Consensus price target for Element Fleet Management according to Bloomberg is $14, an upside of 62% from its current levels
SmallCapPower | June 30, 2017: Lately, a number of key insiders have been accumulating shares of Element Fleet Management Corp. (TSX: EFN), showing confidence in the stock by people who are most knowledgeable about the Company’s prospects.
Over the past month, Bradley Nullmeyer (CEO) acquired 71,000 shares at $9.43/share; Samir Michael Zabaneh acquired 12,000 shares at $9.1; Kristi Webb acquired 20,000 shares at $9.59; and James Halliday acquired 13,160 shares at $9.5. EFN shares currently trade at $8.69 and offers a good entry point for investors. We also note that the consensus price target for EFN according to Bloomberg is $14, an upside of 62% from its current levels. As of June 27, 2017, insiders hold 1.47% of total shares outstanding. The share price has been trending downwards over the past few months due to lower than expected 1Q17 earnings and issues relating to the integration post its separation from Element Financial in October 2016.
INVESTMENT THESIS
- Element Fleet Management is the largest fleet management company in North America, providing services to ~3 million vehicles across 50 countries globally
- The Company has reported robust growth in revenues through inorganic expansion ($40 mm in 2013 to $936 mm in 2016), generates free cash flows and has investment grade credit ratings (A-, BBB+)
- Continued shift towards higher margin Service Fee revenue (61%), driven by investment in technology and data analytics
COMPANY OVERVIEW
Element Fleet Management is a global company that provides fleet management, maintenance services and financing for commercial vehicle fleets. It has a strong dominance in North America, Australia and New Zealand. They have over 3 million fleet vehicles under management in 50 countries around the world. They rely heavily on advanced technologies and analytic setups to deliver better value and efficiencies. Element manages end to end fleet requirements for clients by reducing costs and increasing productivity.
Products and Services
The services provided by Element can be categorized into 3 major heads – Fleet Services, Technology and Fleet Consulting.
Fleet Services – The Company offers fleet services for various types of assets, such as Cars & Light Duty Vehicles, Medium & Heavy Trucks and Material Handling Equipment (MHE).
Cars & Light Duty Vehicles: The services include Fleet accident management, fuel management, maintenance, risk and safety programs, telematics, vehicle remarketing, title and license registration, Tolls, Violations and Compliance.
Medium and Heavy Trucks– These include truck acquisition, financing, remarketing, maintenance, telematics and regulatory compliance.
Material Handling Equipment– Element provides integrated material handling services to manage equipment inventory and reduce costs. Services include MHE acquisition, consulting, remarketing, financing and maintenance.
Technology – Element has designed a Fleet management system called Xcelerate, which provides seamless analytical tools for customers and drivers.
Fleet Consulting– Element’s Fleet Partnership Solutions is a fleet program for customers who want day to day strategic planning to full outsourcing solutions. This helps in saving costs and time so that customers can focus on their core businesses.
Element-Arval Global Alliance provides global fleet consulting services in more than 50 countries to manage complexities and provide solutions to customers.
FINANCIAL PERFORMANCE
Net revenues declined 13% YoY to $234 million in 1Q17, attributable primarily to a 24% decline in net interest and rental revenue as a result of a decline in average earning assets, offset by higher yield on U.S. assets on uptick in benchmark rates. However the key metric, net interest and rental revenue (NIM) margin was flat at 2.7% for the quarter.
Increase share of services revenues: Services share as a percentage of revenues continues to increase. As of 1Q17, services accounted for 61% of total revenues compared to 55.6% in 1Q16. Services margins have typically higher margins than net interest and rental revenue margins (2.7%)
OUTLOOK
As a global leader in fleet management, we believe Element Fleet Management (EFM) is well positioned to capture the large and growing fleet management market. The shares of EFM have been on a gradual decline over the past several months and offer a good entry point for investors. Additionally recent accumulation of shares by insiders bodes well for the stock, with a potential of good appreciation over the next few months.
Disclosure: Neither the author nor any of the principals at Small Cap Power, or their family members, own shares in any of the companies mentioned above.
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