Element Fleet Management Corp T.EFN

TD Joins the Party

[retiredcf]

Element Fleet Management Corp.

(EFN-T) C$17.90

Solid Beat, 2023 Guidance Increased

Event

Q1/23 Results and Conference Call

Impact: POSITIVE

This was a solid quarter given the earnings beat versus us and consensus, record revenue, and increased 2023 guidance. Management believes the healthy order backlog will persist into 2024, which is encouraging for originations. Services revenue growth was solid this quarter, and commentary towards the outlook was constructive. We have increased our 2023 estimates to the mid-to-high end of guidance, and also increased our 2024 outlook. Our target price moves up to $24.00 (from $23.00). Element is trading at 10.8x 4QF P/FCF, which is in line with its L5Y average (10.5x). We reiterate our BUY rating.

 Revenue of $304mm was a record and above our $279mm forecast (consensus was $283mm). On a constant currency basis, organic revenue growth was 8.9% y/y, with servicing fees up 11.8%, net finance revenue up 6.6%, and syndication revenue up 0.7%. Adjusted EPS of $0.31 was also above us (and consensus) at $0.27, and up 14.8% y/y. FCF/share of $0.37 was above our $0.34 estimate, and up 19.4% y/y.

 2023 guidance was increased (details on Page 3). We are at the high- end for revenue and margins, and mid-range for adjusted EPS and FCF/ share. Origination volumes were increased (FX), while syndication volumes were unchanged.

• Management was constructive towards services revenue momentum (+11.8% y/y), citing it as a key piece behind increased guidance. Penetration of existing clients, higher utilization (maintenance management), and inflation are all drivers. Increases with Armada in the U.S. are also a tailwind, and are expanding into broader servicing mandates in Mexico (Q2/23) and ANZ (Q3/23).

• The $3.0bln order backlog was unchanged q/q, despite originations of $1.9bln (up 4% q/q and 33% y/y). This indicates new orders continue to offset originations. Management suggests this strong backlog will continue to support originations and remain elevated into 2024.

  TD Investment Conclusion

  We believe the combination of commercial momentum and a healthy order backlog will continue to support the medium-term growth outlook. We are encouraged to see originations pick up, strong servicing revenue growth (capital light), and execution on securing funding (ABS issuance, expanded credit facilities, and syndication activity).