TRG | The Bottom Line – 3/21

This week TRG initiated coverage of McGrath RentCorp (MGRC), a B2B rental company that is focused on modular offices, portable storage containers, and electronic testing equipment (TRS). Rental and rental-related revenue makes up 75%+ of total revenue (FY’21-24), and segment exposure in FY’24: Modular 70%, Storage 10%, and TRS 15%. Company EBITDA margin is currently in the 37-38% range and net leverage is 1.7x. The Modular segment, being the bulk of revenue and EBITDA, is the core of the thesis and the key support to revenue and EBITDA growth. We believe that Modular has a resilient, diversified, and highly predictable growth profile for the price convergence opportunity, value-add products, and site-related services, all of which have and should continue to more than offset any volume pressures. There is a cyclical element to the story, and currently the cycle is a headwind to Modular volume and revenue of Storage and TRS. As such, we believe the cycle will eventually turn positive and help all segments. Over the next few years we expect EBITDA growth to be supported by growth in all segments, as well as bolt-on M&A helping the Modular and Storage segments.

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