Our view: Q2/24 results further underscore why EFN is our #1 high- conviction best idea. EPS was solidly ahead of our forecast and consensus and 2024 guidance was increased due to strong growth in H1/24. EFN also announced the acquisition of Autofleet Solutions (no financial terms disclosed, closing expected in early Q4/24), which we think should augment and accelerate the modernization of EFN’s digital capabilities. Despite the shares trading close to its historical high, we still view the shares as undervalued, in part given it is inappropriate to compare the current share price vs. historical for numerous reasons (e.g., substantially different business mix from inception until Q4/16; significant financial and operational issues under a prior management team until mid-2018 Board/ Management refresh; significant turnaround efforts by new management team followed by a pandemic and then OEM production shortages from mid-2018 until mid-2023). This is the first year we are seeing both EFN delivering excellent fundamentals + normal OEM production. We view EFN as a rare stock that can deliver strong EPS growth; has multiple catalysts; very strong defensive attributes; and an attractive valuation. Over the next 5-years, we forecast an EPS CAGR of +15%. Coupled with a dividend CAGR of 27.5% and share buybacks of ~2-3%/year, we forecast ROE to increase from 15% to almost 25%. With the shares trading at 14.5x P/E and 8.5% FCF yield (2025E), we don’t think the stock is “expensive” at all. Increasing our price target to C$35 (was C$33), maintaining Outperform.
Key points:
Q2/24 operating EPS of US$0.29 was ahead of our US$0.27 forecast and US$0.27 consensus (range: US$0.25 to US$0.28), with the beat driven by higher-than-forecast net financing income (higher NIM yield due to business mix from higher yielding geographies), partly offset by slightly higher-than-forecast OpEx.
2024 full-year guidance was increased for almost all metrics (e.g., Adjusted EPS, net revenue, adjusted operating income and adjusted FCF/ share) (see Exhibit 2 for details). For example, 2024 EPS (basic) guidance was increased to US$1.07 - $1.11 (was US$1.05 - $1.09).
Q2/24 originations of US$2.0B were largely in line with our US$2.1B forecast with AUM of US$14.0B slightly ahead of our US$13.8B forecast.
Increasing price target to C$35 (was C$33), maintaining Outperform rating. The increased price target reflects higher financial forecasts. Conference call on Wednesday at 8:00am ET; dial in: 1-844-763-8274 (link to webcast on EFN’s website).