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Element Fleet Management: A Menu Of Great Preferred Shares

Double S Capital profile picture
Double S Capital


  • Element Fleet preferred shares is a very safe way to achieve 7-8% yield plus some upside.
  • Element's business model and customer credit profile mean that it can sustain the dividend even in a draconian scenario.
  • The CEO wants to "institutionalize" its capital structure so over time I expect the preferred shares will be redeemed at par.

Element Fleet Management (OTC:ELEEF) is a dual-listed (Canada & US). All figures in the article are in CAD unless noted otherwise.

Business Model Overview

After a series of transformational acquisitions by the previous management team, Element is now the largest fleet management company in North America and Australia/New Zealand. Element provides a suite of services that spans the entire fleet lifecycle, starting from the acquisition of the fleet, the financing of the acquisition of the fleet, management of the fleet while in use, and divesting the fleet. Element's value-add is to lower the total cost of vehicle ownership (i.e. it's cheaper to let the expert do it vs. managing the fleet in house). Simply put, Element makes money in two ways:

Net Interest Margin - It earns a net interest margin on the financing of the acquisition of the fleet, similar to any other lenders. On the interest income side, Element collects lease payments from clients who acquired vehicles with the money borrowed from Element. On the interest cost side, Element initially uses its senior credit facilities as a temporary funding source, and subsequently taps the ABS market to free up the senior credit facilities. This lending business model requires that customers stay current on their lease payments and the funding remains adequate and low-cost. Given that the two-thirds of Element's lending book is with investment-grade clients and the long-term yield as low as it is, I believe these two conditions will remain true.

Service Revenue - Element provides essential services to its clients including vehicle acquisition, fuel management, telematics, maintenance & repair and finally vehicle remarketing. Most of these services are essential to Element's customers. For example, a cable company needs the vehicles for their technicians to drive around. However, the acquisition and remarketing activities are slowing down given COVID-19 as customers delay their capital expenditures. The offsetting factor is that

This article was written by

Double S Capital profile picture
Event-driven, fundamentally oriented value investor. My favorite quote - if you want to be the smartest person in the room, go to an empty room - something like that.

Analyst’s Disclosure: I am/we are long ELEEF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (5)

Gridbird profile picture
Interesting article...The common trades OTC in US, but apparently none of the preferreds.
Double S Capital profile picture
Darn it...well, hopefully we have some Canadian native audience here then. Thanks.
Appreciate the article
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