TSX:EFN - Post Discussion
Post by
retiredcf on May 15, 2024 9:06am
RBC
Their upside scenario target is $38.00. GLTA
Outperform
TSX: EFN; CAD 22.22
Price Target CAD 31.00
Element Fleet Management Corp.
I got me a Chrysler, it seats about 20. So hurry up and bring your jukebox money
Our view: Q1/24 results were much better than we initially thought with numerous positive takeaways. EPS beat our forecast despite lower-than- forecast originations + syndications; this has positive implications for 2024 EPS (more on this below). Revenue growth accelerated to a very strong +17% Y/Y vs. +14% in Q4/23 and our +10% forecast. Service revenues hit 56% of total revenue, an all-time high. While guidance was maintained, EFN added new disclosure that it believes it could potentially exceed the high end of guidance. We still think guidance is too low and EFN has a track record of significantly beating guidance (+24% beat in 2022; +16% beat in 2023). We see numerous potential catalysts over the next year (see below) and for a stock we think that can deliver a +14% 5-year EPS CAGR (incl. +25% dividend CAGR + ~3% annual share buybacks) driving ROE from 15% today to 23% in 2028E + strong defensive attributes, we see the stock as mispriced trading at 15x P/E and 8% FCF yield. EFN is our #1 high-conviction best idea. Maintaining Outperform, $31 target. Conference call Wednesday at 8am EST; dial in: 1-844-763-8274 (link to webcast).
Key points:
Q1/24 operating EPS of US$0.27 was ahead of our US$0.26 forecast and US$0.25 consensus (range: US$0.24 to US$0.26) as higher-than-forecast service revenue and net interest income were partly offset by lower-than- forecast syndication revenue and higher-than-forecast OpEx.
Why Q1/24 EPS was even better than forecast and has positive implications for 2024 EPS. EFN re-affirmed 2024 guidance, including originations (US$7.0-$7.4B) and “modest growth” in syndication volume in 2024 (2023 syndications were US$2.5B), consistent with growth in originations (origination guidance is +11-17% Y/Y). Q1/24 EPS beat our forecast/consensus even despite originations and syndications missing our forecast. Q1/24 originations were just 21% of guidance and syndications were just 17% of our 2024 syndication forecast, meaning Q2-Q4/24 EPS should benefit from elevated originations and syndications given originations drive numerous fleet services and we think syndications are very high margin. EFN said it deliberately had lower syndications in Q1/24 to shift more into H2/24 pending the outcome of proposed U.S. tax changes.
We see multiple potential catalysts over the next year, including: (1) increasing 2024 guidance; (2) accelerating origination growth; (3) return of capital (with remaining prefs being redeemed by end of Q3/24 + low capex + no M&A plans, EFN can dedicate FCF to share buybacks + dividend increases); (4) 2025 guidance release; and (5) potential expansion into insurance distribution or MGA.
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