National Bank National Bank Financial analyst Jaeme Gloyn said recent investor meetings with Element Fleet Management Corp.’s new president and chief executive Laura Dottori-Attanasio reaffirmed his confidence in his “top pick.”
“Our bullish position on EFN partly rested on a successful leadership transition,” he said. “Not only did our three-day marketing event confirm a seamless hand-off, we came away more confident in the company’s outlook. As important, investors generally shared our positive assessment of the meetings.”
Mr. Gloyn said Ms. Dottori-Attanasio, who was named to the role in late January, “demonstrated a deep knowledge both of EFN and industry dynamics, strategic vision, and strong collaboration with CFO Frank Ruperto.”
“In addition to continuing organic growth strategies to increase share of wallet, convert self-managed fleets, and win market share, Laura sees opportunities to accelerate and enhance growth through digitization/automation, EV transition, and new partnerships,” the analyst said. “We view these opportunities as key supports in de-risking the already solid 6-8-per-cent annual revenue growth outlook with positive operating leverage to drive double-digit adjusted EPS and free cash flow per share growth.”
Mr. Gloyn reaffirmed his “top pick” status, “outperform” recommendation and Street-high target of $30 for Element Fleet shares. The current average is $24.58.
“EFN is a ‘core holding’ we believe every PM needs to own in all environments,” he said. “EFN is a low-risk, double-digit FCF and dividend grower, with blue-sky share price potential easily into the $30s over the next two years regardless of the market backdrop. We view growth as de-risked given 1) continued solid execution on an organic growth pipeline of $500 million of revenues (40 per cent above 2022 levels) to be earned in the next few years, 2) a massive order backlog with high-margin revenues to support that growth in H2 2023 through 2024, and 3) mega-fleet wins not baked into guidance or consensus estimates (see Rentokil in December 2022 and Armada, OXXO and TELUS added in early 2023). In addition, EFN still trades at an FCF Yield of almost 9 per cent on 2024 estimates, roughly 40 per cent above the yield of Canadian Financials with similar fundamentals (e.g., defensiveness, strong organic revenue growth, expanding profitability, solid FCF generation, low credit risk, and barriers to entry). As EFN executes in 2023, we expect significant yield compression.”