Element Fleet Management Corp T.EFN.PR.E

Ink Research

[retiredcf]

Morning Report: Element Fleet rides buybacks higher

Over the weekend, INK published its list of the 100 Canadian issuers with the most share buybacks in April based on INK calculations using SEDI data. The list was included in the weekly weekend workbook that we publish in the INK Chat #stock_ideas channel every Saturday. When assessing corporate buybacks, we are leery of companies that use company resources to buy back shares even as insiders are selling in the public market. That combination is even more worrisome if the insiders who are selling include directors who approved the share repurchases. It signals that the company has limited growth prospects, and insiders are reinforcing the idea by personally deploying cash elsewhere.

In contrast, we prefer to see insiders being net buyers of shares in the public market when companies are doing buybacks. Such scenarios reinforce the idea that the company is repurchasing shares during a period when investors are generally undervaluing company prospects. One example is automotive fleet manager Element Fleet Management (EFN) which spent $19.9 million repurchasing shares in April. The stock is up 11.7% since we last reported on it on March 14th. At the time, we noted both insider buying and share repurchases. Insiders have subsequently both bought and sold in the public market, but year-to-date the buying is dominating. Meanwhile, EFN reported strong Q1 financial results, with net revenue of $303.9 million, up 16.5% from $260.8 million in Q1 2022. Q1 earnings were $0.26 per share, up from $0.21 a year earlier. Element also raised its 2023 free cash flow (FCF) guidance to midpoint $1.605 per share (from $1.595 previously). EFN's policy is to return from 25% to 35% of trailing 12-months FCF in the form of dividends. EFN announced a quarterly dividend of $0.10 per share to be paid on July 14th to shareholders of record as at the close of business on June 30th.