Element Fleet Management (EFN.TO)

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.

This has expanded through a fairly aggressive acquisition policy. He is an admirer of the company and management. Hasn’t owned because multiples have been out of his range. It is now pulling back and getting closer to areas where he would consider it. There were rumours today that they were going to sell off a portion of their assets to Bank of Nova Scotia (BNS-T). If they did, that would be a signal they are sort of refocusing their lines and being a little more disciplined in choosing the areas that they strategically want to expand in. Still out of his price range.

A leasing company, but more of a fleet management company. Did a big acquisition of GE’s fleet management business. Trading at 11X earnings and will be paying a dividend in 2016. They rate a BBB with DBRS, which means they can fund themselves a lot cheaper. Thinks there is good organic growth coming along with small tuck-in acquisitions. Dividend yield of 0.60%.

Ranks 648 in his quant model, so it is in the basement. Earnings are expected to grow from $1.02 in 2015 to $1.61 giving a 10.6 PE and a .2 PE to growth. Next year earnings are expected to grow by 22%. Looks like a reasonable opportunity, but because it doesn’t fit all the characteristics of his quant model, it is not a stock in his portfolio.

This is up today, largely with all the financials doing well given the rate announcement from the Fed. It is an outstanding company and an excellent name.

They are in the leasing business. Profitability depends on the slope of the yield curve. There is a challenge here and you must diversify. There is support from $13-$15 and we should see support in that range. You could start nibbling here, but upside will be limited.

Excellent management team. PE of 15 times. They are now the largest fleet leasing company in North America. 68% of their assets are in the US.