Element Fleet Management Corp.
Highlights from the RBC Global Financial Institutions Conference
TSX: EFN | CAD 19.15 | Outperform | Price Target CAD 27.00
Sentiment: Neutral
Jay Forbes, CEO, Laura Dottori-Attanasio, President, and Frank Ruperto, EVP and CFO, participated in a Fireside Chat at the RBC Global Financial Institutions Conference.
Key takeaway: We think EFN conveyed a bullish outlook driven by organic growth, exemplified by their statement that they are both not worried about missing the low end of their 2023 EPS guidance range and also confident they can hit the high end of their guidance range even only after 1 month of data for 2023. We think EFN is delivering strong fundamentals (new client wins from market share gains, self-managed fleet wins and mega-fleet wins and cross-selling of additional fleet services to existing clients) and is well positioned to maintain its positive momentum. EFN is our high-conviction #1 best idea and we believe the shares offer an attractive blend of significant growth potential (we forecast a 15% EPS CAGR over the next 5 years) and strong defensive attributes.
Other takeaways include:
• New client wins: In talking about its new client pipeline, EFN described it as "incredibly bright" highlighting some of their recent client wins like TELUS (market share gain of 4,000 vehicles), Mexico's largest convenience store operator OXXO (1,000 vehicles with the potential to manage 10,000) and the U.S. megafleet win of Rentokil Terminix (16,500 additional vehicles above the 4,700 EFN already manages). They also talked about Armada (we believe this is Amazon) already using Element in the U.S., Canada and Mexico and in 2023, Element will be helping them in Australia and New Zealand. To use a baseball analogy, EFN believes they are in the 1st/2nd inning of growth in the U.S./Canada, ~3rd inning in Australia/New Zealand and 4th/5th inning in Mexico.
• CEO transition: Mr. Forbes confirmed that his decision to retire was the product of EFN not only completing its transformation/ turnaround but that it was demonstrating clear signs of its growth potential. Furthermore, although Ms. Dottori-Attanasio has only been at Element for a few weeks, she said that the only surprise has been to the upside regarding people and culture as it was better than expected.
• 2023 guidance: We view 2023 EPS guidance as conservative (EFN is guiding to $1.12-$1.17 vs. our $1.24 estimate). EFN believes it is on track to achieve the high end of its 2023 guidance after just 1 month into the year. EFN noted other key factors that could drive upside to their guidance range was the pace/extent EFN can onboard its new commercial wins as well as higher-than- expected originations which could also translate into incremental service revenues (e.g., from title registration, remarketing, etc.). On the flip side, EFN said it is not worried about missing the low end of its guidance range.