Element Fleet Management Corp T.EFN

RBC

[retiredcf]

December 9, 2022

Element Fleet Management Corp.
Share buybacks totalled $11.0MM (0.6MM shares) in November

TSX: EFN | CAD 19.34 | Outperform | Price Target CAD 26.00

Sentiment: Neutral

Details: Element Fleet repurchased 0.8MM shares in November for ~$11.0MM (weighted average price of $18.12/share), which brought 2022 YTD cumulative buybacks to 13.9MM shares (3.4% of shares outstanding) for ~$192.3MM (weighted average price of $13.85/share). Since starting share buybacks in late-December 2020, EFN's cumulative share repurchases are 53.6MM shares for ~$734.8MM (weighted-average price of $13.70/share) representing 12.2% of shares outstanding. See Exhibit 1 for more details.

Our take: 2022 share buyback activity was lower Y/Y vs. 2021 as EFN redeemed a $150MM preferred share issue in Q2/22 (there were no redemption opportunities in 2021 so EFN could allocate almost all FCF to share buybacks and dividends). Looking ahead, with EFN's low capex requirements and M&A unlikely, we expect EFN to continue to use FCF for share buybacks, dividends/dividend increases and retiring its remaining preferred shares and convertible debenture issue (although the convertible debenture has a $12.05 conversion price, so well below the current share price). We expect EFN will redeem a $115MM preferred share issue in 2023. EFN is our #1 high-conviction best idea given positive fundamentals; potential catalysts; strong defensive attributes; and attractive valuation.