Element Fleet Management (EFN.TO)

(A Top Pick April 16/15. Down 22.92%.) One reason he really likes this is that the leasing business is almost all in the US. Banks and other organizations are getting out of this business, so there is a great opportunity for them to grow. Made the purchase of General Electric’s (GE-N) leasing businesses. They are being split into 2 companies, which will give you the choice of owning the fleet business or the leasing side, and he would own the fleet part. Good management. They will grow through acquisitions along with organic growth. Still a Buy.

Had dipped inexplicably to $12 a while ago. A leasing business, 90% non-Canadian. They were big buyers from General Electric (GE-N). They have railcars, helicopters and leasing. Have split into commercial and industrial sides. Valuation now is under 10X earnings, which he doesn’t quite understand. If you were to get a 15 multiple on the number they say they can reach, you could see $25. He would be happy if it could get halfway there. Thinks it gets back to $20 by the end of the year. Dividend yield of 0.68%.

They are separating into fleet management and the commercial, asset backed part. They feel the fleet management portion is the more stable business and should garner more value. It should complete by the end of year and she has not got much detail. They have to focus on growing organically, rather than continuation by acquisition.

Chart shows the stock broke out in early 2015, and then kind of rounded over. That is a bit of a negative. Right now it is testing the old neckline at the previous support level. Wouldn’t buy the stock unless it broke through that support level.

A leasing company. Recently announced they are going to split into 2 parts. One part will be fleet financing and the other will be commercial. One will be steadier and the other will be higher growth. The company is reasonably leveraged to the economic cycle, so you have to have some confidence. The majority of their exposure is to the US. Thinks there will probably be good upside in this if their execution is right. He is ambivalent about it, but if management is right there should be good upside.

This just got too over-owned. There were a bunch in the US that just piled into the name. We are still seeing the effects as they are still Selling their holdings. Also, there are recession fears, and companies like this don’t do well in recessions. Split their fleet management business and vendor financing into 2 publicly traded companies in order to create value. This will lower their financing costs which is a massive margin boost for the business.

Well regarded on the street, and most people think it will do quite well. They made a decision to split their fleet management business and vendor financing commercial finance business into 2 publicly traded companies. Have some strong institutional shareholders who really wanted to see that change, so that is being viewed positively. Something you can safely hold if your time horizon is over 6 months, otherwise you are in for a rough ride.

He is a long-term investor. Likes the company. This has been hit for multiple reasons. The former CEO is quite flamboyant. Did an excellent job, but some investors always have the thought that he is going to get himself into the same problems that he was into before. There is a lot of hot money in the stock. There are a couple of comparables in the US that have run into problems. Doesn’t think the comparisons are strong or valid. Trading at about 7X its earnings. It is going to survive.

The stock has pulled back along with a lot of names in the financial sector. This is more of a growth by acquisition story, which is something she typically does not participate in. Have made some big acquisitions, so now it is a matter of integrating them. The pullback is tied in with the general economic slow down. If you want financial service exposure, she would go with one of the banks, or even a lifeco, which have more stable earnings streams, attractive valuation, a proven business model, attractive yields with a potential that those dividends will increase. Dividend yield of 0.8%.

Pretty impressed with their business. Have never invested in it, but has been watching it pretty closely. Thinks the stock has fallen back because of a rumour that they are looking to sell their Canadian business. Secondly, they might be willing to double down and purchase a rival’s business in that segment. Because of this, the market is not clear whether they are a seller or a buyer and the risk of having an equity issue. Getting to be a more reasonable valuation now.

The fundamentals seem to be pretty solid, but it has been under pressure last year. People are probably worried about the financial sector. The main part of their business is stable, fleet leasing. Management owns a lot of stock. It is just a case of negative sentiment.

Financial Recommendation. He likes Intercontinental Exchange. He has WCF-N. In Canada he prefers RY-T and owns it. You can do EFN-T, which has come off quite a bit. He thinks it can grow at a very high growth rate and it is not reflected in the stock price.

Most of their business is now starting to gravitate towards the US, so a Canadian interest rate reduction shouldn’t impact this. They sign longer-term leases with their customers, 3-5-10 years, so change in the economic situation is impacting their growth rate, but not their current business. Just started a dividend for the 1^st time, which is a positive sign. It is really all about the spread. If their interest margin is fine and the economy doesn’t completely roll over, they will be fine.

He is pretty positive on this. It has come under pressure because of a capital raise they did at $17 to pay for a US acquisition. More than 75% of revenues come from the US. Currently there is a bit of negative sentiment based on their proposed jettison of their vendor leasing business in Canada. This is clouding the picture, but once that is done, there will be some cleanup there. Recently announced a dividend.

One of the best performing financial companies in Canada last year. Extremely cheap. Has come off quite a bit in the last few days. They will probably earn around $1.50 next year, so it is trading at around 10X earnings which is up by quite a bit. Very good growth here. Any time you can find a business that is growing their earnings by more than 20% and trading at 10X earnings, these are the types of companies he is going to hold. He may Buy more.