More detail from BMO analyst BMO Nesbitt Burns analyst Tom MacKinnon came off restriction on Element Financial Corp. (EFN-T) following the closing of its $8.6-billion acquisition of GE Capital’s U.S.-based fleet operations.
Mr. Mackinnon said he likes the deal for several reasons, including:
- “In a business where size and scale matter EFN is now the largest Fleet manager in North America.”
- He believes the estimated $90-95-million (U.S.) in synergies are “reasonable and achievable, and perhaps could be exceeded given EFN's track record. We see little integration risk given its historical relationship with GE Capital.”
- “The 20 per cent accretion on fully annualized synergies was much better than our pre-restriction estimate on significantly better synergies and a more profitable GE Fleet book than anticipated.”
- “We see an opportunity to increase Fleet fee service income”
He reiterated his “outperform” rating and increased his target price for the stock to $24 from $23. The analyst average is $25, according to Bloomberg.
He added: “Post the deal we see ample opportunity for EFN to grow in the Fleet both organically and through acquisitions. In our view, EFN is the best-positioned buyer because of the cost savings it can produce. While it has the balance sheet capacity to fund smaller Fleet tuck-ins with assets in the $2-$3-billion range, we believe it may potentially explore the sale of some assets (perhaps commercial and vendor, perhaps Australia/New Zealand Fleet, both at attractive prices of close to 2 times book value), in order to lock in potential gains and free up balance sheet capacity to accretively fund Fleet acquisitions with assets of $6-billion and above. However, in that scenario the event that a sale and then a purchase are not done in a reasonably close time frame could be a risk. We also see significant organic growth opportunities as EFN penetrates the 80 per cent of the Fleet market that is not controlled by the Fleet lessors.”