ECN Capital strikes out on it's own
On October 3 ECN came into being;formerly it was only a small part of Element Financial.And on November 14 it showed it's third quarter results.Pre-tax earnings at $34 million or $.09 per share were roughly as expected but a little ahead of consensus estimates.Consensus estimates were for $25 million or $.07 per share after tax.But after tax earnings were $27.5 million and $.07 per share.ECN is on track for a good second half; it probably will earn $.18 to $.20 per share for the half.This would translate into $.35 to $.40 for the year although in the first half it was only a part of Element Financial.
Operational Performance
ECN capital is a niche player;it primarily does financing for rail assets and vendor financing and aviation.It had assets of $7.5 billion versus $6.3 billion for the same quarter of 2015 for a 20% increase in 2016.And it is not that small a player as it's assets are greater than other finance companies that have been around for longer such as CI Financial,United Corp and Fiera Capital.This may have been Steve Hudson's "Cinderella" as he continually underrated it.But this blog sees it's stock price moving up as it has now a below average price/earnings multiple.Earnings on an annual basis will be around $.35 to $.40 per share and this can support a price of $3.50 to $4.00 and only have a multiple of 10 times.Now it
only trades at $3.15 so it trades below a multiple of 10.
Book Value
Steve Hudson, the CEO says that the book value is $4.42 per share so it is trading below book value now.However that is common for this sector.Fiera Capital trades at .9 of book and United Corp trades at .9 while Element Fleet Management trades at .4 of book value.Even Canadian Western Bank trades at .8 of book value.But there are some financial companies that trade above book value.ECN will only trade closer to book by bringing it's earnings into the $.35 to $.40 area.
Operational Performance
ECN capital is a niche player;it primarily does financing for rail assets and vendor financing and aviation.It had assets of $7.5 billion versus $6.3 billion for the same quarter of 2015 for a 20% increase in 2016.And it is not that small a player as it's assets are greater than other finance companies that have been around for longer such as CI Financial,United Corp and Fiera Capital.This may have been Steve Hudson's "Cinderella" as he continually underrated it.But this blog sees it's stock price moving up as it has now a below average price/earnings multiple.Earnings on an annual basis will be around $.35 to $.40 per share and this can support a price of $3.50 to $4.00 and only have a multiple of 10 times.Now it
only trades at $3.15 so it trades below a multiple of 10.
Book Value
Steve Hudson, the CEO says that the book value is $4.42 per share so it is trading below book value now.However that is common for this sector.Fiera Capital trades at .9 of book and United Corp trades at .9 while Element Fleet Management trades at .4 of book value.Even Canadian Western Bank trades at .8 of book value.But there are some financial companies that trade above book value.ECN will only trade closer to book by bringing it's earnings into the $.35 to $.40 area.
To most financial companies their book value is not so important.As the return on assets is quite low and increasing assets is not a sure way of raising earnings by much.So I do not look to increasing the value of assets as much as increasing the productivity of it's assets.This will happen as ECN's niche becomes well known.But it may have to increase it's market by financing other assets such as construction equipment.
Conclusion
Steve Hudson has talked about likely acquisitions for ECN Capital.This blog expects that ECN may indeed make at least one acquisition in early 2017.For example, a small mutual fund dealer would fit into it's stable quite nicely.As would Fiera Capital.Then ECN's price to book value would move up.That aside look for ECN to have earnings of at least $.35 per share annualized and more likely to have about $.38 per share before taxes.This will put ECN on track to hit $4.00 by next February and that will give it a price/book value of less than 1.
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