RBC Upgrade Ahead of second-quarter earnings season for Canadian diversified financial firms, RBC Dominion Securities analyst Geoffrey Kwan named Element Fleet Management Corp. as his top investment idea, believing it “should be a core holding in any portfolio.”
“EFN remains our most topical stock with investors, with investor focus on the origination outlook and new customer win progress,” he said.
In a research report released Friday, he touted the Toronto-based company’s “attractive blend of: (1) growth; (2) defensive attributes; (3) high FCF funding growth and significant returns of capital; and (4) attractive valuation (13.5 times P/E, 9.5-per-cent FCF yield on 2022). We think EFN is a rare mid- to large-cap growth story within Canadian Financials (we forecast a more than 15-per-cent EPS CAGR through 2025) that remains attractively valued.”
He maintained an “outperform” rating and $19 target for Element Fleet shares. The average is currently $16.93.
Mr. Kwan did raise his target price for his No. 2 idea Onex Corp. (ONEX-T, “outperform”) to $118 from $112, topping the average of $103.52.
“We think the shares are mispriced at a 12-per-cent discount to NAV (we think it should trade at or a slight premium to NAV), yet is delivering historical high Hard NAV growth and we think monetizations are likely in the near-term and should surface value,” he said.
He named Brookfield Business Partners LP (BBU-N, BBU.UN-T, “outperform” rating and a US$61 target, rising from US$60) and Home Capital Group Inc. “outperform” and a target of $47, up from $45) his third best ideas.
“BBU trades at an 11-per-cent discount to NAV despite having positive fundamentals and we think monetizations are likely in the near-term and should surface value,” said Mr. Kwan. “HCG could return a substantial amount of excess capital (approximately $10 per share) when OSFI lifts its ban on share buybacks/dividend increases for banks/insurers. Furthermore, fundamentals are positive, yet HCG trades at 1.1 times P/BV despite a 13-per-cent ROE, which capital optimization could increase by 400-500 basis points.”