Bullboard - Stock Discussion Forum Element Fleet Management Corp T.EFN

Alternate Symbol(s): ELEEF

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Element Fleet Management Corp. is a Canada-based fleet solutions providers. It operates as a pure-play automotive fleet manager. The Company offers a full range of fleet services and solutions to corporations, governments and not for profits across North America, Australia, and New Zealand. Its services address every aspect of clients' fleet requirements, from vehicle acquisition, maintenance... see more

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TSX:EFN - Post Discussion

Element Fleet Management Corp > TD 2

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Post by retiredcf on Aug 14, 2024 4:20pm

TD 2

AUTOFLEET A STRATEGIC INVESTMENT TO ACCELERATE DIGITAL PUSH

THE TD COWEN INSIGHT

As expected the conference call focused on the Autofleet acquisition. The investment is designed to accelerate management's priority to upgrade the firm's digitial/automation capabilties. The call also focused on originations (expected to remain strong), syndication (Q2 may be the peak in 2024), factors behind the updated guidance, the impact of lower rates, and self-managed fleet demand.

Q2/24 Conference Call Key Takeaways:

Element paid US$110mm to acquire Autofleet. The deal is expected to be modestly accretive in 2025, with a < 3 year payback. This Israeli based fleet software company will remain independent. Management flagged opportunities to leverage Autofleet's digital capabilities and analytics to enhance the existing customer experience and win new business. Benefits are also targeted from back-end automation and processes.
Q2/24 originations are likely a (2024) peak, but management is constructive on the outlook. While OEM production has normalized, client demand and originations should remain strong due to legacy backlog (the average age of client fleet vehicles is currently 49 months, which is down from a pandemic-related peak of 59 months, but still above the historical average of 42 months).
$1.0bln in syndication in Q2/24 was very high, but the revenue yield was low at 1.2%. This compares to a historical average of 2.0% (L4Q average was 1.74%). Management cited the mix of client fleets being syndicated as a factor (gross syndication yields on apples to apples fleets are stable). Demand from banks/insurance cos remains strong.
We believe there is a component of conservatism in the revised 2024 guidance. We
are 2-3% above the high-end for revenue, adjusted EPS, and FCF/share. Management notes they expect growth in 2H/24 (vs. 1H/24), but highlighted the potential for lower net finance revenue margin (due to preferred share redemptions), a higher share count (convertible debenture redemption), and some caution towards used vehicle gains on sale (Mexico and ANZ).
Declining rates should be positive, at the margin, for fleet demand. While Element's match funded model implies lower rates should be neutral to net finance margins, management did note funding costs have evolved ytd better than anticipated in late 2023 (contributing to the higher earnings guide).
Demand for self-managed fleet conversions (to fleet management companies like Element) is not interest rate sensitive. It is typically driven by the complexity of the shift to EVs, and the value proposition of better services and lower cost when outsourcing to fleet company.