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An earlier blog on Workathon discussed the competition between Element Fleet Management and DH Corp.Both are in the financial industry and both have specialty niches;they are not banks.A later blog talked about at this time DH Corp appears to have won the race.Its' earnings per share are bigger but it's assets are smaller.But EFN has done very well.In fact, DH just reduced it's dividend while EFN raised its.
Highlights of 2016
Element Fleet Management has had an eventful year.Most importantly it separated into two companies-ECN Capital and Element Fleet Management.And Element Fleet informs it's shareholders that it has made 4 major acquisitions since 2012 and makes considerable income.Before tax income was $428 million but only $385 million was attributable to common shareholders.In order to make these acquisitions it has issued a lot of equity and has considerable earnings but e.p.s is only $1.00 compared to DH's $1.52 per share.EFN however has increased it's e.p.s from $.69 per share in 2015 for a 40% gain.
The Split-up
On October3, 2016 Element Financial split into companies;it had been discussed for some time and finally did split into Element Fleet Management and ECN Capital.The original price was about $13 a share and it trades at almost that now.EFN has taken large restructuring charges in the last two quarters($238 and $203million) in order to complete the break-up.Steve Hudson, their CEO, says that EFN "has taken heavy integration and separation costs and intends to improve their performance indicators in 2017".
Summary
DH has been heading the wrong way and will likely divest assets in order to reduce it's debt.On the other hand,EFN has taken on a lot of debt also and has made 4 major acquisitions.So firstly EFN has considerably more assets,especially tangible assets,but it's return on assets is larger.In a case like this adjusted EBITDA is not the best measure of performance.EBT must be used and I (interest payments) must be deducted.Using EBT to calculate e.p.s. DH comes out a little better with EFN growing faster.That is why this blog thinks EFN is heading towards $14 to $17 per share and DH is probably staying in a tight range around it's present price.
A blog done on Workathon on March 6 asked the question "who will win the competition between DH and Element Fleet Management"?Well DH just reported it's annual results on March 6.And it did pretty well.The results are listed below.
Annual Results
DH reports that it's performance was at the upper end of gyuidance for 2016.Revenues increased 11.5% to $1.679 billion from $1.506 billion.Primarily due to a full year of operations for it's GTBS segment acquisition and growth in their Land IC segment.Adjusted EBITDA decreased 5% to $450 million from $475 million.However there was a consolidated net loss of $94 million or $.88 per share compared to a net loss of $68 million or $.63 per share;this was primarily due to an impairment of goodwill charge.On the other hand, net cash from operations increased by 33% to $293 million from $221 million.Debt was down to $1.9 billion from $2.1 billion.And in fact they repaid $31 million in the fourth quarter and $131 million since the acquisition of Fundtech.Total debt to EBITDA was 3.276x in December31,2016 compared to 3.451x in April30,2015(after acquiring Fundtech).In addition they reduced their dividend from $.32 to $.12 per share for a quarter.
Strategic Review
There will be no guidance on the future direction until the process is complete.There are a number of options open but one is to seek financial guidance.Another option ( and one preferred by this blog) is to divest assets for which a capital gain is embedded.The proceeds would be used to reduce debt further;a good goal would be 3.00x EBITDA.In order to aid this goal DH will provide it's 2017 results in segments or subsidiaries with segment revenues and EBITDA. This will help to point out the weaker segments.They will provide the EBITDA outlook for 2018 also.
Our Forecast
It is not likely that DH will accept a firesale price as the stock price has recovered from a low of $14 in November of 2016.However allowing a financial institution of some kind to take a small but substantial share is not out of the question.Should the price not be to DH's liking then the most likely step is to unload one of their older acquisitions that has some capital gain built in.In other words it is likely that they will have a small change in direction not a big one.DH may trade between $22 and $27 per share for most of 2017.Element Fleet Management is recovering from the split from ECN Capital and has made a major joint venture.This blog sees EFN moving up to the $15 to $17 level by mid-2017. use Workathon for business forecasts;use Workathon for business forecasts
