Intrinsic value of Element Fleet Management Corp. - EFN

Previous Close

$9.43

  Intrinsic Value

$2.06

stock screener

  Rating & Target

str. sell

-78%

  Value-price divergence*

+223%

Previous close

$9.43

 
Intrinsic value

$2.06

 
Up/down potential

-78%

 
Rating

str. sell

 
Value-price divergence*

+223%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of EFN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 3.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  100.12
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,621
  1,653
  1,691
  1,735
  1,784
  1,838
  1,897
  1,962
  2,032
  2,107
  2,188
  2,274
  2,367
  2,465
  2,569
  2,680
  2,798
  2,922
  3,054
  3,192
  3,339
  3,494
  3,657
  3,829
  4,011
  4,201
  4,402
  4,614
  4,837
  5,071
  5,317
Variable operating expenses, $m
 
  1,299
  1,326
  1,356
  1,391
  1,429
  1,471
  1,517
  1,566
  1,620
  1,677
  1,610
  1,675
  1,745
  1,819
  1,897
  1,980
  2,068
  2,161
  2,260
  2,364
  2,473
  2,589
  2,711
  2,839
  2,974
  3,116
  3,266
  3,424
  3,589
  3,764
Fixed operating expenses, $m
 
  164
  168
  172
  177
  181
  186
  190
  195
  200
  205
  210
  215
  221
  226
  232
  238
  243
  250
  256
  262
  269
  275
  282
  289
  297
  304
  312
  319
  327
  336
Total operating expenses, $m
  1,431
  1,463
  1,494
  1,528
  1,568
  1,610
  1,657
  1,707
  1,761
  1,820
  1,882
  1,820
  1,890
  1,966
  2,045
  2,129
  2,218
  2,311
  2,411
  2,516
  2,626
  2,742
  2,864
  2,993
  3,128
  3,271
  3,420
  3,578
  3,743
  3,916
  4,100
Operating income, $m
  190
  191
  198
  206
  216
  228
  240
  255
  270
  287
  306
  455
  476
  500
  525
  551
  580
  610
  643
  677
  713
  752
  793
  836
  882
  931
  982
  1,036
  1,094
  1,154
  1,218
EBITDA, $m
  603
  502
  513
  526
  542
  559
  578
  600
  623
  649
  676
  706
  738
  772
  809
  848
  889
  933
  980
  1,030
  1,082
  1,138
  1,197
  1,260
  1,326
  1,395
  1,469
  1,546
  1,628
  1,715
  1,806
Interest expense (income), $m
  297
  484
  495
  506
  520
  535
  552
  571
  591
  612
  636
  661
  688
  717
  748
  780
  815
  851
  890
  931
  974
  1,020
  1,068
  1,119
  1,173
  1,230
  1,289
  1,352
  1,418
  1,487
  1,560
Earnings before tax, $m
  190
  -294
  -297
  -300
  -304
  -308
  -312
  -316
  -320
  -325
  -330
  -207
  -212
  -217
  -223
  -229
  -235
  -241
  -248
  -254
  -261
  -268
  -275
  -283
  -291
  -299
  -307
  -315
  -324
  -333
  -342
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  413
  -294
  -297
  -300
  -304
  -308
  -312
  -316
  -320
  -325
  -330
  -207
  -212
  -217
  -223
  -229
  -235
  -241
  -248
  -254
  -261
  -268
  -275
  -283
  -291
  -299
  -307
  -315
  -324
  -333
  -342

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  13
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  18,421
  18,789
  19,221
  19,715
  20,270
  20,884
  21,558
  22,293
  23,087
  23,944
  24,862
  25,845
  26,894
  28,011
  29,198
  30,458
  31,792
  33,205
  34,700
  36,278
  37,945
  39,704
  41,559
  43,514
  45,574
  47,744
  50,028
  52,432
  54,963
  57,624
  60,424
Adjusted assets (=assets-cash), $m
  18,408
  18,789
  19,221
  19,715
  20,270
  20,884
  21,558
  22,293
  23,087
  23,944
  24,862
  25,845
  26,894
  28,011
  29,198
  30,458
  31,792
  33,205
  34,700
  36,278
  37,945
  39,704
  41,559
  43,514
  45,574
  47,744
  50,028
  52,432
  54,963
  57,624
  60,424
Revenue / Adjusted assets
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
  0.088
Average production assets, $m
  986
  1,005
  1,028
  1,055
  1,085
  1,117
  1,153
  1,193
  1,235
  1,281
  1,330
  1,383
  1,439
  1,499
  1,562
  1,630
  1,701
  1,777
  1,857
  1,941
  2,030
  2,124
  2,224
  2,328
  2,438
  2,554
  2,677
  2,805
  2,941
  3,083
  3,233
Working capital, $m
  0
  -13
  -14
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
Total debt, $m
  13,839
  14,129
  14,468
  14,856
  15,290
  15,772
  16,301
  16,876
  17,499
  18,171
  18,891
  19,662
  20,484
  21,360
  22,290
  23,278
  24,324
  25,432
  26,603
  27,841
  29,148
  30,527
  31,981
  33,514
  35,129
  36,830
  38,621
  40,506
  42,490
  44,577
  46,772
Total liabilities, $m
  14,439
  14,730
  15,069
  15,457
  15,891
  16,373
  16,902
  17,477
  18,100
  18,772
  19,492
  20,263
  21,085
  21,961
  22,891
  23,879
  24,925
  26,033
  27,204
  28,442
  29,749
  31,128
  32,582
  34,115
  35,730
  37,431
  39,222
  41,107
  43,091
  45,178
  47,373
Total equity, $m
  3,981
  4,058
  4,152
  4,258
  4,378
  4,511
  4,657
  4,815
  4,987
  5,172
  5,370
  5,583
  5,809
  6,050
  6,307
  6,579
  6,867
  7,172
  7,495
  7,836
  8,196
  8,576
  8,977
  9,399
  9,844
  10,313
  10,806
  11,325
  11,872
  12,447
  13,052
Total liabilities and equity, $m
  18,420
  18,788
  19,221
  19,715
  20,269
  20,884
  21,559
  22,292
  23,087
  23,944
  24,862
  25,846
  26,894
  28,011
  29,198
  30,458
  31,792
  33,205
  34,699
  36,278
  37,945
  39,704
  41,559
  43,514
  45,574
  47,744
  50,028
  52,432
  54,963
  57,625
  60,425
Debt-to-equity ratio
  3.476
  3.480
  3.480
  3.490
  3.490
  3.500
  3.500
  3.500
  3.510
  3.510
  3.520
  3.520
  3.530
  3.530
  3.530
  3.540
  3.540
  3.550
  3.550
  3.550
  3.560
  3.560
  3.560
  3.570
  3.570
  3.570
  3.570
  3.580
  3.580
  3.580
  3.580
Adjusted equity ratio
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216
  0.216

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  413
  -294
  -297
  -300
  -304
  -308
  -312
  -316
  -320
  -325
  -330
  -207
  -212
  -217
  -223
  -229
  -235
  -241
  -248
  -254
  -261
  -268
  -275
  -283
  -291
  -299
  -307
  -315
  -324
  -333
  -342
Depreciation, amort., depletion, $m
  413
  311
  315
  320
  325
  331
  338
  345
  353
  361
  370
  251
  262
  272
  284
  296
  309
  323
  338
  353
  369
  386
  404
  423
  443
  464
  487
  510
  535
  561
  588
Funds from operations, $m
  -74
  17
  19
  20
  22
  24
  26
  29
  33
  36
  40
  45
  50
  55
  61
  67
  74
  82
  90
  99
  108
  118
  129
  140
  153
  166
  180
  195
  211
  227
  245
Change in working capital, $m
  -466
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  392
  18
  19
  20
  22
  24
  27
  30
  33
  37
  41
  45
  50
  56
  62
  68
  75
  83
  91
  100
  109
  119
  130
  142
  154
  167
  181
  196
  212
  229
  247
Maintenance CAPEX, $m
  0
  -179
  -183
  -187
  -192
  -197
  -203
  -210
  -217
  -225
  -233
  -242
  -251
  -262
  -272
  -284
  -296
  -309
  -323
  -338
  -353
  -369
  -386
  -404
  -423
  -443
  -464
  -487
  -510
  -535
  -561
New CAPEX, $m
  -86
  -19
  -23
  -26
  -30
  -33
  -36
  -39
  -43
  -46
  -49
  -53
  -56
  -60
  -64
  -67
  -71
  -76
  -80
  -84
  -89
  -94
  -99
  -105
  -110
  -116
  -122
  -129
  -135
  -142
  -150
Cash from investing activities, $m
  -351
  -198
  -206
  -213
  -222
  -230
  -239
  -249
  -260
  -271
  -282
  -295
  -307
  -322
  -336
  -351
  -367
  -385
  -403
  -422
  -442
  -463
  -485
  -509
  -533
  -559
  -586
  -616
  -645
  -677
  -711
Free cash flow, $m
  41
  -181
  -187
  -193
  -199
  -206
  -212
  -219
  -226
  -234
  -241
  -249
  -257
  -265
  -274
  -283
  -292
  -302
  -312
  -322
  -333
  -344
  -355
  -367
  -379
  -392
  -405
  -419
  -433
  -448
  -463
Issuance/(repayment) of debt, $m
  -13
  290
  339
  387
  435
  482
  529
  576
  623
  671
  720
  771
  822
  876
  931
  987
  1,046
  1,108
  1,171
  1,238
  1,307
  1,379
  1,454
  1,533
  1,615
  1,701
  1,791
  1,885
  1,984
  2,087
  2,195
Issuance/(repurchase) of shares, $m
  3
  384
  390
  407
  424
  440
  457
  474
  492
  510
  528
  419
  438
  459
  479
  501
  523
  546
  570
  595
  621
  648
  676
  705
  736
  767
  800
  835
  871
  908
  947
Cash from financing (excl. dividends), $m  
  -10
  674
  729
  794
  859
  922
  986
  1,050
  1,115
  1,181
  1,248
  1,190
  1,260
  1,335
  1,410
  1,488
  1,569
  1,654
  1,741
  1,833
  1,928
  2,027
  2,130
  2,238
  2,351
  2,468
  2,591
  2,720
  2,855
  2,995
  3,142
Total cash flow (excl. dividends), $m
  30
  494
  542
  601
  659
  716
  774
  831
  889
  948
  1,008
  941
  1,004
  1,069
  1,136
  1,205
  1,277
  1,352
  1,430
  1,511
  1,595
  1,683
  1,775
  1,871
  1,971
  2,076
  2,186
  2,301
  2,421
  2,547
  2,679
Retained Cash Flow (-), $m
  1,736
  -384
  -390
  -407
  -424
  -440
  -457
  -474
  -492
  -510
  -528
  -419
  -438
  -459
  -479
  -501
  -523
  -546
  -570
  -595
  -621
  -648
  -676
  -705
  -736
  -767
  -800
  -835
  -871
  -908
  -947
Prev. year cash balance distribution, $m
 
  13
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  123
  152
  194
  235
  276
  316
  356
  397
  438
  479
  522
  565
  610
  656
  704
  754
  806
  859
  916
  974
  1,035
  1,099
  1,166
  1,236
  1,309
  1,386
  1,466
  1,551
  1,639
  1,732
Discount rate, %
 
  12.20
  12.81
  13.45
  14.12
  14.83
  15.57
  16.35
  17.17
  18.02
  18.93
  19.87
  20.87
  21.91
  23.00
  24.16
  25.36
  26.63
  27.96
  29.36
  30.83
  32.37
  33.99
  35.69
  37.47
  39.35
  41.31
  43.38
  45.55
  47.83
  50.22
PV of cash for distribution, $m
 
  109
  119
  133
  139
  138
  133
  123
  112
  98
  85
  71
  58
  46
  36
  27
  20
  15
  10
  7
  5
  3
  2
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  90.5
  82.0
  74.2
  67.0
  60.4
  54.4
  49.0
  44.2
  39.8
  35.8
  33.0
  30.4
  28.1
  25.8
  23.8
  21.9
  20.2
  18.6
  17.1
  15.8
  14.5
  13.4
  12.3
  11.4
  10.5
  9.7
  8.9
  8.2
  7.6
  7.0

Element Fleet Management Corp. operates as a fleet management company in North America. The company offers fleet management services including acquisition, financing, program management, and remarketing services for cars and light duty vehicles, medium and heavy duty trucks, material handling equipment, automobiles, and specialty vehicles and equipment, as well as corporate, municipal and industrial fleets. It serves agriculture, business services, chemical, construction, consumer products, education and non-profit, energy, food and beverage, insurance, manufacturing, pharmaceutical and healthcare, professional services, telecommunications, transportation, and utilities industries. The company is headquartered in Toronto, Canada.

FINANCIAL RATIOS  of  Element Fleet Management Corp. (EFN)

Valuation Ratios
P/E Ratio 8.8
Price to Sales 2.3
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 9.3
Price to Free Cash Flow 11.9
Growth Rates
Sales Growth Rate 100.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 244%
Cap. Spend. - 3 Yr. Gr. Rate -20%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 347.6%
Total Debt to Equity 347.6%
Interest Coverage 2
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. 2.7%
Return On Total Capital 2%
Ret/ On T. Cap. - 3 Yr. Avg. 1.2%
Return On Equity 8.5%
Return On Equity - 3 Yr. Avg. 5%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 78.5%
Gross Margin - 3 Yr. Avg. 76%
EBITDA Margin 55.5%
EBITDA Margin - 3 Yr. Avg. 37.2%
Operating Margin 11.7%
Oper. Margin - 3 Yr. Avg. 8.6%
Pre-Tax Margin 11.7%
Pre-Tax Margin - 3 Yr. Avg. 8.6%
Net Profit Margin 25.5%
Net Profit Margin - 3 Yr. Avg. 19.3%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. -91.8%
Payout Ratio 17.9%

EFN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EFN stock intrinsic value calculation we used $1621 million for the last fiscal year's total revenue generated by Element Fleet Management Corp.. The default revenue input number comes from 2016 income statement of Element Fleet Management Corp.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our EFN stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 12.2%, whose default value for EFN is calculated based on our internal credit rating of Element Fleet Management Corp., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Element Fleet Management Corp..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of EFN stock the variable cost ratio is equal to 78.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $160 million in the base year in the intrinsic value calculation for EFN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Element Fleet Management Corp..

Corporate tax rate of 27% is the nominal tax rate for Element Fleet Management Corp.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the EFN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for EFN are equal to 60.8%.

Life of production assets of 5.5 years is the average useful life of capital assets used in Element Fleet Management Corp. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for EFN is equal to -0.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $3981 million for Element Fleet Management Corp. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 390.71 million for Element Fleet Management Corp. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Element Fleet Management Corp. at the current share price and the inputted number of shares is $3.7 billion.

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Stock chart of EFN Financial statements of EFN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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