Post by
retiredcf on Nov 14, 2024 11:24am
CIBC
Have a $33.00 target. GLTA
EQUITY RESEARCH
November 14, 2024 Earnings Update
ELEMENT FLEET MANAGEMENT CORP.
2025 Guidance Confirms Double-digit Growth Potentia
Our Conclusion
2025 guidance implies a slowdown for top-line growth but that double-digit
EPS growth is achievable. There are no changes to our 2025 or 2026 EPS
estimates. We continue to like EFN for double-digit EPS compounding with
relatively low balance sheet risk. Our C$33 price target implies attractive
upside based on EPS growth through 2026 and we maintain our
Outperformer rating.
Key Points
Our 2025E EPS is consistent with guidance: Newly introduced 2025
guidance implies an EPS range of roughly $1.16-$1.24 based on 2024
guidance of $1.07-$1.11 (unchanged). Our 2025 EPS estimate of $1.24
(unchanged) is already at the top end of that range, as is consensus of
$1.25. 2025 revenue outlook is relatively consistent with the medium-term
objective: 2025 guidance is for revenue growth of 6.5%-8.5%, a slowdown
from 11%-13% in 2024 and more consistent with the medium-term objective
of 6%-8%. EFN identified a number of revenue growth headwinds for 2025:
1) peso FX (-2%); 2) peso funding (-1%); 3) a decline in bonus depreciation
(-0.7%); 4) non-recurring service revenue (-0.6%); and, 5) debt financing that
replaced preferred shares (-0.5%). These headwinds suggest a cumulative
drag of ~5% and imply that underlying revenue growth is still in the low
double digits.
Mexico exposure adds some near-term risk: The peso has devalued
~20% over the last six months due to political change in Mexico and the
threat of trade sanctions by a Trump administration. Q3 originations in
Mexico were down 11% Y/Y, primarily, it would appear, on currency
devaluation. Management remains confident in the growth prospects in
Mexico. 2025 guidance incorporates a 3% revenue drag from the devaluation
of the peso (2%) and higher-cost peso funding (1%).
Syndication yields trending lower: Management expects yields to move
lower in 2025 as bonus depreciation decreases from 60% in 2024 to 40% in
2025. We are forecasting syndication volumes that are roughly flat in 2025
vs. 2024, but that syndication revenue decreases by 15% on lower yields. If
Trump re-enacts bonus depreciation to 100%, EFN estimates revenue
upside of $25MM-$30MM, which would add $0.05-$0.06 to 2025E EPS.
Share repurchases to resume: EFN has repurchased only 0.5MM shares
YTD 2024 as it prioritized the extinguishment of high-cost capital. That
process is now complete and the company intends to launch a normal
course issuer bid (NCIB) for up to 10% of shares outstanding. We assume
4% of shares outstanding are repurchased in 2025.
Valuation: EFN is trading at 16.4x P/E (2025E consensus), above its trailing
three-year average of 14.5x. FCF yield is 7.4% on our 2025E; potential
upside is painted using a ~5%-6% yield.