Element Fleet is a leading fleet management company. It is the world’s largest company that manages a commercial-only fleet. Element is a global B2B and B2G service company. The company has $ 17 billion worth of assets under management and manages more than 3 million fleet vehicles in over 50 countries around the world.
The company’s fleet includes cars and light commercial vehicles, commercial vehicles and industrial trucks, etc. It offers services and financing solutions for commercial vehicle fleets.
Element Fleet has three complementary sources of income – net financing income, which represents ~ 40% of net sales, services (~ 50%), and syndication (~ 10%). Element Fleet enjoys leading market shares in North America, Australia and New Zealand.
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Sales growth & market presence
As a leader in comprehensive fleet management solutions, Element Fleet offers its customers an end-to-end suite of fleet management services. The company supplies some of the leading companies such as American Greetings, BASF, Owners Corning, Sanofi, etc. It has over 5,500 corporate and government customers. Around two thirds of the customer base are investment grade customers with strong counterparty credit.
Additionally, Element has a high retention rate (~ 98%) and its leases contain cross-default clauses (which allow it to default non-paying customers with their other creditors) and no force majeure clauses. The company enjoys long-term, close customer relationships and is known for its fleet quality, impeccable customer service, bespoke products and competitive prices. Customers prefer Element Fleet because of its efforts to reduce their overall vehicle ownership and operation costs.
Element’s service revenue, which accounts for ~ 80% of leases, comes from customer subscriptions to services that make predictable contributions to revenue regardless of the customer’s vehicle activity. The company offers a range of fleet management solutions that span the entire fleet lifecycle, from acquisitions and vehicle financing to program management and remarketing of fleet vehicles. Element Fleet is well diversified across customers, industries, regions, revenue and funding sources. The company currently serves a $ 4 billion market.
Element’s fleet of delivery trucks, supply trucks and vehicles carrying samples for laboratory testing, etc. benefited from the pandemic, while fleet utilization declined for some of the customers due to WFH requirements. The company closed over 100 commercial transactions and embarked on a growth strategy for Custom Fleet last year, which saw net revenue grow 35% year over year in the most recent quarter. Element Fleet claims to have reliable annual net revenue growth of 4% to 6% under normal market conditions.
Element Fleet has a solid track record of returning copious amounts of free cash flow to its shareholders through share buybacks and dividends. It returned $ 104.5 million to shareholders in the last quarter.
The company has a modest annual return of 1.9% but a reasonable payout ratio of 44%. It last increased its dividends by 40% in 2020 and has seen dividend growth of 46% CAGR over the past five years. Element’s EPS has also grown by 50% CAGR over the past three years. The company has a robust business model in which more than 80% of its fleet assets are used as a work vehicle for its customers and nearly two-thirds of its net profits are leased to investment grade customers, reducing the risk of default.
In addition, Element’s customers are spread across over 700 industry segments in five countries with little exposure to the hospitality, travel and leisure sectors. Its balance sheet is strong as the company continues to reduce its debt ($ 4.3 billion over the past three years). Element is in a good position to leverage its scalable, low-capital business model to lower its overall costs and lead the transition to electric vehicles.
Element’s customer-centric transformation program has improved its operational leverage and increased free cash flow. Element has an industry leading scalable operating platform with minimal investment requirements. The company is focused on cementing its core operating platform and customer relationships, strengthening its balance sheet, and disposing of all non-core assets through this plan.
This transformation program resulted in $ 208 million in run rate earnings improvements and $ 133 million in operating profit increases in 2020. The company has an adjacent market size of $ 2 billion, consisting primarily of its self-managed fleet, which is represents a very great opportunity for sustainable organic net sales growth. The company has significant growth opportunities as 55% to 65% of its addressable markets are not yet penetrated.
Element Fleet competes with companies such as Automotive Rentals, BBL, Enterprise Fleet Management, Wheels, Holman Automotive, Donlen Corporation, etc. The industry is characterized by rational competition and high barriers to entry. Element Fleet is the market leader in North America and Australia / New Zealand. The company continues to invest in innovative tracking tools and fleet management technologies that make the entire process more productive for its customers.
Element Feet provides basic services to business owners. The company’s diversified fleet could reduce some of the problems that arise from corporate clients choosing to work from home. As a result of its ongoing efforts to transform its operating platform, strengthen its balance sheet and dispose of non-core assets, the company expects improved results. Substantial economies of scale, resilient recurring sales, expertise and financial strength form a deep trench around Element Fleet’s business.
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