Currently have a $25.00 target. GLTA
Element Fleet Management Corp.
(EFN-T) C$23.07
In-line Quarter; 2024 Guidance Reiterated
Event
Q4/23 Release. Conference call at 8:00 a.m. today.
Impact: NEUTRAL
We would describe this as an in-line quarter. Results were largely in line with
consensus (modestly below our revenue/EPS estimate). Guidance was reiterated
for 2024 and is constructive, in our view. Originations were solid, and management
expects 2024 volumes to be up from 2023 levels.
Q4/23 was broadly in line with expectations, and equates to 2023 results coming
in above guidance.
Revenue of $333mm was in line with consensus, but slightly below our
$337mm estimate. This was up a constructive 14% y/y.
Adjusted EPS of $0.33 was in line with consensus, but slightly below
our $0.34 estimate. FCF/share of $0.40 was in line with our estimate.
There were $15mm of 'strategic project costs' excluded from adjusted EPS and
FCF (establishing Ireland-based leasing operations; strategic sourcing in Asia,
and digitization/automation initiatives). A further $12mm in costs is expected
through H1/24.
Originations of $2.0bln were slightly below our $2.2bln forecast, and
compare with $2.1bln q/q and $1.8bln y/y. Backlog of $2.5bln was flat q/q.
2023 originations of $8.6bln were up 36% y/y. Syndication volumes of $1.0bln
in Q4/23 were in line with expectations and flat q/q.
Guidance for 2024 was reaffirmed (now provided in both Canadian and U.S.
dollars).
Revenue growth: 6-8% y/y; EPS growth: 7-11%; and FCF/share growth:
6-8%. We (and consensus) are generally at the high end (consensus is likely
closer to the midpoint when viewed in U.S. dollars). In our view, the constructive
guidance has merit, given Element has now exceeded guidance in 2022 and
2023.
The new outlook for 2024 originations is encouraging ($9.5bln-$10.0bln
excluding Armada); compares well with $8.6bln in 2023 (note: we are at $9.1bln
in 2024).
Element is transitioning to U.S. dollar reporting in Q1/24 (it will retain the
TSX listing and Canadian dollar dividend). This is likely positive and could
reduce some noise around different FX assumptions between consensus and
guidance.
$345mm of capital returns in 2023 reflect dividend, buybacks, and paying
off $115mm in preferred shares. Plans to redeem another $261mm in preferred
shares in 2024 will limit share buybacks.