Element Fleet Management Corp T.EFN

Alternate Symbol(s): ELEEF

Industrials

Element Fleet Management Corp. is a Canada-based fleet solutions providers. It operates as a pure-play automotive fleet manager. The Company offers a full range of fleet services and solutions to corporations, governments and not for profits across North America, Australia, and New Zealand. Its services address every aspect of clients' fleet requirements, from vehicle acquisition, maintenance, accidents and remarketing, to integrating electric vehicles' (EV) and managing the complexity of gradual fleet electrification. It offers a range of fleet solutions consisting of cost management; driver productivity and vehicle uptime; fleet electrification, lease vs ownership, sale leaseback, and others. Its fleet types include global; government and public sector; material handling equipment; sales, and heavy trucks. It offers fleet solutions to various industries, such as construction; energy, oil and gas; food and beverage; healthcare; services; transportation, and utilities.

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Element Fleet Management Corp

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Post by retiredcfon Mar 07, 2023 5:21pm

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Post# 35324660

TD 2

Element Fleet Management Corp.

(EFN-T) C$19.41

2023 Guidance Looks Very Achievable

Event

Q4/22 Conference Call

Impact: POSITIVE

Key areas of focus were new wins, confidence towards 2023 guidance, expense growth/margins, improving OEM production, and the lower syndication outlook (near- term).

Element flagged several new mega-fleet wins. In December 2022, they disclosed an expanded mandate with Rentokil Terminix U.S. (16.5k vehicles, a top 10 client, and ~1% incremental revenue). On the call, they flagged an expanded mandate with Armada (Australian/New Zealand fleet servicing). They recently won a mandate with OXXO in Mexico (1k vehicles initially, but potentially up to ~10k). Lastly, they won a mandate with Telus Canada (4k vehicles, representing a top 5 Canadian client). These mandates are examples of taking market share (Rentokil, Telus), expanding share of wallet (Armada), and converting self-managed fleets (OXXO). Services revenue should surface in H1/23 with financing revenue to build over time.
Management appears confident they can meet the high-end of 2023 guidance (we are at the high-end). FX also provides upside (their guidance implies a 1.29 USD/CAD rate). We see potential for guidance to be increased with Q1/23 results given: 1) the new mega-fleet wins; and 2) their current revenue outlook implies 3%-6% organic growth (below the medium-term target of 6%-8%).
Expenses increased 8% q/q as Element invests to support further commercial growth. However, management reiterated its expectation for positive operating leverage in 2023. The 54%-55% operating margin target (we are at 54.9%) is up from 54.2% in 2022 (excluding one-time items).
OEM production appears to be improving. We have seen that with U.S.-based industry data (see our TD colleague's report here). Element also delivered solid origination growth in Q4/22 (+54% y/y). The backlog remains elevated at $3.0bln (vs. an average of $1.6bln since 2018).
The lower syndication forecast is deliberate on management's part ($3.0bln- $4.0bln, down from $4.0bln-$4.5bln previously). Element believes syndication demand remains strong given fleet assets typically have low credit risk and tax benefits. However, corporate spreads remain wide, so management is choosing to wait for yields to improve. They believe they can still meet their 6.25x-6.75x tangible leverage target range.