TD Raise Target Element Fleet Management Corp.
(EFN-T) C$22.65
2024 Guidance Reiterated, and Looks Achievable
Event
Q4/23 conference call
Impact: POSITIVE
Management appears confident in its ability to meet 2024 guidance. We are at the
high-end, but see potential for guidance to be increased. We think this management
team has credibility given that it has beaten expectations for two years now (2022 and
2023). We continue to believe Element is well-positioned for growth to persist given
originations momentum (elevated backlog remains), strong servicing momentum,
and what appears to be a large self-managed fleet opportunity. We have increased
our target price to $27 (from $25) on slightly higher estimates and rolling
forward valuation. We reiterate our BUY rating.
Guidance for 2024 was reiterated, and management appears confident. We
see potential for an increase with Q1/24 results. The outlook for originations is
solid (the mid-point implies 14% y/y growth, supported by a still-elevated US
$1.9bln backlog). Servicing momentum appears intact due to high client utilization
(aging fleets), services uptake, and vehicles under management (VUM) growth.
We have revised our 2024 estimates higher (we are at the high-end of
guidance). Note our estimates are now in USD, in line with Element moving to USD
reporting as of Q1/24. A solid outlook for originations and servicing momentum
supports our 2024 outlook.
Showing some traction with converting self-managed fleets, which appears
to be a multi-year opportunity. Element added 155 new clients in 2023, 45%
of which were self-managed conversions. The market opportunity appears deep,
with management estimating 55% of the U.S./Canada commercial fleet market is
currently self-managed (60%/65% for ANZ/Mexico).
Q4/23 syndication volumes (off-balance-sheet funding) were C$1bln (US
$0.7bln; this was flat q/q and in line with our forecast). We view this positively as
it is a key funding tool to manage leverage.
TD Investment Conclusion
Element looks well-positioned for further earnings growth in 2024. While we are at
the high-end, we see potential for guidance to increase. A healthy order backlog and
constructive originations outlook should be supportive of earnings growth. The self-
managed fleet market appears deep and a multi-year opportunity.