Element Fleet Management Corp T.EFN

TD Report

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SLIGHT BEAT AND 2025 GUIDANCE IN LINE

THE TD COWEN INSIGHT

Q3/24 revenue was in line, while adjusted EPS and FCF/share came in slightly above us (and consensus) given stronger than expected margins. 2024 guidance was reiterated, and initial guidance provided for 2025 is constructive, and in line with us and consensus (albeit we are at the high-end of guidance). Originations were up y/y, but slightly lower than our forecast.

Q3/24 Results: Conference call is November 14 at 8 am ET here.

Impact: NEUTRAL

Overall, we view this as a slightly positive quarter. While revenue was in line, stronger-than- expected margins drove the slight adjusted EPS and FCF/share beat. Guidance for 2025 is largely in line with our expectations and consensus (we are at the high end). We have made modest changes to our estimates. Our target price moves up to C$33 (from C$32) after factoring in the higher USD/CAD spot rate. We reiterate our BUY rating.

Q3/24 results were slightly better than our forecast (and consensus). Net revenue of $280mm was in line with our $278mm estimate (consensus was $279mm). Implies 12% growth y/y. However, adjusted operating margins of 57.7% were stronger than our 55.1% forecast and led to a slight EPS beat ($0.29 was above us and consensus at $0.28). FCF/share of $0.36 was above our $0.34 forecast.

2025 guidance is constructive, in our view (albeit we, and consensus, are already at the high-end). Management reiterated they expect to meet, or beat, the high-end of 2024 guidance. While more specific target ranges for 2025 will be provided next quarter, initial guidance includes revenue growth of 6.5%-8.5% (we are at 9% vs. the high-end of 2024 guidance), and high-single/low double-digit growth for adjusted EPS and FCF/share (we are at 11%/13% vs. the upper-end of 2024 guidance ranges). Originations are forecast to be up by low-to-mid single digits (we are in-line). Element is on track for three successive years of revising guidance higher and delivering double-digit top-line and bottom line growth.

Originations of $1.7bln were up 10% y/y, albeit came in lower than our $1.9bln forecast.  Syndications in the quarter were $1.0bln (flat q/q and up from $0.7bln y/y). Fleet AUM of $13.9bln was -1% q/q but up 6% y/y. Vehicles under management (VUM) of 1.5mm were flat q/q and y/y.

The NCIB is being renewed and the dividend was increased by 8% ($0.13/share quarterly was lower than our $0.14/share forecast). We expect Element to become active with common share buybacks again after paying off its convertible debenture in Q2/24 (US $125mm) and the last of the preferred shares in Q3/24 (US$95mm).