Scotia update outperform $18.50 Event
Element Financial (EFN) reported Q1/14 after-tax op. EPS of $0.10, in
line with our estimate and consensus of $0.10.
Implications
Overall a good quarter, with originations rising almost 3.75x over last
year and reaching a new record high of $1.1B (up 9% QOQ and 266%
YOY). Q1 earnings were in line with expectations with stronger-thanexpected
originations.
Outlook for 2014 remains very strong with growth expected to benefit
from increased demand from its U.S. business, with over 50% of the
annual origination volume expected to be generated south of the border.
The company continues to see strong demand in the U.S. transportation
and energy transportation sectors. Management sees potential upside to
its initial 2014 guidance of $3.9B in originations for 2014.
EFN has positioned itself for a significant acquisition by reducing its
financial leverage and continuing to build its "war chest." Management
stated that it could likely do a deal in excess of $1B without issuing
additional common equity. We see a high probability of another major
acquisition being announced before the end of Q2/14.
Recommendation
Maintain Sector Outperform rating and $18.50 target. We continue to
believe Element is a unique investment prospect and one of few true
growth stories left in the Canadian financials space.