Element Fleet Management Corp T.EFN

TD Raise Target

[retiredcf]

By two bucks to $30.00. GLTA

QUARTERLY BEAT AND GUIDANCE MOVED HIGHER

THE TD COWEN INSIGHT

Q2/24 revenue, adjusted EPS, and FCF came in above us and consensus. Originations were strong (record volumes). Guidance for 2024 was increased (our revised higher estimates remain above guidance). Element announced a strategic tuck-in acquisition (a fleet software company). Growth momentum appears intact, and we believe the self-managed fleet market appears to be a deep, multi-year opportunity.

Q2/24 Results: Conference call is August 14 at 8 am ET.

Impact: POSITIVE

We have moved our target price higher ($30, up from $28) on the back of higher estimates and rolling forward valuation by one quarter (4QF ending Q2/25). Originations and fleet AUM growth remains constructive, and this is translating into strong revenue and earnings growth. We expect this to persist, and we maintain our BUY rating.

Key Data

Q2/24 results were comfortably above us and consensus. Net revenue of $275mm was above our $248mm estimate (consensus was $262mm). Revenue growth was a solid 14% y/y. Net financing revenue was +16% y/y due to fleet AUM growth, and a healthy net finance revenue yield. Servicing revenue was +11% y/y; management cited higher origination volumes and penetration of existing and new clients. Adjusted operating margins were up 60bps y/y and 100bps q/q (55.7% is slightly above annual guidance of 55.0%-55.5%). Adjusted EPS of $0.29 was above us at $0.25 (consensus was $0.27), and FCF/share of $0.38 was comfortably ahead of our $0.32 estimate (up from $0.35 q/q and $0.34 y/y).

Guidance for 2024 was increased (the midpoints for revenue, adjusted EPS, and FCF/ share were increased by 4%/2%/1%, respectively). We have increased our estimates in turn, and we remain 2-3% above the high end of guidance (consensus is also slightly above the high-end).

Originations of $2.0bln were a record. This was above our $1.9bln forecast, and compares to $1.5bln q/q and $1.9bln y/y. Fleet AUM is up 4% q/q and 8% y/y. Syndication volume of $1.0bln was also a record (albeit the yield was low).

Element announced a strategic tuck-in acquisition of 'Autofleet'. The 70-person firm provides software to optimize fleet management. This deal appears to fit with Element's strategic push to invest in the digitization and automation of its platform. Expected close is Q4/24 (terms were not disclosed).

Management is being active with balance sheet initiatives. Element redeemed $91mm in preferred shares in Q2/24, and will redeem the remaining $92mm in Q3/24. A $172mm convertible debenture was also redeemed in Q2/24 (issued 14.6mm shares). We are forecasting buybacks to resume in Q4/24 and into 2025.