This analysis of FleetCor Technologies (FLT) was provided to TradingIPOs subscribers in advance of its Monday December 14th IPO. The company raised $292 million by offering 12.7 million shares at $23.00, the low end of the range of $23.00 to $26.00.
FleetCor Technologies plans on offering 16.6 million shares at a range of $23-$26. Insiders will be selling all the shares in the deal except for 431,000 shares. JP Morgan (JPM) and Goldman Sachs (GS) are leading the deal, Barclays (BCS), Morgan Stanley (MS), PNC (PNC), Raymond James (RJF) and Wells Fargo (WFC) co-managing. Post-IPO FLT will have 78.7 million shares outstanding for a market cap of $1.928 million on a pricing of $24.50. FLT will receive just $6.3 million from this IPO and plans on use a chunk of that to repay debt.
Summit Partners will own 30% of FLT post-IPO . Summit is selling 5.1 million shares in the deal.
Bain Capital will own 15%. Bain is selling 2.5 million shares on IPO.
From the prospectus:
FleetCor is a leading independent global provider of specialized payment products and services to commercial fleets, major oil companies and petroleum marketers.
Fuel and lodging cards for enterprise fleets. Partners with major oil companies and offers fleet payment programs/cards to enterprises worldwide.
530,000 commercial accounts in 18 countries in North America, Europe, Africa and Asia. Approximately 2.5 million commercial cards in use during 12/09. Those cards are charge cards typically paid in full monthly by the enterprise customer. Cards accepted at 83,000 locations worldwide.
In '09 $14 billion in purchases on FLT's network and third party networks. FLT operates six 'closed loop' networks in addition to utilizing third party networks. FLT's closed loop networks e-connects to merchants.
FLT's payment programs enable businesses to manage and control employee spending.
Primary customers are vehicle and government fleets focusing on small and medium commercial fleets. In addition, FLT manages commercial fleet card programs for BP (BP), Chevron (CVX), Citgo and 800 petroleum marketers. FLT in this way has revenue sources from fleet users as well as fleet fuel providers from whom they make money on the spread between fuel bought/sold.
Draw here is the recurring revenue stream from both ends. FLT generates fees every time a card is used as well as the fuel spreads.
Growth: FLT has grown predominantly via acquisitions over the past decade. Sine 2002, FLT has made 40 acquisitions of smaller companies. This has brought upon debt, as roll-up strategies often do.
Sector: As we've seen with other payment IPOs this year/decade, the use of electronic payments is growing fast with favorable future trends. Card purchase volumes grew at an annual rate of 10%+ the past 5 years reaching $6.8 trillion annually in 2009.
Fleet Vehicles: Approximately 42 million fleet vehicles in the US (with another 68 million fleet vehicles worldwide) with fleet purchase volumes of $50.8 billion. 35% of fleet vehicle fuel volume in 2009 was via specialized fleet cards.
36% of revenues are non US dollar denominated, primarily British Pound and Czech Koruna.
2/3rd's of revenue derived from North America.
Substantial debt here of $498 million post-ipo. FLT will also have $110 million in unrestricted cash on the balance sheet post-IPO. Expect that cash to be put to work acquiring smaller fleet payment operations. Debt here is not a dealbreaker however as through the first 9 months of 2010 debt servicing only ate up 11% of operating profits. Anything solidly under 20% and the debt is not a dealbreaker for me in range. A very strong IPO MJN had similar debt metrics as FLT pre-IPO.
FLT's revenues fluctuate with the price of fuel. FLT believe the absolute price of fuel was responsible for 19% of 2009 revenues. In addition 18% of revenues are derived from the spreads in fuel, the difference between the amount FLT pays for fuel from partner petroleum companies and the amount FLT charges enterprise customers. Lodging accounts for 10% of revenues.
*Note that FLT does something quite interesting. They securitize and sell off a portion of their accounts receivables in order to finance charges (future receivables). As FLT is not just the processing company, but also often the company fronting the charges, securitizing future cash flows helps them keep sufficient cash on hand to pay enterprise customer monthly charges. The end result is they remain liquid enough to act as the 'bank', however doing so they give up some of their net receivables. The margins appear stronger with this model as we will see below.
Bad debt expense was $32 million in 2009 and $15 million through the first 9 months of 2010.
54% of revenues are derived from fees and charges associated with transactions. So two main revenue streams here often overlapping: 1) fees for charge transactions; and 2)the spread on the difference between FLT's fuel cost and the price charged the enterprise customer.
2010 - Revenues of $442 million, a 19% increase over 2009. Note that this increase does take into effect FLT's sizable 2009 acquisition as if that occurred 1/1/09. 2009 revenues were rather flat due to the global economic slowdown. Operating margins here are very strong at 45%. As noted above interest expense drains 11% from operating margins. Plugging in net securitization expenses and full taxes, net margins of 27 1/2%. EPS of $1.54. On a pricing of $24 1/2, FLT would trade 16 X's 2010 earnings.
2011 - FLT will use that $110 million in cash on the balance sheet to acquire. I do not believe FLT will increase revenues organically by anywhere close to 2010's 19%. Comparables with 2009 were just too easy. Plug in 5% organic growth and 5% from acquisitions while slightly increasing margins gives us an EPS of $1.70-$1.75. On a pricing of $24 1/2, FLT will trade 14 X's 2011 earnings.
Conclusion: A very interesting IPO here as FLT not only operates fleet card programs, they process the payments, front a substantial portion of the charges (act as the 'bank'), partner with oil companies to make money on fuel spreads and are now into fleet lodging programs. They've been a very aggressive successful operation, FLT has been net profitable since at least 2005. With the successes of e-payment related IPOs such as GDOT/ONE/NTSP, this deal should work quite well short term and mid-term. Keep an eye on the debt levels, I do not want to see FLT leverage themselves too heavily while growing and acquiring smaller operations. Pretty interesting, unique and exciting deal here. Recommend in range.
Disclosure - At the time of posting, Tradingipos.com is long FLT