CIBCEQUITY RESEARCH
September 24, 2024 Flash Research
ELEMENT FLEET MANAGEMENT CORP.
Investor Day Takeaways – Day 1
Summary: The purpose of the two-day event is to showcase the growth
opportunity that lies ahead in Mexico. Management is targeting to grow
market share and revenues, with a particular focus on converting self-
managed fleets. Services is another area where management highlighted
significant opportunity for growth. Element did not refresh its medium-term
financial targets at the all-company level (not expected given already robust
targets).
Element In Mexico: EFN estimates a total addressable market of $2.7B in
annual net revenue. Sixty-five percent of the market is self-managed fleets,
20% of the market is banks & other leasing companies, and the other 15% is
constituted by ~16 FMCs (fleet management companies). Element is the
clear market leader within the FMCs, with 37% market share and 147k
vehicles.
We estimate that a 5% gain in FMC market share represents ~$20MM of
additional revenue, representing ~3% of our 2025E EPS. Market share gains
could also come from self-managed fleets and Element estimates a 10%
market share gain represents $175MM of additional net revenue, which
represents +131% of 2024 Mexico revenue. The current sales pipeline
contains significant opportunities from the self-managed fleet segment as
highlighted by management.
From 2021 to 2024, originations grew at a CAGR of 26%, vehicles under
management (VUM) grew at 18% and services units grew at 30% CAGR for
Element Mexico. Management foresees ample opportunities in services
revenue growth with 59% of fleet having less than two units per VUM.
Services represents 30% of net revenue for Element Mexico vs. 65% for U.S.
and Canada. Achieving parity with U.S. and Canada attachment rates adds
potentially ~$11MM in net revenues, representing 2% of our 2025E EPS.
Growth in Mexico is also beneficial from a competitive FTE cost point of view,
further benefitting margins.
Economic Outlook And Fleet Industry In Mexico: Economic fundamentals
have been relatively robust. Mexico benefits from the U.S. decreasing its
dependence on China for imports. Share of imports from Mexico to U.S. has
increased in the last two years, representing ~16% of total U.S. imports
currently. The U.S. trade deficit with Mexico has increased ~120% from 2017
to 2023, one of the highest growth rates in world. The export mix of Mexico is
well diversified and complex. Foreign direct investment is on the rise,
particularly in the automotive industry. Mexico currently stands as the 7th
largest vehicle manufacturer with 20 production facilities across 13 OEMs.
New vehicle sales grew 25% Y/Y in 2023, while fleet vehicles grew 48% Y/Y.
Sixty percent of the goods in Mexico are transported by road, and the fleet
industry is primarily focused on leasing, while fleet services is an emerging
segment. The EV adoption rate is on the rise as well, with sales up 200%
Y/Y. Nearshoring is further expected to drive increased opportunity over time
but with near-term political risk.