Element Fleet Management (EFN.TO)

They bought back in February and they sold it. It is going to split into two companies. There is concern that the growth may be over. The fleet management is doing well.

We still don’t have a date when the 2 companies are going to be separated. A year ago they earned $1, and this year they are going to earn $1.60. Now it is trading under 10X earnings, so he would like them to hurry up and get it over with. Thinks there is $25 of value that will trade at $20 once they unlock it.

Element Financial (EFN-T) or Aecon (ARE-T)? Two different things. One is a financial player and the other is involved in industrials being a construction company. This one is mostly a financial that is in the leasing business, either equipment, railcars or fleet, and they are separating into 2 companies from the fleet and equipment leasing. The issue by and large is where the economic growth is going to come from and the financial leverage the companies will have. They need to be able to lever up the company and to grow the business, and that is a challenge after having acquired a few things from GE Capital.

Has a particular issue with the fleet space, and specifically railcar space. This was a very tough one to analyse. It is sort of financial engineering at its best. There is a lot of support from the street. You would have to have a strong view in an economic pick up in North America to get behind this name.

(Market Call Minute) Wait and see how the break up plays out.

(Market Call Minute.) The stock has come down too much and there is some good value creation that is going to be happening in the next year.

At today’s price, you can wait on the sidelines. Eventually when the split happens, you will get the majority in the form of a leasing company and the balance will be a spinoff, which could create some uncertainty. You will then be open to pick and choose which particular company you would like to own.

If people think there is going to be a slowdown in the global economy, this impacts a company like this in a big way. This is the headwind they are facing right now. A tailwind for them has been the US$, which has kind of reversed course. They have a great asset, and you can Buy it on the cheap now if you believe that we are not going to go down to 1% or a negative GDP growth. Announced plans to split into 2 separate companies, which creates an incredible amount of value. ROE potential of their fleet asset will really shine through, and are not getting credit for that right now because of their combined entity.

(A top Pick July 8/15. Down 23.63%.) A leasing company. Made a big acquisition of some of General Electric’s (GE-N) leasing products. They got DVR rated, so their cost of funds has come down. He can see good growth for them in the US.

(A Top Pick June 1/15. Down 22.08%.) There is a restructuring coming. The stock was $19 a year ago, and now they are doing a restructuring to get value out, and the uncertainty has created a bit of angst. When it comes, you could see mid-$20 valuation on a break up.

His one-year target would be $19-$20, back where it was a year ago. When they announce the end of the deal, and earnings continue to come through, he thinks it will be fine and a good stock run up into the fall. Dividend yield of 0.68%.

It appears to be breaking the downtrend and is breaking a neckline. This consolidation around the current price, if it gets broken, looks pretty good. He is looking at it.

He knows this is well-liked on the street, but every time he looks at it, it doesn’t work for him. If you have a longer-term view and you really like the name fundamentally, it has limited downside. The chart shows it is running in a band, so you could buy it at the low end at around $12.50-$13.00. If this were a trading account for him, he would probably be taking profits.

Earlier this year they announced plans to separate the company into 2 entities. One is a fleet business and the other is asset management. Thinks we are on the verge of a major re-rating on the back of this split. Both businesses are high quality and will both generate high ROE’s. The company is largely undervalued on the back of this. Dividend yield of 0.65%.

Likes the value they are going to unplug by splitting the company in 2. They will be a fleet business and an asset management business in September. They will disclose the pro forma numbers in August. Last quarter management guided that the fleet business will earn about $1.12, but could actually be $1.10. If you use a 15 or 16 time multiple, this is what the stock currently is at. Even if you don’t like the commercial side of the business, it is probably worth at least $3, so you can easily get to $20 and above on a valuation. After the split, they will materially increase the dividend. Dividend yield of 0.68%.