGrath has a stronger foothold?
Finally, is VAPS’ double-digit growth sustainable as competitors adapt, or could WSC’s first-mover advantage erode over time?
Overall, this report highlights WSC’s strengths and growth potential, making a compelling case for the "BUY" recommendation. However, a deeper dive into risks, competitive benchmarking, and mitigation strategies for economic cyclicality would add even more depth to the analysis. Thank you, Trinsy, for sharing this thoughtful and well-researched piece—it was a pleasure to read and learn from your work!
Hi Trinsy, I loved reading your initial report on WSC. Especially your take on the unit economics of the business and how it serves as a one-stop shop when it comes to portable temporary space solutions. Perhaps some feedback and questions I'd have for you
1. Presenting the unit economics and a quantifiable manner, where we can see the numerical breakdown of both the storage and modular revenue drivers and how it fares compared to its competitors (McGrath, Losberger) would help justify your claim even more. I especially like that you're coming from a quantifiable angle, so perhaps having an apple-apple comparison of its unit economics and even sales growth would bolster the depth of the research even more :)
2. I noticed that your thesis included strong FCF generation, but upon looking at your financials calculations, I saw that the expected FCF for FY2025 and FY2026 came in at $408.5 and $474 respectively, lower than that of FY2023. What would be the rationale of the drop?
3. I'm also curious to know what got you into this company, was it from the attractive industry valuation and top-down approach?
4. Do you foresee further industry growth and the improvement of the temporary space solution, now that we seeing firms adopt a hybrid work arrangement model, especially in the U.S. where hybrid/remote work is actually on the rise YOY.
Curious to know what you think! Though I do think that WSC is an excellent pick of yours, and very much agree with your theses in its economic moat.
Great read on an interesting business which seems stable over the years and value adds to the service. I like the focus on Value-added products and WSC's acquisition of smaller players in a consolidated industry. This greatly allows WSC to stay ahead of the competition mainly through outlasting their competitors and garnering larger market share. Just curious on the following points:
1. Expected revenue growth is declining over the projected years. Why is this so? Could this be due to industry reasons where the industry is making a slow recovery post pandemic?
2. It seems that storage as a % of revenues have been growing but modular solutions has been tapering. Is there a reason why storage solutions are increasingly taking up a larger % of revenues? Would this be due to realizing the synergies between WSC and ModSpace and Mobile Mini?
3. Lastly also wondering on their customer acquisition strategy given that they claim to have multiple customers and no customer has >2% of their revenue. Will that necessarily be a good thing as won't these companies want to negotiate longer contracts with their loyal customers and cater to larger players for recurring revenue?
Nevertheless, valuation of WSC seems to be fair at an attractive price relative to their peers. Agreed that fears are overblown due to the failed merger between WSC and McGrath.
Hi Brandon, thank you for this. $WSC projected slower growth in the next few years mainly attributed due to the weaker outlook in the Construction industry (construction industry is a significant driver for WillScot's business, with 40% of their revenues coming from nonresidential construction, which has seen a 14% year-over-year decline in square footage starts). However, I see it as a reversion prior to pandemic period. Regarding the storage solutions – In Q2 WSC completed systems integration and consolidation with Mobile Mini. AMR increased $23, or 9.5% yoy from increased VAPS penetration opportunities, as well as higher rates on the climate-controlled containers and refrigerated storage units acquired in 2023 and 2024. Having no customers >2% - I personally see it as $WSC not being heavily reliant on one/few customers, diversifying their risk.
Hello, the market’s underappreciation is largely due to the failed merger between WSC and McGrath. WSC is clearly the dominant and higher-quality business, positioned to capture the majority of the value, especially in the VAPs segment. I'll be happy to chat more if you’d like.
May I know why the market under-appreciated when the merger failed ? The stock did run up after the merger was announced. Could I argue it is just return to normal ?
I do not doubt WSC contains the qualities you mention. In fact mgmt has been highlighting the fcf and vaps opportunity every chance they have.
I just wonder what the market misses?
I see real estate developer inventory now at 7.5 months vs historical avg of 6 ish months, based on wsj.
FTC chairman change might help WSC
However a pullback from IRA might hurt WSC.
I have no idea how the FTC and IRA will turn out so I just assume the market priced the probability accurately.
Thanks Samuel for your detailed comments and questions—greatly appreciated! I noticed you reached out on LinkedIn as well, and I’ve shared my thoughts there.
This was an interesting read Trinsy, the report was succinct and insightful. While I agree that WSC’s innovation and efficient business model allows them to lead the North American modular workspace solutions and portable storage solutions, I am not completely convinced whether they would be able to continue dominating these markets over the long term as I do not find WSC’s moat to be deep. The unit economics of WSC compared to its peers are impressive. However, it can be easily replicated by competitors like MGRC given enough time after their current units – which lifespans are significantly shorter than WSC’s units – become obsolete. Furthermore, the VAPS are not a unique product offering and are also provided by competitors.
Even though WSC acts as a one-stop solution, it does not make them stand out greatly from competitors as they also provide multiple solutions, albeit not as many as WSC. I think it would be useful to delve deeper into its competitive advantages and see how WSC is able to set themselves apart from their competitors. For example, comparing prices between similar product offerings or the average time taken to set up a space.
With all these being said, I agree that the scale of WSC is a key competitive advantage. MGRC having a fleet size 5x smaller but still being their closest competitor emphasizes WSC’s ability to serve their customers more efficiently than their competitors. I also think your 3 and 5 year targets are achievable as WSC's competitors are not likely to be able to catch up within this timeframe.
I’d like to know your thoughts on how WSC is undervalued, I took a quick look at WSC’s competitors (MGRC, URI, and ACO.X) and noticed that they had drastically lower LTM P/E (12.5x, 16.14x, and 13.75x respectively) compared to WSC’s LTM P/E of 259x. What is your opinion on whether WSC will still be able to lead the modular workspace solutions and portable storage solutions after 10+ years?
Thanks for the write-up Trinsy! Found it interesting that you delved into this area, and the consolidation story is also very interesting as well.
1. The management comments indicate that its economic moat precisely exists in that new customers will choose the most reputable and known company in this area, and I do not presume to know which companies are most well-known in this area. But to my knowledge, this is not a household name that will come to mind, and that would mean that when people try to search up temporary space solutions areas, they would rather do a Google search. Shouldn’t the company be focusing on SEO based outcomes, or am I missing something in how the company acquires new customers?
2. If scale is an advantage in this place, and with having a Single-Point of Contact as an investment thesis, you expect WSC to continue acquiring small players that lack access to similar offerings to expand the customer base. However, with quick market consolidation already happening among all players, would this mean
a. that small players would all be sold at premiums and each big player would pay an increasingly larger price to attain these smaller businesses, and;
b. with larger FTC scrutiny existing in this space, that would mean that larger, more aggressive competitors such as McGrath would quickly sprout up with no fear of being acquired by WSC. This would necessarily erode the economic moat that WSC would now have in time.
3. Since a trump victory has occurred, and market looking more conducive than ever for deal making, could WSC be thinking of acquiring McGrath again? Would the share price then fall as a result and would this risk be more present than ever going into 2025?
4. Stock is down since you first covered this, due to EPS miss by -0.08 in Q3 24. Do you foresee any catalysts other than earnings revisions (MS upgraded from 40 to 50 but stock still fell) or earnings results?
5. You also mentioned that McGrath is WSC’s closest competitor. Can I ask why the larger player URI is not as close a competitor as McGrath?
Thank you, Trinsy, for this insightful and well-written report on WSC! The investment thesis is clear and compelling, with a strong focus on WSC’s innovative business model and the growth of VAPS. The explanation of WSC’s refurbishment capabilities, which extend asset lifespans and reduce costs, effectively highlights a key operational advantage, while its ability to charge premium prices demonstrates a solid economic moat. The valuation scenarios, with 54% upside in the bear case and 213% in the bull case, are realistic and well-supported by thoughtful EBITDA growth and free cash flow assumptions. That said, I had a few questions as I read through the report.
First, with 86% of WSC’s revenue tied to the construction and infrastructure sectors, how might the company be impacted by an economic slowdown or cyclical downturns in these industries? What steps is WSC taking to diversify its revenue streams or mitigate this risk?
Additionally, while the report briefly touches on the failed McGrath merger, how might this impact WSC’s future growth strategy, particularly its ability to expand into the education sector where McGrath has a stronger foothold?
Finally, is VAPS’ double-digit growth sustainable as competitors adapt, or could WSC’s first-mover advantage erode over time?
Overall, this report highlights WSC’s strengths and growth potential, making a compelling case for the "BUY" recommendation. However, a deeper dive into risks, competitive benchmarking, and mitigation strategies for economic cyclicality would add even more depth to the analysis. Thank you, Trinsy, for sharing this thoughtful and well-researched piece—it was a pleasure to read and learn from your work!
Hi Trinsy, I loved reading your initial report on WSC. Especially your take on the unit economics of the business and how it serves as a one-stop shop when it comes to portable temporary space solutions. Perhaps some feedback and questions I'd have for you
1. Presenting the unit economics and a quantifiable manner, where we can see the numerical breakdown of both the storage and modular revenue drivers and how it fares compared to its competitors (McGrath, Losberger) would help justify your claim even more. I especially like that you're coming from a quantifiable angle, so perhaps having an apple-apple comparison of its unit economics and even sales growth would bolster the depth of the research even more :)
2. I noticed that your thesis included strong FCF generation, but upon looking at your financials calculations, I saw that the expected FCF for FY2025 and FY2026 came in at $408.5 and $474 respectively, lower than that of FY2023. What would be the rationale of the drop?
3. I'm also curious to know what got you into this company, was it from the attractive industry valuation and top-down approach?
4. Do you foresee further industry growth and the improvement of the temporary space solution, now that we seeing firms adopt a hybrid work arrangement model, especially in the U.S. where hybrid/remote work is actually on the rise YOY.
Curious to know what you think! Though I do think that WSC is an excellent pick of yours, and very much agree with your theses in its economic moat.
Great read on an interesting business which seems stable over the years and value adds to the service. I like the focus on Value-added products and WSC's acquisition of smaller players in a consolidated industry. This greatly allows WSC to stay ahead of the competition mainly through outlasting their competitors and garnering larger market share. Just curious on the following points:
1. Expected revenue growth is declining over the projected years. Why is this so? Could this be due to industry reasons where the industry is making a slow recovery post pandemic?
2. It seems that storage as a % of revenues have been growing but modular solutions has been tapering. Is there a reason why storage solutions are increasingly taking up a larger % of revenues? Would this be due to realizing the synergies between WSC and ModSpace and Mobile Mini?
3. Lastly also wondering on their customer acquisition strategy given that they claim to have multiple customers and no customer has >2% of their revenue. Will that necessarily be a good thing as won't these companies want to negotiate longer contracts with their loyal customers and cater to larger players for recurring revenue?
Nevertheless, valuation of WSC seems to be fair at an attractive price relative to their peers. Agreed that fears are overblown due to the failed merger between WSC and McGrath.
Hi Brandon, thank you for this. $WSC projected slower growth in the next few years mainly attributed due to the weaker outlook in the Construction industry (construction industry is a significant driver for WillScot's business, with 40% of their revenues coming from nonresidential construction, which has seen a 14% year-over-year decline in square footage starts). However, I see it as a reversion prior to pandemic period. Regarding the storage solutions – In Q2 WSC completed systems integration and consolidation with Mobile Mini. AMR increased $23, or 9.5% yoy from increased VAPS penetration opportunities, as well as higher rates on the climate-controlled containers and refrigerated storage units acquired in 2023 and 2024. Having no customers >2% - I personally see it as $WSC not being heavily reliant on one/few customers, diversifying their risk.
Thank you. WSC is an interesting consolidation player. However, may I ask how / what part of the story, the market under-appreciate ?
Hello, the market’s underappreciation is largely due to the failed merger between WSC and McGrath. WSC is clearly the dominant and higher-quality business, positioned to capture the majority of the value, especially in the VAPs segment. I'll be happy to chat more if you’d like.
May I know why the market under-appreciated when the merger failed ? The stock did run up after the merger was announced. Could I argue it is just return to normal ?
I do not doubt WSC contains the qualities you mention. In fact mgmt has been highlighting the fcf and vaps opportunity every chance they have.
I just wonder what the market misses?
I see real estate developer inventory now at 7.5 months vs historical avg of 6 ish months, based on wsj.
FTC chairman change might help WSC
However a pullback from IRA might hurt WSC.
I have no idea how the FTC and IRA will turn out so I just assume the market priced the probability accurately.
Any insight will be greatly appreciated.
Any insights will be greatly appreciated. Thank you !
Thanks Samuel for your detailed comments and questions—greatly appreciated! I noticed you reached out on LinkedIn as well, and I’ve shared my thoughts there.