FLEETCOR Stock: This Fintech EV Combo Is Executing Strong (NYSE:FLT)

FLEETCOR (NYSE:FLT) is a business payments company that specializes in fuel cards and automated business payments, for fleets of trucks and vans across the world. The Fintech Expense management industry is forecasted to grow at an 11.2% compounded annual growth rate and reach a value of $6.6 billion by 2028.

The company has recently announced the acquisition of EV charging point provider Plugsurfing which owns 300,000 charging points across Europe. According to the business press release this is “nearly 80% of all charge points in Europe” which seems unbelievable at first glance. But even if the company means 80% coverage of Europe, this is still a strong value proposition, given the growth in the EV industry which I will share further details on later in this post. The company’s stock price has slid down by 48% from its all-time highs in early 2020 and trades lower than the pandemic crash low. Thus in this post, I’m going to break down the company’s business model, financials, and valuation, let’s dive in.

Fintech Business Model

FLEETCOR was founded in the year 2000 and started as a fleet card provider for business fleets. Fleet cards or “fuel cards” are payment cards used by businesses to manage driver fuel and maintenance costs while on the road. These cards enable accurate reporting of mileage expenses, fixed fuel prices which don’t change by region and easy reporting. In 2010 FLEETCOR expanded its business to cover vendor payment programs and added extra employee expense categories. Then in 2020, the company expanded further to become a comprehensive corporate payments solution provider. This platform offers expense management, scheduled vendor payments, compliance and even integrates with popular accounting software.

FLEETCOR estimates it has leading market positions in the Fleet “Expense Management” and Vendor payments categories. The business has approximately $250 billion of spend under management vs the global B2B spend of $125 trillion.

Despite being founded over 20 years ago, the company is continually innovating both with its platform and digital advertising. For example, the company created a character called “Fuel Card Barb” as part of a humor-driven social media campaign which has proven to be very successful.

The company has also announced a new accounts payables brand called “Corpay”. This is a platform that helps businesses automate accounts payable and do cost-effective cross-border transactions while reducing fraud risk. The brand has positioned itself as “more flexible than banks” but also “more secure than Fintechs” which is a strong position I believe will resonate with businesses.

EV Strategy

Climate change, consumer preferences, and government incentives are forecasted to cause a wave in the adoption of electric vehicles. In fact, one study indicates that the EV market was worth $163 billion in 2020 and is forecasted to grow at a rapid 18.2% CAGR to reach $824 billion by the end of the period. FLEETCOR’s management believes that despite the wave of growth, Electric vehicles will only make up an estimated 50% of vehicles on the road in the UK by 2030 and 20% of vehicles in the US. The company believes that businesses will have a new challenge of managing “mixed fleets” and thus that is where they see a market opportunity. The company already has experience in this industry and has helped there traditional fleet customers transition over to EVs. In fact, the business processed approximately 3 million EV transactions in Europe in 2020. Management plans to further attack this market with a three-pronged strategy. The first part of this is building out “connectivity” to EV charging stations. A key part of enabling this was the recent acquisition of Plugsurfing. This company has over 300,000 charge points which is 80% of all EV charging stations in Europe, according to the company.

The technology also includes a Plugsurfing App which provides tariff information and offers easy payment to be facilitated. The company also plans to further integrate with private charging points and even partners with utility providers. An example customer is Virgin Media O2 which is one of the largest telecommunications companies in the UK. This company has integrated with All Star EV (which is a subsidiary of FLEETCOR) in order to offer EV charging points at the homes of drivers for its 4,300 vans by 2030. Initially, the deal if for just 300 vans but this is still a great start and proves the concept.

Growing Financials

FLEETCOR generated solid financial results for the second quarter of 2022. Revenue was $861.3 million which increased by a rapid 29% year over year and beat analyst estimates by $40.3 million. On an organic basis, the business grew its revenue by 17% year over year, driven by strong results in corporate payments and Lodging. In October 2022, the company announced the acquisition of Roomex a European Workforce lodging business that has 600 business customers, who have stayed in approximately 50,000 hotels. This acquisition complements FLEETCOR’s existing lodging business and looks to be a great acquisition overall, although the price paid is unknown.

Net income popped by a rapid 34% to $262.2 million, up from $196.2 million in the equivalent quarter last year. Earnings Per Share also increased to $3.35 which beat analyst expectations by $0.35. In the second quarter, Fuel giant BP North America extended its relationship and the company won one of the largest global food chains as a customer, for its gift card program. Delta Airlines also selected the business’s new “distressed passenger” mobile app to automate passenger hotel bookings in the event of a canceled flight. This is a game changer as it means there is no need to wait around at the airport, you simply get an alert for the hotel booking. FLEETCOR has a super high retention rate of 92% which means the customers are extremely “sticky” and thus consistent cash flow is expected.

FLEETCOR has a solid balance sheet with $1.4 billion in cash and short-term investments. The company does have a large amount of long-term debt ~$4.7 billion, but only $508 million in current debt and thus this is manageable.

Advanced Valuation

In order to value FLEETCOR I have plugged the latest financials into my advanced valuation model which uses the discounted cash flow method of valuation. I have forecasted a conservative 10% revenue growth for next year and 10% over the next 2 to 5 years.

I have forecasted the business to increase its margin slightly to 45% over the next 10 years as the company benefits from extra EV charging revenue.

Given these factors I get a fair value of $288 per share, the stock is trading at $170 per share at the time of writing and thus is over 40% undervalued.

As an extra datapoint, FLEETCOR trades at a PE ratio = 10.67 which is 47% cheaper than its 5 year average.

Risks

Competition

There is plenty of competition in the business expenses and automated payments space. These companies include SAP Concur software, Sage Intacct, Payoneer, Bill.com, Tradeshift, and many more. In the fuel card space, we have companies such as FuelGenie and various direct fuel operator cards via Shell and BP. This means the company doesn’t really have a “moat” around the business which could be an issue.

Recession

The high inflation and rising interest rate environment is forecasted to cause a recession and cause lower economic demand. This is not great for any business and may cause demand for FLEETCOR’s customers services to slowdown also.

Final Thoughts

FLEETCOR is a very intriguing company that is continually innovating and acquiring businesses across its industry. The business provides a unique play on the fintech and EV charging industry. At the time of writing the business is undervalued intrinsically and thus it looks to be a great investment long term.