Post by
retiredcf on May 10, 2023 12:33pm
CIBC Raise Target
EQUITY RESEARCH
May 9, 2023 Company Update
ELEMENT FLEET MANAGEMENT CORP.
Revenue Growth Is Exceeding Expectations, Guidance Raised
Our Conclusion
Q1 results were better than forecast with EFN beating our estimates across
all three revenue drivers. The company increased revenue and earnings
guidance for 2023. Growth momentum in the business remains strong and
we have increased both our 2023E EPS (+8%) and 2024E EPS (+4%). Our
price target increases from $21 to $22 and we maintain our Outperformer
rating.
Key Points
Increasing EPS estimates on the back of revised guidance. EFN
reported strong Q1 results, with all revenue lines beating our expectations,
partially offset by higher expenses. EFN increased its 2023 EPS guidance to
$1.26-$1.31 using current FX rates. Given we expect some weakening of the
USD/CAD over the year, we’ve positioned our revised 2023 EPS estimate to
$1.26 on basic shares o/s, equivalent to $1.22 on fully diluted shares o/s and
versus our prior published estimate of $1.13.
Origination growth on track for a big year. EFN continued to show strong
demand, with origination growth of 33% Y/Y. The elevated backlog is now
expected to extend into 2024. Along with FX benefits, the origination
guidance increased from $7.5B-$8.0B to $8.0B-$8.5B. We’ve increased our
origination assumption to $8.2B (+4%), and now expect 2023 growth of 24%
(vs. management guidance of 21%-28%).
Expecting strong revenue growth across all streams. EFN increased its
revenue guidance from $1,140MM-$1,170MM to $1,240MM-$1,260MM
based on current FX levels. EFN noted continued strength in its servicing
revenue business, as it increases its share of wallet. Further the company
expects the used-car market to remain robust for the remainder of the year,
helping net financing revenues. As a result, we’ve revised our 2023 revenue
forecast higher to $1,239MM.
Reaffirming syndication guidance. Syndication volume guidance was
maintained ($3B-$4B). Management expects yields should hover around 2%
with the potential to improve when the rate environment stabilizes. We
assume a syndication yield of 2.1% for the remainder of 2023.
Operating expenses remain high. As we expected, expense growth
remained high at 17% Y/Y. Management commented that it continues to
invest in its growth initiatives, and as such, expenses are likely to remain
elevated. We’ve increased our expense forecast by 5% Y/Y for the year,
resulting in operating income of $680MM (guidance of $675MM-$700MM at
current FX levels) and an operating margin of 54.9% (guidance of 54-55%).
Valuation. EFN is trading at 15x P/E (2023E) versus an average of closer to
13x over the last five year