Element Fleet Management Corp. 

Element Fleet Management Corp (TSX: EFN) is a leading fleet management company, which provides world-class fleet management services that empower extraordinary results across the total fleet lifecycle.

Key Highlights:

• Consistent growth in key metrics: The company reported an improved performance in the recent past, which is a key positive. Pre-tax return on total equity has remained elevated over the years, supported consistent growth in operating performance in the recent past. Moreover, the group reported consistent increase in top-line and profitability, which indicates solid operational excellence.

Source: Company Presentation

• Constantly growing order book: Over the years, the company has successfully increased its order book, which indicates a strong demand across the North American region. Moreover, in order to combat the current economic scenario, some clients remained cautious in the first half of FY21, while the company expects to improve the order inflow during the latter part of the financial year. Notably, U.S. and Canadian orders jumped 56% on a y-o-y basis in H1FY21. The company’s Custom Fleet’s order has grown by 46% on a y-o-y basis in H1FY21, while Element Mexico’s orders grew by a 42% y-o-y basis during the time frame.

Q2FY21 Financial Highlights:

• EFN announced its quarterly result, wherein the company posted net revenue of CAD 235.402 million, higher than CAD 225.503 million in Q2FY20. The increase was supported by an increase in net interest income and rental revenue.
• Operating expenses stood significantly lower at CAD 108.890 million, as compared to CAD 114.359 million in Q2FY20. The decline was primarily due to lower general and administrative expenses, and a slight decline in salaries, wages and benefits expenses. 
• Net income for the period surged to CAD 80.872 million, from CAD 58.594 million in pcp.

Source: Company Report

Risks: Extended restriction due to the arrival of the third wave of virus would lead to a decline in the estimated value of the collateral loans and leases, which might impact the company’s overall performance.

Valuation Methodology (Illustrative): Price to Earnings

Stock Recommendation:

The company has a resilient business model, as it has a strong clientele base across all the industries that are present across five countries. The group's operations were benefited from the scalability of the company’s operating platform coupled with completed transformation and the operating expense savings. Notably, Q2FY21 and H1FY21 operating margin improved 440 basis points and 360 basis points on a y-o-y basis, which is encouraging, considering the current sluggish economic growth. We have valued the stock using the Price to Earnings based relative valuation method and have arrived at a single-digit upside (in percentage terms) upside. Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 13.86 on August 24, 2021.

One-Year Technical Price Chart (as on August 24, 2021). Source: REFINITIV, Analysis by Kalkine Group 

Superior Plus Corp

Superior Plus Corp (TSX: SPB) is a diversified business corporation which operates via Energy Distribution and Specialty Chemicals segment. 

Key Highlights:

• Improved Financial metrics: The company reported consistent growth in EBITDA since 2016, supported by streamlining on Energy Distribution platform and reducing cyclicality and exposure to oil and gas end markets. EBITDA grew 26.5% on a CAGR basis since 2016. Notably, free cash flow conversation stood strong at ~83% in FY20.
• Attractive macros: The company operates within the propane segment, while due to persisting consumer preference in North America, the sector remains attractive for the propane players. Normally, the clients across the region stick to the same supplier for more than ten years, which is a key positive and indicates sustainable free cash flow and significant opportunities for growth. The market of propane is highly fragmented in nature, which also provides ample opportunities to expand for the leading industry players.
• Ample Liquidity and prudent capital management: The company reported available liquidity of CAD 706 million, with no near-term maturity till 2026. The current liquidity levels seems to be sufficient to support the company’s working capital and capital investment needs.

Q2FY21 Income Statement Highlights:

• SPB announced its quarterly result, wherein the company posted revenue of CAD 6 million, climbed from CAD 305.6 million in the previous corresponding period (pcp). The increase was driven by higher revenue from both U.S. Propane Distribution and Canadian Propane Distribution segments.
• Gross profit slide to CAD 1 million, from CAD 169.3 million in pcp, due to higher cost of sales (CAD 216.5 million v/s CAD 136.3 million in pcp).
• The quarter was marked by slightly higher selling and administrative costs (CAD 2 million v/s CAD 174.6 million in pcp), significantly higher finance expense (CAD 58.9 million v/s CAD 24.2 million in pcp), and lower gains on derivatives and foreign currency translation of borrowings amounting CAD 39.1 million v/s CAD 64.7 million in pcp.
• The company reported a net loss of CAD 1 million, as compared to a loss of CAD 0.1 million in pcp.

Source: Company Report

Risks: Factors like sluggish economic scenario, decline in production profile due to lower demand, interest rate fluctuations, etc. would have a negative impact on the company’s performance. Moreover, the company’s operations might see some setbacks due to the seasonality pressure.

Valuation Methodology (Illustrative): Price to Cash Flow

Stock Recommendation:

The stock of SPB carries a dividend yield of ~4.9%, which is attractive considering the existing interest scenario. The company made investments in data analytics and Artificial Intelligence, and expected to improve operating efficiency and logistics optimization, boosting the customer experience and service level. Adjusted EBITDA stood at CAD 253.4 million in H1FY21, as compared to CAD 238.3 million in pcp. We have valued the stock using Price to CF -based relative valuation method and have arrived at a single-digit upside (in percentage terms). Considering the aforesaid facts, we recommend a ‘Hold’ rating on the stock at the closing price of CAD 14.77 on August 24, 2021.

One-Year Technical Price Chart (as on August 24, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.