Element Financial Corporation

Canada Research
Published by Raymond James Ltd.
Element Financial Corporation

EFN-TSX
Michael Overvelde CFA, CPA, CA | 416.777.4943 | michael.overvelde@raymondjames.ca
Brenna Phelan CFA, CPA, CA (Associate) | 416.777.7042 | brenna.phelan@raymondjames.ca
Diversified Financials
Recommendation
We believe that among mid-large cap financial sector stocks, Element Financial features a
rare combination of high earnings growth, earnings predictability and M&A optionality
led by an experienced management team. Despite the strong performance of the stock
to-date, we do not find its valuation demanding. Accordingly, we are initiating coverage
on Element with an Outperform rating and a $21.00 target price.
Analysis
Outperform 2
C$21.00 target price
Current Price ( Apr-24-15 )
Total Return to Target
52-Week Range
Suitability
Still Firmly in its Element; Initiating at Outperform
April 29, 2015

Company Report - Initiation of Coverage
Element is a Growth Machine Even following its rapid, acquisition-fueled growth

since inception in 2010, Element still enjoys an underleveraged balance sheet and an
enviable access to capital supportive of continued growth. Our forecasts call for
earning asset growth of 40% in 2015 and of 28% in 2016, with adjusted EPS growth
of 82% and 40%, respectively. Without any asset acquisitions, we estimate that
earning assets would still grow by 28% in 2015.
Investment-Related Risks Have Fallen as the Business has Matured The quality of
earnings has improved with the growth of fee revenue in the mix and a
diversification of earnings, a broadening of financing sources that has improved its
funding stability and flexibility, a decline in credit risk as fleet management exposure
has grown, and a series of consensus-meeting results that has diminished the
forecasting uncertainty characteristic of nascent growth companies.
An Attractive Investment Outlook, With or Without Acquisitions Our base case

scenario is that M&A activity will slow considerably through 2016, in which case
wed expect its pre-tax ROE to almost double by 2016 due to rising leverage, falling
funding costs, double-digit asset growth and scale-related efficiency gains. The high
resulting earnings growth combined with falling investment-related risks should be
supportive of valuation in this scenario.
M&A Optionality That Deserves to be Recognized Management has repeatedly

added value via acquisitions and we believe this is a core competency that should be
factored into valuation as a supportive factor considering their successful track
record, investors willingness to finance every major deal announced thus far, a low
(and falling) cost of capital, and a diversified business mix that broadens the scope of
potential in-market deals. Our forecasts do not assume any major transactions.
Market Data
Market Capitalization (mln)
Current Net Debt (mln)
Enterprise Value (mln)
Shares Outstanding (mln, f.d.)
10 Day Avg Daily Volume (000s)
Dividend/Yield
Key Financial Metrics
2014A
P/E
30.2x
P/B
1.9x
Tangible Leverage
3.7x
Pre-tax ROE
9.3%
Our $21.00 target price is based on a 2016E PE of 14.5x, below its recent average forward
PE of 15.4x despite its improving profitability and risk profile, high earnings growth
outlook, valuable tax shield and M&A optionality. On the basis of pre-tax cash EPS, our
target implies a 2016E PE of 10.8x.
1Q
Mar
2Q
Jun
3Q
Sep
4Q
Dec
Full
Year
Revenues
(mln)
2014A
C$0.10
C$0.11
C$0.16
C$0.19
C$0.57
C$487,268
C$9.34
2015E
0.20
0.24
0.27
0.33
1.04
913,814
10.59
2016E
0.32
0.34
0.37
0.43
1.46
1,222,487
11.88
BVPS
Source: Raymond James Ltd., Thomson One
Please read domestic and foreign disclosure/risk information beginning on page 68 and Analyst Certification on page 67.
Raymond James Ltd. | 2100 925 West Georgia Street | Vancouver BC Canada V6C 3L2
C$4,605
C$7,656
C$12,991
268.9
1,238
n/a/0.0%
2015E
2016E
16.8x
11.9x
1.6x
1.5x
4.5x
4.7x
13.7%
17.3%
Company Description
Element Financial is an equipment leasing company
with operations in Fleet Management, Commercial &
Vendor Finance, Rail Finance and Aviation Finance.
The company operates in Canada and the United
States.
Valuation
Adjusted
EPS
C$17.44
20%
C$18.01 - C$11.50
Growth
Canada Research | Page 2 of 72
Table of Contents
Investment Overview........................................................................................................................................... 3
Company Overview.............................................................................................................................................. 5
The Evolution of Element ........................................................................................................................ 5
Phase 1: Rapid Build-Out (2010 to mid-2014) ......................................................................................... 6
Phase 2: Consolidation & ROE Expansion (Current) ................................................................................ 10
Phase 3: Opportunistic Expansion (Future) ............................................................................................. 12
The Four Pillars of the New Element ................................................................................................... 15
Fleet Management .................................................................................................................................. 16
Commercial & Vendor Finance ................................................................................................................ 21
Rail Finance ............................................................................................................................................. 25
Aviation Finance ...................................................................................................................................... 29
Element Structured Finance The Fifth Pillar ......................................................................................... 33
The Cyclical Backdrop.............................................................................................................................. 34
Funding & Liquidity ................................................................................................................................. 38
Credit Quality .......................................................................................................................................... 43
Financial Analysis & Outlook................................................................................................................................ 46
Valuation & Recommendation ............................................................................................................................ 50
Appendix A: Financial Statements ....................................................................................................................... 58
Appendix B: Company History ............................................................................................................................. 61
Appendix C: Management & Board of Directors ................................................................................................. 62
Appendix D: Share Ownership ............................................................................................................................. 64
Risks ..................................................................................................................................................................... 64
Investment Overview
We are initiating research coverage on Element Financial (EFN-TSX) with an Outperform rating
and a $21.00 target price. Element is a fast growing and well capitalized equipment leasing
company with presence in the Fleet Management (58% of earning assets), Commercial & Vendor
Finance (19%), Rail Finance (12%) and Aviation Finance (11%) businesses. Although the company
is based in Canada, the majority (over 60%) of its assets and an even bigger proportion of its
growth is coming from the US.
Based on our assumptions, we believe Element is undervalued and that the stock will track higher
over the next year driven primarily by impressive earnings growth of 82% in 2015 and 40% in
2016. Our $21.00 target price assumes that Element will be trading at a forward PE of 14.5x a year
from now (and at a cash PE of 10.8x), which we think reasonable in light the following
considerations:
Element is a Growth Machine Since its establishment in 2010, Element has grown
aggressively, primarily through a series of acquisitions, to become a large and well-diversified
finance company with almost $10 billion of earning assets and a market capitalization of $4.6
billion. It has successfully funded this growth through a series of capital raises, including over
$2.3 billion of cumulative equity issuance, leaving it under-leveraged with plenty of capacity
for debt-funded and ROE-additive growth over the period of our forecasts. Without assuming
any major acquisitions, we forecast internally funded EPS growth of 82% in 2015 and 40% in
2016. Over the medium term, we expect M&A will remain an important contributor to
continued double-digit earnings growth.
An Experienced Team with an Impressive Track Record The executive management team
of Element is primarily comprised of the same individuals that had previously grown
Newcourt Credit Group from a standing start in the mid-1980s into the second-largest
commercial finance company in the world by the time it was acquired by CIT Group in 1999.
The collective experience and relationships of this team have allowed Element to grow at an
accelerated pace, attracting both vendor relationships and the attention of investors that
have provided significant amounts of funding to support both acquisitions and originations.
An Attractive Investment Outlook, With or Without Acquisitions Element is entering what

we refer to as a consolidation period, through which we expect the pace of acquisition and
financing-related deal flow to slow significantly following three very busy years of building
the business. Although acquisitions have been positive catalysts for Element in the past, wed
expect the stock to perform well from here in the absence of large M&A for several reasons:
(a) we expect EPS growth to remain at a high level, (b) there should be less equity dilution as
growth is financed from the balance sheet, (c) we expect ROE expansion (based on free
operating cash flow) of 450 bps in 2015 (to 13.7%) and of 360 bps in 2016 (to 17.3%) due to
rising leverage, falling funding costs, strong top-line growth and a declining opex ratio, (d)
management will become more focused on growing and streamlining existing operations,
and (e) the relative growth, stability and profitability of the recently expanded Fleet
Management business should become increasingly apparent as the influence of acquisitions
on earnings trends simmers down.
M&A Optionality That Deserves to be Recognized Management has repeatedly added

value for shareholders via M&A, and wed argue that this is a core competency worth paying
for. Although our forecasts do not assume any major transactions, the probability of this
team executing on similarly beneficial deals in the future is high, in our opinion, considering
(a) their successful track record, (b) investors willingness to finance every major deal
announced thus far, (c) a low (and falling) cost of capital that represents a competitive
advantage in the acquisition market, and (d) a diversified business mix that broadens the
scope of potential in-market deals. We believe that the companys M&A optionality should
be factored into valuation as a supportive factor.
A Low and Falling Cost of Capital is Providing Fuel for Continued Growth Element has
done a remarkable job of managing overall funding costs while maintaining sufficient funding
capacity to support a continuation of its high growth trajectory. Its average cost of debt fell
by 98 bps to just 2.68% in 3Q14 following the acquisition of PHH, and we expect its interest
costs to fall further through 2015 as it rolls PHHs low-cost funding structures out to its legacy
fleet management business and issues its first investment grade-rated corporate debt. The
composition of its overall funding structure has evolved in line with the maturation of the
underlying business, and its still-low financial leverage provides plenty of capacity to support
ROE-additive growth.
Investment-Related Risks Have Fallen as the Business has Matured Provisioning trends
had already been tracking below those of the mortgage-heavy Canadian banks and took a
further step lower with the addition of the PHH fleet management business. Assets are
funded primarily through secured borrowings that minimize the risk of mismatched duration
or rate structure. The funding structure has been broadened with the addition of preferred
shares, convertible debt and new classes of asset-backed debt, which, collectively, provide a
more stable funding base supportive of growth. The quality of earnings has improved with
the growth of fee-based revenues in the mix and a general diversification of earnings
sources. And a series of consensus-meeting quarterly results has diminished the forecasting
uncertainty characteristic of nascent growth companies.
The Cyclical Backdrop Remains Supportive The end markets that Element ultimately serves
are varied in nature but tend to represent a cross section of the economy, with a heavy
concentration in the commercial, transportation and industrial sectors. With over 60% of
earning assets in the US, its leverage is now primarily to corporate America, for which the
outlook remains firm. Consensus is calling for US GDP growth to average 2.8% over the next
two years, a backdrop supportive of expanding equipment leasing demand through the
period of our forecasts.
An Increasingly Attractive Alternative Among Financials In our opinion, Element

represents a somewhat unique investment alternative among mid-large cap financial sector
stocks considering its relatively high projected earnings growth, rising ROE trajectory, M&A
optionality and reasonable valuation. The scarcity of similarly high-quality, high-growth,
larger-cap, non-resource investment alternatives in Canada should provide a tailwind to
valuation as long as it continues to grow earnings in line with our forecasts. And now that
over 60% of its assets are based in the US, it could attract growing interest from US-based
investors considering that we expect its earnings growth to outpace the US leasing and
broader financial services sectors.
Element has a Valuable Tax Shield that Isnt Receiving Fair Recognition Owing to
accelerated depreciation for tax purposes of certain assets (largely rail), Element estimates
that it will be shielded from paying cash taxes for over 20 years based on its internal growth
forecasts. To the extent that PE-based valuation is used as a simplified, point-in-time proxy
for DCF-based valuation, we argue that it makes conceptual sense to consider the valuation
of Element on the basis of pre-tax earnings as the present value of cash taxes it will
eventually pay is immaterial. Although were not yet sure that investors are prepared to
value Element on the basis of pre-tax (i.e., cash) earnings, we expect that acceptance of
this valuation basis will improve over time. Resulting PE ratios are roughly 25% lower when
using pre-tax earnings.
Valuation Still Makes Sense Following a Period of Sharp Outperformance Since its debut
as a public company in Dec-2011, EFNs share price has appreciated by an impressive 315%.
In the past three months alone the stock is up ~25%. Despite this relative strength, we
believe the stock is still attractively valued at 16.8x 2015E PE considering that (a) we are
forecasting adjusted EPS growth of 82% in 2015E and 40% in 2016E and an upwards trend in
ROE, (b) we expect its 2016E PE, currently at just 11.9x, to track higher through 2015 as
investors become more comfortable with its post-2015 earnings growth and risk
characteristics, (c) we expect increasing adoption of pre-tax (i.e. cash) PE as a valuation
basis to provide additional valuation support (it is currently trading at just 9.0x 2016E cash
PE), and (d) we believe its valuation should reflect some degree of M&A optionality (since
our forecasts do not).
Company Overview
The Evolution of Element
Element Financial today is a very different entity than it was just 41 months ago when it made its
public company debut on the TSX. At that point it operated almost exclusively in the mid-ticket
commercial finance segment, it had just $234 million of portfolio assets, and 99% of its portfolio
was based in Canada. Today, its portfolio is almost $10 billion in size, it has extended its
geographic focus to include a 64% weighting in the US, and it has broadened its operational scope
to include four major business lines, in the process morphing into more of a fleet management
company than just a pure, capital-intensive leasing company.
The timeline in Exhibit 1, presented in the context of its share price history, highlights several
milestones in Elements brief history as a public company. A more complete summary of major
events in the evolution of Element can be found in the Appendix.
Exhibit 1: Element Timeline and Key Events Since Becoming a Public Company
1
0
$20.00
7,8
$14.00
$12.00
10
11
12
Dec-2014
$16.00
Sep-2014
Element Share Price (C $)
$18.00
$10.00
5
$8.00
$6.00
$4.00
Mar-2015
Jun-2014
Mar-2014
Dec-2013
Sep-2013
Jun-2013
Mar-2013
Dec-2012
Sep-2012
Jun-2012
Mar-2012
Dec-2011
$2.00
Event (#)
Date
Event Details
Dec-16-11
Element begins trading on the TSX upon amalgamation (reverse takeover) with a TSX-listed CPC.
May-15-12
Acquired TLSI Holdings Inc., the holding company of TLS Fleet Management, for $147 million plus debt and announced a related
common equity raise at $5.25/share for an aggregate of $87 million.
Nov-09-12
Acquired US vendor finance company CoActiv Capital Partners for $300 million and announced a common equity financing at
$5.65/share that was eventually upsized to $110 million in size.
Feb-20-13
Announced a common equity financing at $7.75/share for an aggregate of $173 million.
Mar-08-13
Added to the TSX Composite Index.
May-31-13
Acquired the Canadian fleet management business of GE Capital for $570 million and announced a related common equity raise at
$10.15/share that was ultimately upsized to $301 million in size.
Dec-09-13
Announced a strategic alliance with Trinity Industries to provide railcar lease financing for up to US$2 billion over the next two
years.
Dec-09-13
Acquired a portfolio of helicopter leases from GE Capital for US$243 million and announced a related common equity financing at
$13.75/share that was eventually upsized to $460 million in size.
Jan-14-14
Issued guidance for 2014 calling for organic originations of over $3.8 billion, representing a y/y increase of 80%.
10
Jun-02-14
Acquired PHH Corp.'s North American fleet management business for US$1.4 billion and announced subscription receipt,
debenture and preferred share financings that were ultimately upsized to an aggregate of $1.4 billion.
11
Sep-18-14
Received its first investment grade credit rating, a BBB+ issuer and senior unsecured rating from Kroll Bond Rating Agency.
12
Dec-16-14
Issued 2015 guidance calling for organic originations of $6.5 billion (+35% y/y) and Adjusted EPS of $0.99 (subsequently raised
on 01/28/15 to $1.05).
Source: S&P Capital IQ, Element Financial Corporation, Raymond James Ltd.
We envision the development of Element as having three distinct phases, of which the second
phase has only recently begun. Specifically, in the discussion below we separately consider each of
the following three phases of Elements evolution:
1.
A Rapid Build-Out Phase covering the period from inception in 2010 to its mid-2014
acquisition of PHH. This period was characterized by a series of acquisitions and related
financings, through which the composition of the business was in constant flux and its
earnings growth outlook was influenced heavily by deal-related accretion.
2.
A Consolidation & ROE Expansion Phase that began with the acquisition of PHH in
mid-2014. Not only did this deal substantially change the complexion of the overall
business mix, enhancing overall growth, profitability and stability, we believe it also took
the company off the M&A and equity issuance treadmill for a while to refocus on
growing and strengthening its existing operations. In the absence of major acquisitions
(our base case assumption), we are still forecasting substantial EPS growth through
2016, providing management with at least another year of breathing room before
pending earnings deceleration might begin adding pressure to supplement growth via
M&A.
3.
An Opportunistic Expansion Phase in which we expect Element to eventually resume

large-scale deal-making to take advantage of its diversified operating platforms, low
cost of capital and acquisition prowess. The key point to make here is that we dont
foresee a maturation (i.e., significant deceleration) of Elements earnings growth
trajectory for several years as we think there is high probability that it will be able to
source material and attractive deals when it returns to the M&A market, particularly
following a period of inactivity through which its deal opportunity set should
theoretically improve.
The purpose of delineating its developmental timeline in this way is to make the point that the
operating characteristics and risk profile of Element have changed dramatically since its formative
years, necessitating a change in how investors think about its investment case.
Phase 1: Rapid Build-Out (2010 to mid-2014)

Exhibit 2: Characteristics of Element During its Rapid Build Out Phase
Phase 1: Rapid Build
Out
Phase 2: Consolidation
& ROE Expansion
<- 2010 to Mid-2014 ->
Phase 3: Opportunistic
Expansion
<- Current ->
<- Future ->
Characteristics of the Business Through This Phase:

> Vendor finance as the dominant business line (i.e., 41% of earning assets at Dec/13, 54% at Dec/12)
> Frequent & transformational acquisitions
> Frequent financings including heavy equity issuance
> Constant evolution of the overall business mix
> Canada accounts for the majority of assets and earnings (i.e., 67% of non-current assets at Dec/13)
> Underlying operating trends obscured by the impact of M&A activity
Source: Raymond James Ltd.

A Machine Built for Growth From day one, Element has been built for growth. Consider the
following:
1.
It was formed shortly after the 2008/2009 financial crisis to capitalize on substantial
cyclical tailwinds that were expected to support a surge in equipment capex and related
equipment leasing demand following a period of underinvestment in North America.
2.
Its executive management team was formed largely from the ranks of the same team
that previously grew Newcourt Credit from scratch into the second-largest equipment
leasing company in North America by net assets in the 1990s.
3.
Financing has never represented a growth constraint for Element. As evidenced by the
success of even its earliest capital raises, investors have consistently shown a willingness
to bank on this management teams ability to deliver.
The extent of Elements rapid growth to date is illustrated in Exhibits 3 and 4 below, which
illustrate how both its earning assets and operating earnings have trended since going public in
4Q11.
Exhibit 3: Adjusted Operating EPS, Quarterly
Exhibit 4: Earning Assets and Originations
$0.35
We are calling for
82% growth in 2015
$0.30
15,000
2,500
12,000
2,000
9,000
1,500
6,000
1,000
3,000
500
C$ mln
$0.25
C$
$0.20
$0.15
$0.10
$0.05
0
0
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15E
2Q15E
3Q15E
4Q15E
4Q15E
3Q15E
2Q15E
4Q14
1Q15E
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
$-
Total Earning Assets (LFT Axis)
Source: Element Financial Corporation, Raymond James Ltd.
Total Originations (RT Axis)
Newcourt v2 (With Two Notable Differences) Since its formation, we believe Element has
generally been regarded by investors as a reincarnation of Newcourt Credit Group, an equipment
financing company started in the mid-1980s by Steve Hudson (Elements CEO), taken public in
1994, and eventually sold to CIT Group in 1999. By the time of its sale to CIT, Newcourt had grown
to become North Americas second-largest nonbank commercial finance company with owned
and managed assets of over $36 billion. The history of Newcourt has been well documented, so
we wont provide a history lesson here other than to draw attention to the following points:
Newcourt was a Highly Successful Growth Story Even before its shape-shifting Jan-1998
acquisition of AT&T Capital, Newcourt had been on a steep growth trajectory for years, as
illustrated in Exhibits 5 and 6. Note that these charts capture only the period for which we
have data from Newcourts filings as a public company, prior to which its assets had grown
from zero to $1.4 billion. Regardless of how the Newcourt story might have ended in 1999,
there can be no argument regarding its success in achieving consistent and impressive
growth in originations, assets and EPS.
Exhibit 5: Newcourt Credit, Asset & Origination Growth
Exhibit 6: Newcourt Credit, EPS Growth
40
$2.50
35
$2.00
30
EPS (C$)
(C$ bln)
25
20
15
$1.50
$1.00
10
$0.50
5
0
1992
1993
1994
1995
Owned and Managed Finance Assets
1996
1997
1998
$0.00
1994
1995
1996
1997
Loan Originations
Source: Newcourt Credit Group, Raymond James Ltd.
Source: Newcourt Credit Group, Raymond James Ltd.
1998
The Band is Back Together Again Having shared success together at the helm of Newcourt,
the same management team has effectively re-formed to lead Element. As highlighted in
Exhibit 7, every member of Elements six-person executive management team comes from
Newcourt pedigree. The fact that each of these individuals decided to re-group around the
new effort is testament not only to the attractiveness of the business opportunity that they
all apparently saw, but also to how well theyve functioned as a team in the past. Element
shareholders are beneficiaries of this teams experience at Newcourt as well as over a decade
of incremental business experience (and relationships) gained since then.
Exhibit 7: Newcourt-Related Background of Element's Executive Management Team

Name
Current Role at Element Financial
Previous Role at Newcourt Credit Group
Steven Hudson
Chief Executive Officer
Chief Executive Officer
Bradley Nullmeyer
President
President, Newcourt Financial
David McKerroll
President, Rail & Aviation Finance
President, Newcourt Capital
Daniel Jauernig
Executive Vice President
President, Newcourt Services & Chief Financial Officer
Bruce Smith
Canadian President & Chief Operating Officer
Senior Vice President
Michel Beland
Chief Financial Officer & Chief Administrative Officer
Senior Vice President of Operations & Chief Financial Officer, US Operations
Source: Element Financial Corporation, Newcourt Credit Group, Raymond James Ltd.
Experience is the Best Teacher Although Newcourt had been highly successful on the
growth front, its approach to asset-liability management ultimately caused issues that
pressured its profitability and market valuation enough to precipitate a sale of the company
to a better-funded peer. The specific issue was that Newcourt relied heavily upon lower cost
commercial paper in its funding mix, representing roughly 30% of total funding at the end of
1997.
While providing enhanced margins as a lower-cost source of funding, commercial paper also
left Newcourt exposed to a steep erosion in profitability when the cost of this funding rose
following the Russian financial crisis of 1998. This lesson learned the hard way has not been
forgotten by Elements management team, which employs a term-matched funding policy
(explained in the Funding & Liquidity section of this report) and has refrained to-date from
the use of commercial paper as a funding source.
Fleet Management Makes Element a Different Animal Another key difference between
Newcourt at its peak and Element today is the dominance of fleet management in the
current business mix. Whereas Newcourt did not directly participate in the fleet
management business, this line now accounts for roughly two-thirds of Elements operating
income. In short, the Newcourt analogy is becoming less relevant as Element evolves.
Acquisitions have Fueled Growth To-Date Through this period, Element has benefited from
both cyclical support as well as organic growth in business volumes owing to such things as
broadening the number of vendor relationships in its C&V business and establishing its rail
financing arrangement with Trinity. But far and away, the biggest contributor to its asset growth
to date has been acquisitions (including originations from acquired businesses), as illustrated in
Exhibit 8 below.
Exhibit 8: Growth in Earning Assets 2011 - 2014: Acquisitions Have Been A Meaningful Driver
16,000
14,000
C$ mln
12,000
10,000
8,000
6,000
4,000
2,000
2011
Originations
Acquisitions
Terminations
Syndications
FX & Other
2014

The Business Mix has Morphed Considerably The very nature of Elements business mix has
changed considerably and constantly throughout the companys early life, complicating any sort
of sequential trend analysis. From its origins as a commercial & vendor finance company, Element
then gained significant exposure to the larger-ticket aircraft leasing and railcar leasing markets
before then tilting its mix heavily in favour of fleet management (via acquisitions). The pie charts
in Exhibit 9 below illustrate how dramatic these changes have been over each of the past two
years, with the size of each pie corresponding roughly to the relative size of total earning assets
exiting each year.
Exhibit 9: Evolution of Elements Mix of Earning Assets
2014 - $9.7 Billion
2013 - $3.0 Billion
2012 - $1.3 Billion
Fleet
Management
Commercial &
Vendor Finance
Aviation
Finance
Rail Finance
Phase 2: Consolidation & ROE Expansion (Current)

Exhibit 10: Characteristics of Element During its Consolidation & ROE Expansion Phase
Phase 1: Rapid Build
Out
& ROE Expansion
<- 2010 to Mid-2014 ->
Expansion
<- Current ->
<- Future ->

> Fleet management as the dominant business line (i.e., 58% of earning assets at Dec/14)
> Deceleration of acquisition activity and related financings; little or no equity dilution
> Management focused primarily on operational execution and organic growth
> Rising leverage and falling financing costs
> The US accounts for the majority of asset and earnings (i.e., 64% of non-current assets at Dec/14)
> Rising ROE

This phase of Elements evolution began with the acquisition of PHH in Jun-2014, and it will end
with the announcement of its next major business acquisition, whenever that might be.
The PHH deal was transformative not only because of how it changed Elements business mix,
earnings trajectory and risk profile (as discussed later in this report), but also because it marked
the progression of the company out of deal-making mode into what we expect will be an
internally-focused period of growth. Following the PHH deal, management indicated an intention
to refrain from large acquisitions for the time being in order to focus its efforts on streamlining
and growing existing operations, and to allow leverage to expand in support of organic asset
growth.
Despite these stated intentions, we would not expect Element to ignore larger opportunities that
might surface over the next two years. To the contrary, wed expect management to look very
closely at any material in-market assets that hit the market at any time, as there is nothing (except
perhaps size in the case of very large targets) that should preclude it from bidding for sensible
deals.
In other words, the unexpected emergence of a potentially transformative acquisition could
propel Element into its Opportunistic Expansion phase at any time. The GE Capital restructuring
(discussed on page 13) might well provide that catalyst.
In the absence of any large opportunities presenting themselves, how long might this period of
consolidation extend? At the outside, we suggest that this phase might last through 2016 for
three reasons:
1.
Based on our forecasts, Element will enjoy significant EPS growth in each of the next
two years on a standalone basis, such that it should be able to maintain a growthsupported valuation multiple without having to bolster near term earnings with M&A.
2.
It will take more than a year for underlying organic earnings trends (i.e., absent M&Arelated distortion) to become apparent in reported results; and
3.
We expect it should be able to grow organically for at least that long before reaching
targeted leverage levels.
Our base case scenario assumes that Element will remain acquisitive over the next couple of
years, but that deals are likely to be tuck-in rather than transformative in nature. In particular, we
see opportunity to further consolidate the smaller end of the fleet management space, where
Elements scale as a top-three North American player and the breadth of service offerings should
allow it to create value through the acquisition of smaller, less-evolved competitors. Railcar lease
portfolios complementary to Elements existing Trinity portfolio could be another area of selective
investment. Wed expect any such deals to be manageable in the context of its balance sheet and
cash flows.
The main point were trying to make in this discussion is that we dont think management should
feel any pressure to actively seek larger deals over the next two years as we think the stock should
fare quite well based on what theyve already built. On an as-is basis, the companys earnings
growth, ROE expansion and falling risk profile should provide strong valuation support. In the
event that management chooses to jump to Phase Three earlier than expected, it would
presumably be in pursuit of a deal that would provide upside to our already bullish base-case
scenario.
Our summary view on how Elements investment case will change through this phase of its life is
summarized in Exhibit 11 below:
Exhibit 11: Characteristics of the Current Phase of Elements Evolution
ROE Expansion
Falling Investment Risks
Valuation Support
Whereas Element's forward PE might
otherwise contract as outsized
earnings growth is achieved, these
characteristics should serve to
provide some offsetting valuation
support through 2016.
Rising leverage
Less reliance on interest revenue
Falling funding costs
Lower asset intensity
Improving operating ratio
Improved transparency of earnings trends
Fee income rising in the mix
More diversified funding base
Operational leverage as top-line grows
Reduced cyclicality
Lower credit risk
Increased management focus on operations
Less deal-related equity dilution

We Expect ROE to Expand Meaningfully Based on our forecasts, we expect ROE (measured on a
pre-tax operating basis) to expand from 9.3% in 2014 to 13.7% in 2015 (+450bps) and 17.3% in
2016 (+360 bps).This expansion will be a product of both increased leverage and a growing return
on assets, with each of the main contributors identified in Exhibit 12 discussed separately later in
this report.
Exhibit 12: Sources of Forecasted ROE Expansion
16%
% Impact on ROE
14%
12%
10%
8%
6%
4%
2%
0%
2014A ROE
Cost of Funds
Opex Ratio
Financial Leverage
Other
2015E ROE

Investment-Related Risks Have Fallen (and Will Fall Further) In our opinion, the investment
risks associated with Element moved lower with the acquisition of PHH and should continue to fall
as long as Element refrains from large deals. We believe these issues are already fairly well
understood by investors and have been somewhat reflected in the stocks post-acquisition share
price performance. But we also believe their full extent can only be realized and appreciated as
time passes and there is evidence, for example, of more stable and transparent earnings growth
trends. The ways in which we believe investment risk has fallen post-PHH are listed above in
Exhibit 11, and can be grouped into the following categories:
The Addition of PHH Reduced the Overall Risk Level The fleet management business
acquired from PHH is more fee generative, less asset-intensive, more stable from period-toperiod, and has stickier customer relationships (i.e., recurring revenues) than Elements prePHH business mix. It also features lower credit risk and, we expect, lower cyclicality than
Elements other commercial and transportation-oriented end markets.
An Inward Shift of Management Focus Should Also Lower Risk As management turns its
focus from making acquisitions to managing its existing businesses, the direct risks associated
with deal making and integration will decline, as should the operational risks characteristic of
expansionary periods (e.g., management distraction). The longer the company goes without
making a major deal that distorts reported earnings trends, the better picture investors will
have of underlying earnings trends, which should reduce forecasting risk and lead to better
recognition of what management has assembled to date. Finally, equity dilution risk should
decline in the absence of large M&A and with no new deals expected to be forthcoming,
investors wanting EFN stock will have to buy in the open market.
Further Diversification of the Funding Base Given the importance of funding availability to
Elements business model, a broadening and diversification of its funding base, particularly
with the inclusion of lower cost funding sources, is a source of risk reduction. The acquisition
of PHH provided access to incremental and lower-cost secured borrowing facilities than had
previously been available to Elements fleet business. And in 2015, we expect the company to
issue its first investment grade-rated corporate paper, representing an entirely new source of
funding in the mix.
Improved Profitability and Lower Risk Should Support Valuation Our view is that these
improved investment characteristics should provide valuation support to offset multiple pressures
that might normally occur coincident with the deceleration of forward earnings growth estimates
(i.e., as the particularly high level of growth forecast through 2016 is realized).
Phase 3: Opportunistic Expansion (Future)

Exhibit 13: Characteristics of Element During its Opportunistic Expansion Phase
Phase 1: Rapid Build Out

<- 2010 to Mid-2014 ->
& ROE Expansion
Expansion
<- Current ->
<- Future ->

> Resumption of accretive M&A from a stronger, more profitable base business
> Free cash flow generation supportive of a dividend payout

Incentive to do the Next Deal Should Increase by 2017 Absent the emergence of a compelling
acquisition opportunity, we dont expect Element to actively pursue any major acquisitions until
the consolidation & ROE expansion phase described above has run its course. At that point,
approaching 2017, its EPS growth trajectory should be settling into a more normal, lower doubledigit range supported mainly by organic growth on an already optimized operating platform.
While we expect its standalone growth and investment characteristics should still be relatively
attractive at that point, we think there will be a growing incentive to transact on a more sizeable
deal considering (a) the potential for deal-related accretion to supplement EPS growth which,
around that time, will otherwise be about to decelerate, and (b) well be further into the current
economic cycle and closer to a potential downturn in underlying equipment leasing demand.
M&A as a Core Growth Strategy The key point were trying to make here is that we dont
foresee a maturation (i.e., significant deceleration) of Elements earnings growth trajectory
for several years as we think there is high probability that it will be able to source a material
and attractive deal when it returns to the M&A market. Acquisitions have been integral to
Elements growth to-date, and we do not expect it to stay out of the market for long.
Management has established a track record of executing and integrating accretive deals, and
the company has established scale in each of its four businesses operating in fairly mature
markets, which, all else equal, should set it up for even more accretive in-market deals going
forward. Also, following a period of acquisition inactivity, its deal opportunity set should
theoretically improve, allowing it to be more selective.
The Case for Paying up for M&A Optionality Management has repeatedly added value for
shareholders via M&A, and wed argue that this is a core competency worth paying for. The
probability of this team executing on similarly beneficial deals in the future is high, in our
opinion, considering (a) their successful track record, (b) investors willingness to finance
every major deal announced thus far (see Exhibit 49), (c) a low (and falling) cost of capital
that represents a competitive advantage in the acquisition market, and (d) a diversified
business mix that broadens the scope of potential in-market deals. Since our earnings
forecasts do not explicitly assume any major acquisitions, we believe that the companys
M&A optionality should be factored into valuation as a supportive factor.
A Maturing, Higher-ROE Element Could Initiate a Dividend By the end of 2016, we expect
Element to be generating a run rate pre-tax ROE of roughly 19.4% and for its capital requirements
to potentially lessen as the level of new lease originations falls relative to the size of its growing
asset base and free cash flows. While it might be premature to consider the dividend-paying
future while Element is still in high-growth mode, this could become a consideration looking 2plus years out.
The GE Capital Wildcard
On April 10, 2015, GE (GE-NYSE) announced restructuring plans involving the planned divestiture
of much of GE Capital, its massive and diversified finance subsidiary. While it will retain financing
businesses that relate directly to its industrial operations, it aims to sell units that collectively have
approximately US$200 billion of assets. Importantly, GE Capital is the market leader in several of
Elements verticals, including fleet management, aviation leasing (including the #1 position in the
helicopter leasing niche) and, we believe, commercial & vendor finance.
This development could be significant to Element for two obvious reasons: it should present
material in-market M&A opportunities, and it could change the competitive dynamics in several of
its markets. Keeping in mind that we know very little about GE Capitals various business lines, our
high-level thoughts are as follows:
The Size of the Prize is Huge The businesses that might be of interest to Element are
massive on a standalone basis, let alone collectively. Even if it were to stretch its financial
capacity, Element would likely have to focus on a single business line and/or on portions of
businesses that are divisible. While our base-case scenario for Element calls for a period of
inactivity on the large-scale M&A scene, the scarcity and market-leading aspects of the
businesses being sold by GE Capital might well put Element back into deal making mode
faster than wed envisioned.
GE Capital Fleet Services Should be of Greatest Interest GEs fleet services business is the
largest in the US with an estimated 24% market share (2013), much larger than Element at
13%. Compared with the size of PHH Arval as at Dec-2013, the US operations of GE Fleet
Services was funding 84% more vehicles and had 82% more vehicles in the funded and
managed category. While we dont know the margins of GEs US fleet business, we assume
that it should be at least as profitable as PHH Arval had been considering its scale and,
possible, funding advantages.
If the US operations of GE Fleet Services were to fetch a price 84% (i.e., proportionately)
higher than Element paid for PHH Arval in 2014, it would go for roughly US$2.6 billion (C$3.2
billion), equal to ~70% of Elements current market cap. This would be equivalent in context
to the PHH Arval deal, which represented approximately 70% of Elements market cap at the
time.
Peripheral issues surrounding an acquisition of this business might include potential
competition-related concerns given a combined national market share approaching 40%, and
potential issues regarding a separation of the US from GEs other global fleet services
business.
Note that GE has classified its fleet services business as held-for-sale, indicating an
expectation that it is likely to be sold within a year. Stay tuned.
C&V a Less Likely Target There might be a very interesting C&V acquisition target among
GE Capitals diverse commercial lending business, but based on limited disclosures we have
no way to know. The things we do know that lead us to think this will be an area of
secondary interest to Element are that (1) the C&V vertical has not been singled out for
expansion as have the Fleet Management and Rail Finance verticals, suggesting management
would prefer sizeable investments to be in those areas, and (2) in cases where vendors
currently use both GE and Element in separate regions of the US in order to diversify their
leasing partners, a combination could lead to a net loss of business (i.e., 1+1<2 before
synergies). In any event, this business has not yet been moved by GE into the held-for-sale
category for accounting purposes, suggesting an expectation that it wont be sold within the
next year.
Aviation Not Up For Grabs Not included in GEs sale plans is GE Capital Aviation Services,
the largest aviation leasing company in the world. Even if it were on the block, the only
portion of the aviation business that wed expect to be of potential interest to Element
would be the helicopter leasing business it bought for US$1.8 billion in 2014 (Milestone
Aviation). As it is, Element has already retreated from the helicopter leasing market due to
competition issues. If Element were to invest in the neighborhood of $2 billion, we highly
doubt it would be here.
Rail: Perhaps Some Assets Might be of Interest Among assets to be sold are railcar leases
carried at a book value of US$3.0 billion as at Dec-2014. While we dont know the
composition of this portfolio, we suspect Element might only have direct interest in some
parts of it. We understand that GE has been shrinking its presence in the railcar market in
recent years, including a portfolio sale to GATX in 2014, which suggests that its portfolio has
been aging and might not contain many railcars of a vintage and type that would interest
Element. Given the size of GEs railcar portfolio, it could be sold off in pieces, in which case
there might well be asset packages of interest. We wonder, also, if this might present an
opportunity for Element Structured Finance to source assets for repackaging into funds for
third-party investment.
Near-Term Uncertainty Could Shake Some Market Share Loose As long as the ownership
and ultimate direction of GEs various leasing businesses remain in question, which will be
the case until they are eventually sold, it might impact their ability to retain and attract new
customers (in the case of fleet management) and vendor relationships (in C&V). At the
margin, this could therefore create a short-term window for Element to poach additional
market share from its largest competitor. And in the event that these businesses end up in
the hands of owners that arent as strong or as well capitalized as GE Capital, it could create
an ongoing opportunity.
The Four Pillars of the New Element

Below we provide some background and discussion on each of Elements four business lines,
known as verticals in its terminology. We also touch on its recently formed Structured Finance
business and on what it might eventually add to the mix.
Each vertical warrants separate discussion as they serve separate end markets, are subject to
different competitive influences, are supported by dedicated funding vehicles and have growth,
profitability and stability characteristics that differ from one another.
Exhibit 14: Summary Comparison of Elements Four Operating Verticals
Fleet Management
Commercial & Vendor Finance
Rail Finance
Aviation Finance
- % of Total Avg. Earning Assets (4Q14)
58%
19%
12%
11%
- % of Total Lease Originations (2015E)
40%
25%
20%
15%
4% (pro forma i ncl . PHH)
10%
30%
25%
- Net Financial Income Margin Yield
6.70%
4.45%
4.30%
4.85%
- Operating Expense Ratio
3.45%
2.00%
1.00%
0.75%
- Adjusted Operating Income Yield
3.25%
2.45%
3.30%
4.10%
96%
85%
75%
65%
Profitability Considerations
Generates an average yield on

earning assets but can be
Generates the lowest return on
leveraged to a very high degree assets among verticals, but
at the asset level, enhancing
because asset-level leverage
ROIC; above-average operating
is so high it features the
leverage given high service fee
second-highest leveragecontribution; opex ratio
adjusted returns
expected to fall in 2015
Best profitability feature is the

income tax shield it creates
for the benefit of the company
overall; ranks third-highest on
the basis of leverage-adjusted
returns (after Fleet and C&V)
We estimate a normalized
Adjusted Operating Income
Yield of ~3.30% (i.e., smoothing
for Q4 syndication fees), an
average yield on earning assets
that results in the lowest
leverage-adjusted returns
considering its above-average
capital requirements
Stability / Visibility Considerations
High stability characteristics

High volume, smaller-ticket and
owing to granular and highly
shorter-term nature of leases
diversified (by OEM, customer,
makes originations highly
and industry) nature of
predictable; extremely high
originations; established
customer retention and ongoing
growth trend and relationship
fleet replacement / growth
with a steadily growing GDP
needs make cash flows highly
enhance medium-term
recurring in nature
visibility
Visibility is very high for 2015 Low visibility as originations

due to the Trinity contract;
are not based on OEM
beyond 2015, visibility falls
relationships and big-ticket
as Trinity-related volumes will leases result in inconsistent
be less predictable and there
flow; high intra-quarter
has been limited
volatility with strong
diversification to other
seasonality; $2.0 billion
origination sources; quarterly pipeline provides some comfort
originations are volatile;
on 2015 originations guidance
profitability yields are very
considering conversion
stable
experience in 2014
Relative Size of Assets & Originations:
- Lease Origination Growth (2015E)

Profitability (% of 2H14 Avg. Earning Assets):
Contracted Debt Advance Rate (4Q14)
Medium-Term Growth Considerations
Secular outsourcing trend

supports the medium-term
outlook; PHH had a 2009-2013
organic growth CAGR of 13%;
rising service penetration
supports fee income growth;
positioned as a likely
consolidator of smaller peers; a
growth focus for management,
likely to attract capital
Although strong origination

High growth potential given its
We view this as a "GDP-plus"
growth is forecast for 2015
small current position in a
business given its diversified,
based on current pipeline,
large market in which
industrials-heavy end-market
medium term visibility is low,
management is experienced,
exposure and ongoing
especially considering the
and because this is a growth
addition of OEM vendor
recent influx of helicopter lease
focus for management; 30%
relationships; M&A not
competition; less likely to
origination growth forecast
expected to remain a growth
attract capital, in our view, than
for 2015 includes very little exdriver
Rail Finance or Fleet
Trinity flow
Management
Relative Attractiveness Ranking:

- Profitability
- Stability / Visibility
- Medium-Term Growth
- Overall Relative Ranking
As Exhibit 14 on the previous page shows, we believe the Fleet Management vertical offers the
best growth, stability and profitability among the four business lines, making it the most attractive
of Elements business lines. The fact that this business also now accounts for almost two thirds of
total operating earnings supports our increased attraction to the new, post-PHH, Element.
We discuss each vertical below in order of relative size.
Fleet Management
Exhibit 15: Fleet Management Vertical Snapshot
Overall
Fleet Management
Fleet Management: 58%

of 4Q14 Earning Assets
Net Financial Income Margin Yield (2H14)
6.70%
Total Financial Revenue Yield (2H14)
8.45%
Operating Expense Ratio (2H14)
3.45%
Adjusted Operating Earnings Yield (2H14)
3.25%
Company
>
>
>
=
>
96%
5.80%
8.10%
2.55%
3.25%
88%
6,000
800
700
5,000
Major Events in the Fleet Management Vertical
Jun/2014
>
Acquired fleet management company PHH Arval for US$1.4 billion
200
1,000
100
0
Fleet Earning Assets (LFT Axis)
Fleet Originations - Canada (RT Axis)
4Q14
3Q14
Acquired the Canadian fleet management assets and operations of GE

Capital Corp. for $570 million and entered a strategic alliance agreement
with GE Capital Fleet Services to collaborate on the pursuit of cross-border
business opportunities.
300
2,000
2Q14
>
400
1Q14
May/2013
3,000
4Q13
Established securitization facilities under which fleet management-related

lease assets may be sold in exchange for debt capital to fund asset
purchases; initial proceeds of $400 million raised with proceeds largely
funding the purchase of TLSI.
3Q13
>
500
2Q13
Jun/2012
600
4,000
1Q13
Entered the fleet management business with the acquisition of TLSI

Holdings Inc., Canada's fourth largest fleet leasing company, for $147
million plus debt.
4Q12
>
3Q12
May/2012
C$ mln
Date
Fleet Management:
Asset Growth History
Fleet Originations - U.S. (RT Axis)

Fleet Management: The New Face of Element Element first entered the fleet management
business with the acquisition of Canadas fourth-largest player, TLSI, for $147 million in Jun-2012.
A year later, it jumped into the #1 position in Canada with the $570 million acquisition of GE
Capitals Canadian fleet management business.
As at 2Q14, Fleet Management had accounted for 24% of Elements total earning assets (second
to Commercial & Vendor Finance at 37%), making it an important but not dominant component of
the business mix. The face of Element changed markedly with the US$1.4 billion acquisition of US
fleet management business PHH Arval in Jun-2014 (closed in Jul-2014) as it raised Fleet
Management to 58% in the asset mix, three times the size of its next largest vertical (Commercial
& Vendor Finance at 19%).
This acquisition also tilted the companys overall business mix towards the US (the US now
accounts for 64% of earning assets and an expected 75% of 2015 originations) and changed the
dynamics of Elements earnings trends for the better (discussed below). Simply put, the PHH
acquisition boosted service-driven fee revenue in the mix and moved Element further away from
a pure money-on-money leasing model.
What is Fleet Management? Fleet management businesses (such as Element) help corporate
clients finance and manage their fleets of company cars and trucks. In addition to providing lease
financing for vehicles, fleet management companies help their clients to both minimize the cost of
vehicle ownership and maximize the productivity of this sometimes large asset class.
Exhibit 16 on the next page lists some of the value-added services that can be provided
throughout a vehicles productive life. Expertise and scale allow fleet management companies to
minimize vehicle acquisition costs and maximize their ultimate resale prices. And throughout a
vehicles productive life, they can help minimize operating costs such as fuel and maintenance,
enhance productivity through the use of telematics and detailed reporting, and minimize driver
downtime by managing accident repairs and replacement vehicle rentals.
The efficiencies achieved by the supplier networks, in-house expertise and purchasing scale of
large fleet management companies cant be replicated by companies operating their own fleets,
establishing the value proposition behind this sectors growth and profitability.
Exhibit 16: Fleet Management Services Provided Through a Vehicles Productive Life
Source: Ra ymond Ja mes Ltd., El ement Fi na nci a l
Beginning of Vehicle Life
Vehicle's Productive Life
End of Vehicle Life
Fleet consulting
Fuel management
Vehicle remarketing
Vehicle acquisition
Maintenance management
Title / registration / delivery
Accident management
Vehicle funding
Risk and safety services
Since retired vehicles generally

require replacement, this timeline of
service provision is cyclical in nature.
Environmental programs
DOT regulatory and compliance programs

Element Fleet Management targets fleets of over 100 vehicles in the US and of over 10 vehicles in
Canada, and currently deals with approximately 2,500 different fleet customers. Its customer base
represents a diversified mix of industries (Exhibit 18) and is comprised of generally high-quality
commercial customers, according to management, including one-third of Fortune 500 companies,
with a customer retention rate in the high-90s. The managed fleet is comprised primarily of
light-duty trucks and cars (Exhibit 17), with small exposure to asset classes such as forklifts (2%)
and trailers (2%). 98% of its fleet is subject to open-ended leases which do not expose Element
to residual value risk at the conclusion of lease periods.
Exhibit 17: Fleet Management: Portfolio Composition
Exhibit 18: Fleet Management End-Market Exposure

Manufacturing
Wholesale trade
Light Duty Trucks
61%
15%
Cars
Medium Duty Trucks

Heavy Trucks
9%
Other
% of Fleet Portfolio
Communication & Utilities

Natural resources
Construction
Business services
Finance & Insurance
Retail trade
Healthcare & Social Assistance

7%
8%
Real Estate
Other
0%
Given the rolling nature of the lease maturities supporting client fleet assets, it isnt easy
for clients to make a clean break in switching to a new fleet management service
provider. A full transition can take several years (i.e., over the remaining lease terms of
existing vehicles), during which time the client would need to deal with two different
service providers operating on separate service networks (for fuel, maintenance,
telematics, etc.) and reporting using different systems.
10%
15%
20%
25%
30%
A Sticky, Recurring Business As long as clients are looking to maintain or grow the size of their
fleets, the typical rolling schedule of lease maturities and subsequent originations of new
replacement vehicles creates a recurring and visible source of revenue support, particularly
compared with the Rail and Aviation Finance businesses for which originations tend to be lumpier
and less granular. And although the lease terms on underlying vehicle assets might be shorter in
duration than for the assets in Elements other operating divisions (such as railcars and aircraft),
Fleet Management customer relationships tend to be relatively sticky and long-term in nature for
several reasons, including:
1.
5%
35%
2.
The service element of the offering helps retain customers as it can provide visible
evidence of value-addition (i.e., through proven cost savings).
3.
Over time, operating reports provided by fleet management companies can become
intertwined with the reporting systems of clients, making it functionally difficult to
switch providers without disruption.
4.
Less importantly, a change of providers would necessitate a retraining of vehicle

operators on with whom and how to deal with refueling, maintenance and accident
situations.
Impact on Overall Financial Trends The sharp increase in Fleet Management in the mix changed
the dynamics of Elements financials in several notable ways:
Fee Income Rising in the Revenue Mix As a service-oriented business, Fleet Management
generates a much higher level of fee income than Elements other, more lending oriented
businesses. The addition of PHH not only increased Elements overall fee income levels by
virtue of the resulting mix shift among verticals, it also substantially increased fees within the
Fleet Management revenue mix from 25% pre-PHH to 47.5% on a combined basis (pro forma
2014). As shown in Exhibit 18, the contribution of fee income has been on a rising trend and
is expected (by management) to rise to 50% in the segments revenue mix in 2015, with each
1% mix shift generating an estimated $800,000 of incremental revenue. Contributing to this
mix shift should be two factors: (1) Increased penetration of US accounts on a rising uptake
of incremental service offerings; and (2) A more pronounced cross-selling effort in Canada as
the best practices of the US business are rolled out to the previously more finance-intensive
Canadian business.
Higher Operating Costs Reflect the Service Nature of the Business The operating expense
ratio (as a % of earning assets) for Fleet Management, at roughly 3.5% in 2H14, was more
than double the 1.4% ratio we estimate for the rest of the company. No surprise, considering
that most other lines are essentially pure lending businesses, whereas there is a large service
requirement behind Fleet Managements fee revenue stream. Note that this higher cost level
is compensated by the segments higher revenue yield, with its resulting ratio of operating
income to earning assets consistent with the overall company profitability level. Through
2015, management expects the Fleet Management operating expense ratio to fall from its
3.5% run rate to ~3.0%, which would represent a decent source of near term operating
leverage.
Exhibit 19: Service Fees in Revenue Mix of Fleet Management
Exhibit 20: Contracted Debt Advance Rate for Each Vertical
Legacy Fleet Business (Pre-PHH)
Fleet Management
Combined (pro forma) - 2013
Commercial &
Vendor
Combined (pro forma) - 2014
Rail Finance
Combined (guidance) - 2015
Aviation Finance
0%
20%
40%
Service Fees
60%
80%
100%
0%
Interest Income
20%
40%
60%
80%
100%
As at 4Q14
Higher Returns Facilitated by Higher Allowable Leverage An important aspect of this

business is the extent to which leverage can be used to generate returns. As shown in Exhibit
20, Fleet Management assets are currently being leveraged at a 96% contracted debt
advance rate, far higher than for any of Elements other business verticals. We attribute this
to the highly liquid nature of fleet vehicles and to the high predictability of their residual
values. Considering that the return on assets for fleet management approximates the
companys overall ROA, its ROE-generative capacity is relatively high.
A Source of Incremental Organic Revenue Growth A recent company presentation cited a

Frost & Sullivan report forecast calling for a 3.7% CAGR from 2012-2020 in industry-wide new
fleet lease origination growth, which would provide a decent base of medium-term organic
growth. Wed suggest that medium-term growth might well exceed this forecast considering
the secular growth influence of a general fleet outsourcing trend that has been identified by
Ryder Systems and other industry participants. The main factor supporting increased fleet
outsourcing is an improving ability for dedicated third party fleet managers to save operators
money using their scale and expertise as specialists, with a growing propensity for operators
to divert capital away from non-core activities also playing a role. In the case of Element Fleet
Management, a rising penetration of fee-generating services and an expansion into other,
less penetrated asset classes (e.g. materials handling equipment) should contribute
incremental top-line growth.
Low Credit Risk and Limited Cyclicality As discussed later in this report, we believe an
enhanced Fleet Management business reduces the companys overall exposure to credit risk
(see Credit Quality section) and should provide insulation for Element as a whole against
cyclical volatility (see The Cyclical Backdrop section).
A Preferred M&A Platform Exhibits 21 and 22 show the league tables for the US and Canadian
fleet leasing sectors, reflecting Elements market positions of #1 in Canada and #3 in the US. Due
to high levels of customer retention and large barriers to entry, market share shifts do not tend to
be large on an organic basis. Given the scale that Element has already achieved in this business as
well as managements stated attraction to grow its presence here, wed expect it to consider tuckin acquisitions as they become available.
Exhibit 21: Fleet Management Market Share US (2013)
Exhibit 22: Fleet Management Market Share Canada (2013)
GE Fleet
Element (pro forma)
ARI
ARI
Element (pro forma)

Foss
LeasePlan
Pattison
Enterprise
Wheels
Emkay
Donlen
Wheels
Emkay
Other (4)
Other (5)
0%
5%
10%
15%
20%
25%
0%
10%
20%
30%
40%
50%
Note:
Note:
Ma rket s ha re ca l cul a ted ba s ed on a total of 3.7 mi l l i on vehi cl es funded a nd ma na ged.

Thi s total excl udes Pens ke Truck Lea s i ng (215K vehi cl es ) a nd Ryder Sys tem (161K vehi cl es ).
Ma rket s ha re ca l cul a ted ba s ed on a total of 505K vehi cl es l ea s ed a nd ma na ged.

Thi s total excl udes Ryder Sys tem.
Source: Automotive Fleet Fact Book Guide, Raymond James Ltd.
Source: Automotive Fleet Fact Book Guide, Raymond James Ltd.
What isnt apparent from the charts above is which, if any, competing fleet businesses might
become available for sale. Wed assume that certain smaller players might be finding it
incrementally difficult to compete with the growing service offerings of the industry leaders,
potentially leading to sale decisions. For smaller players considering a sale, the prospect of a
potential GE Fleet Services sale might conceivably prompt them to test the market sooner than
later, before potential acquirers become otherwise engaged.
What is clear from these market share tables is that among potential acquirers, Element ranks
among the largest in both markets, which should make it competitive in terms of potential
synergy realization. Wed argue that Elements cost of capital, access to capital (if required) and
large cash tax shield should provide incremental competitive edge in the pursuit of in-market
acquisitions. Note that of the two US competitors larger than Element in this vertical, one is a
private company that might not enjoy similar access to capital as Element (ARI) and the other has
itself become the subject of a strategic review that is more likely to render it a seller than a buyer
(GE Fleet Services).
Outlook: Steady Growth and Expanding Margins Management guidance for 2015 calls for 4%
growth in originations (pro forma the PHH acquisition), which makes sense to us considering the
stickiness of market share and the GDP-plus nature of industry-wide fleet growth. Wed expect
originations growth to remain at roughly this level as long as GDP growth also remains in low
single-digit territory.
In 2015, we expect Fleet Management earnings growth to exceed underlying asset growth for
three reasons: (1) an increase in fee income in the revenue mix on increased penetration of
services offerings to fleet customers; (2) a reduction in the verticals operating expense ratio from
3.45% in 2H14 to ~3% later in 2015 according to management guidance; and (3) a reduction of
average financing costs as low-cost PHH funding structures are more completely adopted. Beyond
2015 wed expect the gap between asset growth and earnings growth to compress to reflect a
moderating impact on margins from fee income growth and operating leverage.
Our outlook for Fleet Management assumes that asset growth in 2015 will include both organic
originations and tuck-in portfolio acquisitions. While were not calling for any shape-shifting deals
in 2015, management has clearly stated its intention to grow Fleet Management in the mix. And
the only way to achieve this (other than shrinking everything else) will be through acquisitions of
smaller competitors, as this sector isnt conducive to the type of portfolio acquisitions typical in
the rail and aviation finance sectors.
Triangulating the companys 2015 originations and earning assets guidance with our portfolio
runoff forecasts, we estimate that Element would need to acquire approximately $2.3 billion of
assets in 2015 in order to reach its Dec-2015 target of $15.1 billion of earning assets. We expect
any such acquisitions will be in the Fleet Management and Rail Finance verticals. If we limit our
railcar lease acquisition forecast to $300 million, which represents ~25% of expected Trinitysourced originations, this would require Fleet Management to acquire $2.0 billion of assets in
order to reach targeted asset levels.
This equates to almost half of the $4.3 billion of earning assets acquired with PHH, and would
require the acquisition of one of the #5-#7 ranked competitors in the US by our estimation. While
definitely a possibility, we dont think it prudent to bake this level of asset acquisition into our
forecasts as this time. We assume a lesser $1.0 billion of Fleet Management asset acquisitions in
2015, resulting in a year-end company-wide earning asset level lower than current company
guidance. Should acquisitions exceed this level, it would represent upside to our asset (and
earnings) forecasts.
Exhibit 23: Fleet Management Earning Assets Forecast, 2015E
10,000
9,000
8,000
C$ mln
7,000
6,000
5,000
4,000
3,000
2,000
1,000
2014A
Originations Canada
Originations US
Acquisitions
Terminations &
Syndications
FX Impact
2015E

Exhibit 24: Commercial & Vendor Finance Vertical Snapshot
Commercial & Vendor
Finance
4.45%
7.70%
2.00%
2.45%
Acquired the assets of Quebec-focused equipment leasing company Alter

Moneta Group L.P. for $160.2 million.
1,400
50
C&V Earning Assets (LFT Axis)
C&V Originations - Canada (RT Axis)

C&V: The Original Element of Element Financial Although no longer the largest of Elements
operating segments, Commercial & Vendor Finance (C&V) is its original business line and, until
the establishment of Element Capital in Jan-2012 to handle the financing of larger equipment, it
was its only area of operations. Today, C&V accounts for 19% of total earning assets and an
estimated 15% of total adjusted operating earnings.
The C&V vertical provides financing for mid-ticket equipment acquisitions, defined by the
company as those falling in the range of $10,000 to $5 million. Unlike some of its competitors in
the mid-ticket leasing space that rely on direct originations (e.g., via third-party brokers), Element
originates C&V leases almost exclusively through the various vendor finance programs that it has
established with equipment manufacturers and distributors. These vendor relationships, often
codified in the form of multi-year agreements, provide Element with the exclusive opportunity to
offer point-of-sale financing for products sold by those vendors.
Vendor Relationships Provide Low Risk, Annuity-Like Deal Flow The advantages to EFN of
originating through vendor programs include (a) low origination costs, (b) an annuity-like steady
stream of deals, (c) low credit losses owing to expertise with the product/market in question, (d)
relatively stable margins that are insulated from the rate-based competitive pressures typical of
the direct channel and (e) vendor support in the form of up front service (e.g., credit &
application functions) and end-of-lease equipment remarketing.
The benefit of margin stability has been front-of-mind in recent quarters as certain competitors in
the direct origination channel have felt yield compression not similarly experienced by EFN.
Vendors also benefit from these arrangements as they can save money by outsourcing the
financing function, their clients can obtain more customized financing solutions (which helps the
sales function), and they can maintain an ongoing relationship with their customers throughout
the lease period (which might be lost if leased through an independent lessor).
Focused End-Market Strategy Minimizes Risk Without Causing Concentration Issues EFNs
operating strategy in the C&V business has been to maintain focus on a select few end-markets in
which it has in-house expertise. By playing to its strengths, Element positions itself to better build
deep vendor relationships (supports better revenue growth and stability) and to more effectively
underwrite risks. At this point, its five chosen areas of specialization have been Transportation
and Construction (includes material handling), Commercial and Industrial, Healthcare (financing
equipment, business acquisitions and working capital for practitioners), Office Products and
Technology, and Franchise (assistance to franchisee networks).
4Q14
3Q14
0
2Q14
1Q14
Established a multi-year program to provide lease financing to Celadon

Group for transportation equipment and purchased from it an initial
portfolio for $58.6 million.
100
200
4Q13
>
Acquired US-based Bush Truck Leasing, adding a portfolio as well as

expected origination volumes of more than US$90 million per year.
400
3Q13
Apr/2014
>
Acquired Nexcap, a vendor-supported equipment leasing company, for $20

million plus assumed debt.
1Q13
Sep/2013
>
150
600
4Q12
Dec/2012
200
800
3Q12
Entered a securitization funding transaction valued at $199.3 million

backed by the finance assets of CoActiv.
250
2Q12
>
300
1,000
1Q12
Nov/2012
350
1,200
4Q11
Acquired CoActiv Capital Partners, Inc., a vendor-supported equipment

leasing company, for $300 million including repayment of debt.
88%
Commercial & Vendor:

3Q11
>
3.25%
400
1,600
Nov/2012
2.55%
450
2Q11
>
8.10%
1,800
1Q11
Aug/2011
5.80%
2,000
Major Events in the Commercial & Vendor Vertical

C$ '000s
Date
<
<
<
<
<
85%
2Q13
C&V: 19% of 4Q14

Earning Assets
Overall
Company
C&V Originations - U.S. (RT Axis)
Despite this focus, the resulting C&V portfolio is sufficiently diversified to avoid any unwanted
industry concentration. Exhibit 25 shows that the top five C&V asset classes collectively represent
just 67% of total C&V finance receivables, and that no C&V asset class accounts for as much as 4%
of the companys total earning assets. Additional diversification is achieved by the large number
of vendors and unique end-customers being served.
Exhibit 25: Diversification of Commercial & Vendor Portfolio Minimizes Concentration Risk
Healthcare equipment
67% of C&V Finance

Receivables *
9%
Highway tractors
10%
Transportation equipment
13% of Total
Earning Assets
13%
Highway trailers
16%
Construction equipment
19%
0%
5%
10%
15%
20%
Note:
* % of fi na nce recei va bl es excl udi ng prepa i d l ea s e pa yments , s ecuri ty depos i t a nd other recei va bl es
a nd a l l owa nce for credi t l os s es

A Platform for Growth Built through Acquisitions The primary contributor to C&V segment
growth to date has been the acquisition of complementary businesses that collectively provided it
with sufficient scale, geographic scope and end-market diversification from which to grow in a
fairly consistent, low risk manner. Acquisitions to date have included the following:
1.
Aug-2011: Alter Moneta Group L.P. Provides an Infrastructure This $160 million
acquisition provided Element with a mature portfolio of leases, an experienced Quebecbased management team (a complementary footprint), an established back-office
infrastructure with sufficient capacity to assume significant growth in originations, and a
number of customer relationships with which to grow its presence. When it was
acquired, its portfolio had an average remaining life of just 13 months and the book was
in runoff. Yet the assumption of its many customer relationships was regarded by
Element to represent a massive opportunity to reopen the financing window that had
been previously closed to these clients while Alter Moneta had operated without
sufficient access to capital. Acquired finance receivables of $159 million more than
tripled the size of Elements aggregate portfolio at the time.
2.
Nov-2012: CoActiv Capital Partners Provides a US Platform This $300 million

acquisition established a sizeable US presence, and at a purchase multiple of 1.25x book
value it was also immediately accretive to earnings. At acquisition, CoActiv was a 10year old business with finance assets of US$260 million in the US and C$50 million in
Canada (a company-wide increase of ~27%), more than 15 vendor finance programs and
over 11,000 customer relationships. Most importantly, it added an established US
management team and origination platform to complement Elements existing Canadian
presence, setting it up to better serve North American equipment manufacturers on
both sides of the border. Originations at time of acquisition were trending at an
annualized US$220 million/year.
3.
Jan-2013: NexCap Finance Corp, an Accretive Tuck-In NexCap was acquired for $20
million plus existing debt, representing a multiple of 1.3x book value. This deal added
$99 million of finance assets and annualized originations trending at ~$40 million, of
which more than 75% was coming from vendor relationships in the technology and
transportation equipment sectors. While small and tuck-in rather than transformative
in nature, this acquisition was immediately accretive and provided an opportunity for
Element to enhance NexCaps origination volumes by adding new relationships to a
superior sales platform.
A History of Adding Value to Acquired Businesses A key consideration in assessing the success
of these acquisitions would be to look at how originations from the acquired businesses have
trended once in the hands of Element management and supported by its superior funding
capabilities. Its original C&V acquisition, Alta Moneta, hadnt originated any new leases for over
two and a half years prior to being acquired. And at point of acquisition, CoActiv and NexCap were
generating annualized originations of US$220 million and C$40 million, respectively. From these
building blocks, Element originated $1.45 billion of new leases in 2014 and is guiding to $1.6
billion of originations in 2015. This serves as evidence that M&A in the C&V vertical has proven to
be significantly accretive to top-line growth following acquisitions, not solely to near-term EPS.
Exhibit 26: Proven Ability To Grow Originations From Acquired Businesses
2,000
1,600
1,450
C$ mln
1,500
AOrigination run rate

at time of acquisition
1,000
500
230
40
0
0
Alter Moneta
(Aug-2011)
CoActiv
(Nov-2012)
Nexcap
(Jan-2013)
2014
2015
Guidance

A Growing List of Vendor Relationships Should Support Ongoing Asset Growth Within its
chosen sub-verticals, Element has successfully sought to grow the business both by adding new
vendor relationships and by achieving increased volumes from existing relationships. Note that
vendor finance was the original business line of predecessor Newcourt and remained its largest
unit until the company was eventually sold. Under the leadership of Bradley Nullmeyer, who
today serves as President of Element, the Newcourt vendor business accumulated more than 320
relationships with equipment manufacturers in a larger array of end-markets than currently
served by Element. We believe there remains plenty of scope for the C&V business to grow
through the ongoing addition of new vendor partners. The experience of Elements senior
management in forging such relationships, as well as the actual relationships that theyd
historically developed and maintained, supports the likelihood that this will be an ongoing source
of growth.
Outlook: Steady 10-15% Growth Driven by the US Absent additional acquisitions, wed expect
this business to grow at a steady but moderate pace over the period of our forecasts. We regard
the Canadian C&V business to be mature and largely saturated, with the US expected to continue
providing outsized growth through the medium term. Managements guidance calls for C&V
originations of $1.6 billion in 2015, 10% higher than in 2014 and representing 85% of the
segments finance receivables balance entering the year. Note that guidance has been stated in
CAD terms, inferring that constant dollar-based growth would be lower than 10% considering that
guidance is based on a CAD:USD assumption higher than the 2014 average level and that this
vertical operates in both Canada and the US.
Exhibit 27: C&V Originations, Canada
Exhibit 28: C&V Originations, US
300
300
250
250
200
C$ mln
C$ mln
200
150
150
100
100
50
50
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
Based on our origination, runoff and USD assumptions, we are forecasting C&V asset growth of
27% in 2015 and 16% in 2016. Given the maturity and organic growth focus of this business, we
expect asset growth to closely track originations growth going forward. And considering that
managements growth focus currently prioritizes other verticals, we are not expecting C&V asset
growth to be supplemented by acquisitions.
Exhibit 29: Commercial & Vendor Finance Earning Assets Forecast, 2015E
4,000
3,500
C$ mln
3,000
2,500
2,000
1,500
1,000
500
2014A
Originations Canada
Originations US
Acquisitions
Terminations &
Syndications
FX Impact
2015E

Another consideration regarding the future of Elements C&V vertical is on whether or not its
diminished importance to the companys overall growth plans might eventually result in its
divestiture. Management recently commented that we might see the Fleet Management and Rail
Finance verticals collectively account for 85%-90% of overall business within two years, which
would clearly render C&V a far less material business for them. A sale of C&V could be a source of
funding in the event that Element pursues any larger acquisitions in Fleet Management. The Feb2015 sale of Macquarie Group Ltd.s equipment finance business (with a lease portfolio of ~US$1
billion, roughly 2/3 the size of Elements C&V portfolio) to Huntington Bancshares for US$380
million demonstrates that there is an active market for such businesses. In any event, if Element
were to consider auctioning its C&V business, it might first need to wait for the potential sale of
GE Capitals large commercial finance business (part of its divestiture plans) to clear the market.
Rail Finance
Exhibit 30: Rail Finance Vertical Snapshot
Rail
Finance
4.30%
Rail Finance: 12% of

4Q14 Earning Assets
7.50%
1.00%
3.30%
Overall
Company
5.80%
<
<
<
=
<
75%
8.10%
2.55%
3.25%
88%
1,400
Established a US$600.0 million bridge credit facility to fund the purchase

of rail car assets originated through its Trinity Vendor Program.
Apr/2014
>
Issued its first railcar asset-backed securitization (ABS) for US$340mm,

comprised of three classes of notes, two of which were rated "A". A second
issuance of US$405 million was completed in Mar/2015.
May/2014
>
Established a secured financing agreement to fund the acquisition of

US$220 million of rail tank cars, heavy-duty trucks and trailers for Bridger,
LLC., over a 12 month period. Originated by the C&V group, underwritten by
the Rail group.
800
400
600
300
400
200
200
100
Rail Earning Assets (LFT Axis)

Background The Rail Finance vertical was created in Dec-2013 when Element entered into an
agreement with Trinity Industries to provide lease financing for up to US$2 billion over two years.
Under the agreement, Trinity is presenting Element with offers of qualifying assets on a quarterly
basis, with Element having the right to decline should it so choose. This arrangement provided
immediate entry to the railcar leasing market on nominal investment and with a limited ongoing
cost base. Underlying lease exposure is diversified across a large number of Trinitys customers
with no relevant concentration issues (e.g., over 85 distinct railcar lessees were represented in
total 2014 origination volumes).
A Business Built Through Senior Management Relationships Although Element itself had not
participated in the railcar leasing game prior to this agreement, its senior management was
already familiar with the market, as well as with Trinity, with which it had previously established a
similar alliance while at Newcourt Capital (as featured on page 13 of Newcourts 1998 annual
report). When the Element / Trinity deal was announced, Trinity management referenced this
history noting that the agreement was an extension of the relationship they had established with
Elements senior management two decades ago. This is just one example of how senior
managements experience and relationships have provided tangible contributions to the rapid
growth of Element to date.
A (Somewhat) Steady Stream of Originations at a Steady Margin In its first year of existence,
this arrangement with Trinity has tracked according to plan, providing roughly half of the US$2
billion expected to be originated over two years. In total, the Rail Finance vertical originated
$1,005 million of leases in calendar 2014, all related to the Trinity arrangement. Adding in the
initial US$112 million tranche that closed in late December 2013, aggregate originations to date of
$1,117 million fall right in line with plan (after converting for FX). As Exhibit 30 shows, the
quarterly flow of originations has been lumpy with a particularly big influx in 1Q14, although from
an earnings perspective a front-loading of inflows is preferred. Based on comments made by
Trinity management on its 4Q14 call, we expect originations will be more back-end weighted in
2015.
Also a Steady Earnings Contributor Margin in this business has been enhanced and solidified
with the issuance of S&P-rated asset-backed securitizations, of which two tranches have been
issued to date totaling US$745 million at blended coupon rates of 3.547% (Apr-2014) and 3.460%
(Mar-2015), backed by US$878 million worth of railcars (85% advance rate). In each of 3Q14 and
4Q14, the Rail Finance vertical earned a consistent 3.3% Adjusted Operating Earnings yield (on
average earning assets), the steadiest recent earnings pattern among the four verticals and at a
Rail Originations (RT Axis)
4Q14
>
500
3Q14
Dec/2013
600
1,000
2Q14
Established a new vendor finance program with railcar manufacturer

Trinity Industries under which Element is periodically being presented with
opportunities to lease railcars worth up to an aggregate of US$2 billion
over a two year period. A separate Rail Finance vertical is created.
1Q14
>
4Q13
Dec/2013
1,200
Major Events in the Rail Finance Vertical
C$ mln
Date
700
Rail Finance:
slightly higher margin than for the company overall. Eventually, as the business matures and the
existing portfolio of still-young leases begins to roll over and become subject to repricing risk, it is
quite possible that incremental volatility might creep into this earnings stream, although were
still a few years away from this consideration.
Accelerated Depreciation of Railcars as a Significant Tax Advantage An important attribute of
the Rail Finance vertical is the sizeable tax deferral benefit arising from its investment in railcar
leases. For tax purposes, Element is permitted to recognize related depreciation over a much
shorter time frame than used for conventional accounting purposes, resulting in a significant
deferral of cash taxes. As a result, management estimates that Element will not have to pay any
cash taxes for at least 20 years based on its current business mix and growth forecasts.
Importantly, this tax shield applies to the company as a whole, not just to the Rail Finance vertical,
enhancing the attraction of this business to Element and helping to make this an area of desired
expansion over time.
But is There Any Growth? Managements guidance for 2015 calls for origination volumes to
grow to $1.3 billion which, at current CAD:USD spot rates, equates to marginally more that the
remaining US$1 billion of volumes expected to come from the Trinity arrangement this year. In
other words, management itself is calling for very little underlying growth in the Rail Finance
business in 2015. Looking beyond this year, there are several growth-related issues worth
considering, including the following:
1.
What is the risk that the Trinity agreement wont be extended beyond the initial two
years?
Before considering the growth potential of this vertical, we should first address the issue
of the sustainability of the existing business. After all, the contracted duration of the
arrangement with Trinity is only two years. Our understanding is that this type of
agreement is typically struck to cover a specified time period, after which they tend to
extend indefinitely as long as both parties remain satisfied with the terms.
Based on comments from the Group President of TrinityRail on Trinitys 4Q14 earnings
call, it appears that the likelihood of extension is strong at this point: Were very
pleased with our relationship with Element. Our teams are working very well together.
We are in discussions to extend that relationship beyond 2015 and have every reason to
believe that we can reach a successful negotiation there.The other key to it, we also
maintained the commercial relationships with those lessees by managing those
investments, and its an important part of our platform.
Elements CEO has also recently made similar remarks, expressing confidence in the
continuation of this relationship. We are mindful, however, that this relationship is still
in its honeymoon phase and that over time there will be an ongoing risk to its
continuation.
2.
Is the underlying demand picture for Trinity railcars sufficient to maintain the US$1
billion/year originations pace?
North American railcar demand has recently been running very high, arguably at cyclical
peak levels (the view of our US Transportation analyst), with industry backlog reaching
an all-time high in 4Q14. Industry data for 1Q15 (the most recent available) indicated an
unexpected decrease in the railcar book-to-build from ~2x in late 2014 to just 0.8x due
to weak demand for tank cars and small-cube covered hoppers in particular. On signs of
decelerating order activity, we expect industry-wide production growth to decelerate in
2015 following five years of rapid expansion (Exhibit 31). For Trinity in particular,
Raymond James & Associates forecasts flattish railcar deliveries throughout 2015 with
resulting full-year growth in deliveries of 12%. Our observations regarding Element are
that (1) Trinity production levels throughout our forecast period should be generally
supportive of the flattish level of lease origination that we are forecasting, and (2) based
on industry cyclicality, it is likely that Trinity-related originations should trend lower, not
higher, as we advance in the current cycle.
Exhibit 31: Quarterly Railcar Deliveries

9,000
8,000
7,000
Deliveries
6,000
5,000
4,000
3,000
2,000
1,000
GBX
RAIL
4Q14
4Q13
4Q12
4Q11
4Q10
4Q09
ARII
4Q15E
TRN
4Q08
4Q07
4Q06
4Q05
4Q04
Source: American Railcar Industries, The Greenbrier Companies, Trinity Industries, Freight Car
America, Raymond James & Associates
3.
Will Trinity continue to sell a similar proportion of leases that it originates?

We expect that this will be a function of underlying sales levels, of its needs to preserve
balance sheet capacity for other purposes and of the relative economics of selling vs.
retaining leases at any point. Our visibility on this is low, although we are comfortable
that Trinitys current plans call for continued lease sales to Element. For what its worth,
Trinity management on the 4Q14 call very clearly stated, and reiterated, their intention
to maintain transactional earnings (i.e., gains on the sale of leased railcars), which
have been elevated since it began selling leases to Element, as a normal part of our
business model going forward and as a key component of our results that they expect
will continue.
4.
Will asset growth be limited to Trinity-sourced leases?

Elements railcar leasing portfolio is still very small in the context of a large market, and
we suspect there should be plenty of opportunity to expand its presence through the
acquisition of leases from players other than Trinity, either from other originators or in
the secondary market. This business has been identified by management as a desired
area of growth, which will require expansion beyond Trinity. We understand that the
Rail Finance vertical is in the process of developing in-house lease servicing capabilities,
including the capacity to release railcars upon lease expiration, which is a function
currently outsourced to Trinity Leasing. Developing such capabilities in-house would
help set the stage for the type of expansion we envision.
Outlook: Outsized Asset Growth, Steady Margins We see limited scope for surprise from Rail
Finances base business in 2015 considering the effectively scheduled pace of originations and the
locked-in nature of returns. Originations guidance of $1.3 billion (+30% Y/Y) can be almost fully
achieved through completion of the Trinity agreement, requiring very little incremental
origination success. On a purely organic basis, we estimate that $1.3 billion of originations would
drive 110% year-over-year asset growth in 2015, although average earning assets (and therefore
related revenue) should grow at a lesser pace considering that originations were front-end loaded
in 2014 and should be back-end loaded in 2015.
Because of the long-life nature of railcar assets and the low associated amortization rate, even a
modest pace of new lease originations can drive outsized asset growth. For this reason, wed
expect Rail Finance to roughly double in the earning assets mix from 12% at 4Q14 to 23% at 4Q16
based on organic originations alone. In fact, we expect Rail will achieve a higher 25% weighting in
the mix by 4Q16 as we assume that asset growth will be supplemented by portfolio acquisitions
totaling $300 million in each of 2015 and 2016. We expect this vertical to attract more capital
than it is capable of absorbing based on the Trinity relationship alone.
Over the period of our forecasts, we expect Rail Finances profitability to be highly consistent and
predictable owing to the youth of its portfolio and the locked-in nature of margins on existing
leases. As leases begin to mature and roll over, the portfolio will begin to become subject to
repricing risk. Railcar lease pricing can be highly cyclical, although the impact on overall portfolio
profitability trends should be muted by the staggered age of leases in the portfolio. To be clear,
this is a longer-term issue that wont be relevant through the period of our forecasts we raise it
only to point out that the margin stability being currently enjoyed might not last forever.
Exhibit 32: Rail Finance Earning Assets Forecast, 2015E
3,500
3,000
C$ mln
2,500
2,000
1,500
1,000
500
-
2014A
Originations
Acquisitions
Depreciation &
Disposals
FX Impact
2015E
Aviation Finance
Exhibit 33: Aviation Finance Vertical Snapshot
Aviation
Finance
4.85%

Aviation Finance: 11%
of 4Q14 Earning Assets
7.85%
0.75%
4.10%
Overall
Company
5.80%
<
<
<
>
<
65%
8.10%
2.55%
3.25%
88%
1,200
500
450
>
Entered into an agreement with Cargojet to finance three Boeing 767-300ER

freighter aircraft for approximately $100 million.
50
-
Aviation Earning Assets (LFT Axis)

Background The Aviation Finance vertical was effectively established in Jan-2012 with the
formation of the Element Capital Business Unit, a new business line dedicated to financing larger
equipment (than in the existing C&V vertical) including aircraft, rail and road equipment, energyrelated assets and larger construction equipment. Its initial focus was in the field of aviation,
specifically on providing lease financing for corporate aircraft and helicopters. When the Trinity
railcar financing relationship began in Dec-2013, the Element Capital business was split into the
more focused and descriptive Aviation and Rail verticals. Today the Aviation vertical is the
smallest of Elements four verticals in terms of earning assets (11% of total), although its earnings
contribution is somewhat higher than that given that a portion of lease originations are
syndicated rather than retained on balance sheet, which enhances its revenue yield relative to
asset levels.
This vertical has grown primarily organically through a series of granular lease transactions rather
than through M&A. Its only portfolio acquisition to date has been a US$243 million purchase of
helicopter leases from GE Capital in Dec-2013, which added customer relationships in addition to
finance assets. Since inception, this vertical has originated or acquired $1.7 billion of leases, of
which an estimated $0.3 billion has been syndicated. Transactions to date have mostly involved
the financing of helicopters and business aircraft, with some simulator and freighter aircraft in the
mix. Note that Element does not seek to compete in the commercial aircraft leasing arena.
Originations are Inherently Volatile This is not a business that lends itself to tidy trend analysis,
particularly on an individual company basis. The timing of originations tends to be lumpy and the
assets underlying lease contracts are generally large (on a per unit basis) and concentrated in
nature. Because Element does not finance commercial aircraft (i.e., large aircraft flown by
commercial airlines), it is not subject to the cyclical influences of the airline industry. Rather, its
exposure to an array of end-markets and applications renders any sort of underlying utilizationbased demand analysis ineffective as a predictor of future lease volumes. Its small size relative to
the broader aircraft leasing segment is another reason why this business growth wont
necessarily mirror that of the market. Exhibit 34 illustrates the volatility in Aviation Finance
originations, featuring remarkably consistent seasonality over the past two years.
Aviation Originations (RT Axis)
4Q14
Jun/2014
100
200
3Q14
Acquired US$242.7 million of helicopter assets from GE Capital comprised

of 57 Eurocopter, Sikorsky and Bell aircraft.
150
2Q14
>
200
400
1Q14
Dec/2013
250
4Q13
Announces the financing of its 100th aircraft in 18 months since the

establishment of the vertical.
300
600
3Q13
>
350
2Q13
Established Element Equipment Finance LP, a funding vehicle secured by

aviation-related leases; an initial tranche of US$48.5 million was sold,
with each class of the issuance subsequently rated by S&P.
1Q13
>
4Q12
Jun/2013
400
800
3Q12
The Aviation Finance vertical, originally as the only active business line of
Element Capital, is established.
2Q12
>
Aviation Finance:
1Q12
Jan/2012
Sep/2013
1,000
Major Events in the Aviation Vertical
C$ mln
Date
Exhibit 34: Quarterly Distribution of Aviation Finance Originations (Excluding Acquisitions)
4Q14
50%
Q4
4Q13
49%
3Q14
20%
Q3
3Q13
20%
2Q14
19%
Q2
2Q13
19%
1Q14
12%
Q1
1Q13
-5%
11%
5%
15%
25%
35%
45%
55%

Syndication Activity Contributes to Earnings Volatility Due to the large dollar value of individual
assets being financed, a large percentage of lease originations in this vertical are syndicated (i.e.,
sold, in part, to other investors) as a means of diversification and risk management. The
syndication process results in a reduced level of retained assets (and related interest revenue),
but also generates syndication fees that serve as an offsetting, albeit more volatile, source of
finance revenues. Note that a seasonally high level of originations and syndication activity
resulted in a doubling of the Aviation Finance verticals adjusted operating income yield (as a % of
average earning assets) from 2.6% in 3Q14 to 5.6% in 4Q14, with a higher level of syndication fees
responsible for the surge in profitability. As the company grows in size, the threshold of
materiality for any particular lease transaction continues to rise, theoretically permitting a
diminishing level of syndication activity going forward (although we dont expect syndication
activity to fall).
Competition has Ratcheted Higher in a Hurry Helicopter leasing has become a crowded market
very quickly with the introduction and rapid growth of several new large players in the space of
just a few years. A Dec-2014 report by Airfinance Journal listed the businesses shown in Exhibit 35
as the leading helicopter leasing companies today. Note that (a) most of these players are
relatively recent entrants to the market, and (b) most have the funding support of deep-pocketed
financial sponsors. One likely impact is that with a growing level of capital being offered to a
helicopter purchasing market that isnt growing at the same pace, returns on leased assets must
be under some degree of pressure. Likely because of this heightened competition, Element
effectively withdrew from this market in 2014. In an apparent display of capital discipline, it has
gone several quarters without originating any new helicopter leases, according to management.
Exhibit 35: Leading Helicopter Leasing Companies

Company
Established
Backed By
Current Fleet
Current Operations
Era Helicopters
1948
n/a
160 helicopters in operation
Provides both operating leases and helicopter operations and transport on

behalf of end customers
LCI Helicopters
2004; entered
the helicopter
leasing market
in early 2012.
Owned by the Libra

Group, with a strategic
minority stake held by
KKR
Comprised of 90 delivered
and ordered helicopters.
Operates from Dublin, London and Singapore. Recently announced a contract

to manage a fleet of seven helicopters for an asset management company in
New York - services will comprise asset management, insurance, rent
collection, maintenance oversight, inspections and remarketing
Lobo Leasing
2011
GSO Capital (Blackstone

Group) as of 2013
Macquarie Rotorcraft
2013
Macquarie
~US$250 million with orders

for ~US$200 million more
Current CEO was previously the president of Sikorsky Helicopters
Milestone Aviation Group
2010
Acquired by GE Capital
Aviation Services in
January 2015 for US$1.78
billion
Over 168 helicopters valued

at ~US$3 billion with a
forward order and option
book of 131 helicopters,
valued at ~US$3 billion
The leading helicopter leasing company. Leases to 31 operators in 25

countries in industries including oil & gas, emergency medical services,
search and rescue and mining.
Waypoint Leasing
2013
MSD Capital, Soros Fund

Management, Cartesian
Group
More than 90 helicopters

valued at ~US$1.2 billion,
with a letter of intent to
acquire an additional 20
Second largest helicopter leasing company. Leases to companies in more

than 20 countries. Recently hired former head of CHC Leasing (a major
helicopter operator)as SVP Sales.
Provides lease financing as well as souring and acquisition, fleet and lease
management and remarketing
Source: Raymond James Ltd., Airfinance Journal

Increased Availability is Likely Spurring Increased Leasing Activity Another impact of the surge
in helicopter leasing availability is that the lower resulting lease rates are likely spurring leasing
demand, as helicopter purchasers are incentivized to increase the use of lease financing in their
capital structures (i.e., expansion of the leasing market in a static purchasing market). For
example, Bristow Group, a major helicopter operator with ~370 aircraft, has grown the
percentage of its fleet under operating lease from 15% in 2013 to 35%.
GE Capitals Recent Endorsement of the Sector In Dec-2014, a little more than a year after
divesting its US$243 million helicopter lease portfolio to Element, GE Capital did an about face
and returned to the market in a major way with the acquisition of Milestone Aviation Group. This
was a US$1.78 billion acquisition of an industry leader with a leasing portfolio of $2.8 billion and a
desirable US$3 billion order book. Clearly, despite the competition-related concerns discussed
above, as of four months ago GE determined that the economics and growth potential of this
business line were compelling enough to make a substantial investment. In our opinion, thats a
meaningful endorsement of the attractiveness of the helicopter leasing market. The downside
from Elements perspective is that the industry heavyweight is now owned and funded by one of
the largest leasing companies in the world, making it an even more formidable competitor.
Underlying Helicopter and Business Jet Delivery Markets Remain Healthy As mentioned above,
understanding the underlying demand dynamics for these distinct aircraft end markets isnt overly
relevant to the analysis of Element Aviation Finance unless were nearing a cyclical inflection point
in deliveries that could impact all players. Given where were at in the current economic cycle,
therefore, we wont spend much time on demand analysis other than to highlight the following:
1.
The medium-term delivery forecast for helicopters appears to be healthy, with

Research and Markets forecasting a 5% CAGR from 2014-2019 in its Global
Helicopters Market Forecast & Opportunities, 2019. In Honeywells 17th annual Civil
Helicopter Purchasing Outlook, issued in Mar-2015, they note that the five-year
demand picture remains steady vs. last years forecast despite short-term
uncertainties operators are facing due to low energy prices and fluctuating
currencies.
2.
Oil & gas end markets account for a large percentage of civil helicopter
applications, such that the currently depressed energy market is putting some
pressure on utilization rates. Offsetting factors are that (a) much of the energy
sectors usage is for offshore production, which is largely maintenance (i.e.,
ongoing) in nature and less dependent on oil prices, and (b) any financial stress felt
by operators might translate to increased leasing demand should they seek
alternative financing sources.
3.
Bombardiers 2014 Business Aircraft Market Forecast calls for global industry
deliveries in 2014-2023 to be 50% higher than the preceding decade, representing
roughly 4% average annual growth. For Elements home market of North America,
Bombardier forecasts a 2.4% CAGR in the business jet fleet over the next 10 years.
Large business jets, which are presumably more likely to be leased than smaller
aircraft, are expected to experience the fastest growth. Demand for business jets is
heavily correlated with general economic growth, and consensus US GDP forecasts
through 2016 remain healthy.
Outlook: Decelerating Growth (and Emphasis) Beyond 2015 The 2015 outlook for Aviation
finance is quite good company guidance calls for a 25% year-over-year increase in originations
to $1.0 billion and management claims to have visibility on a $2.0 billion origination pipeline.
Considering that 2014 originations represented 53% of the Dec-2013 pipeline of $1.5 billion, a
50% conversion rate in 2015 seems reasonable. Similar to prior years, we expect 2015 originations
will be heavily weighted towards 4Q and that a similar proportion of new leases will be
syndicated, resulting in a corresponding surge in syndication fees (and profitability) in 4Q.
Beyond 2015 our outlook for Aviation Finance is fairly static. We dont anticipate much, if any,
new origination activity in helicopter leasing and were assuming flattish demand for other, mostly
business jet, lease types. Note that the combined assumption of flat originations and flat rates of
lease termination and syndication still result in a (decelerating) double-digit asset growth forecast
through at least 2017.
The bigger picture is that we expect management to gradually deemphasize Aviation Finance in its
asset mix in favour of more attractive uses of capital. Not only do we expect Aviation originations
to flatten out relative to activity in other verticals, we also think theres a good chance that
Element will begin to retain a shrinking proportion of originated leases on its balance sheet
between syndication and, potentially, the diversion of Element-originated aviation leases into
funds managed by Element Structured Finance.
Exhibit 36: Aviation Finance Earning Assets Forecast, 2015E
2,500
C$ mln
2,000
1,500
1,000
500
2014A
Originations
Acquisitions
Terminations &
Syndications
FX Impact
2015E
Element Structured Finance The Fifth Pillar

While not formally described by Element as a fifth business vertical, we consider its Structured
Finance business separately here as it is a new initiative that will begin contributing to revenues in
2015. Once up and running, we expect its results will be recognized within the Rail Finance and
Aviation Finance verticals, not as a fifth standalone vertical. We dont expect that this will become
an important contributor to the overall business mix any time soon, but we do think a successful
ramp-up would be notable because it would (a) represent incremental earnings growth without
requiring much incremental investment, (b) help grow fee income in the revenue mix, and (c)
provide another example of management drawing from its Newcourt experience to grow the
business (i.e., the Newcourt Capital division had also focused on the aviation and rail sectors, in
addition to a few others).
Exhibit 37: The Roles Played By Element Structured Finance
Fees
Participating
Interest
Element
Structured
Finance
Element establishes
and administers the
vehicle in exchange
for fees
Lease Assets
Lessors
Funding
Investment
Vehicle
Funding
Institutional
Investors

In-House Expertise is the Secret Sauce The general idea is to capitalize on the companys
experience and relationships among lessors, OEMs and investors in order to source lease
originations and to arrange for their purchase, in the form of funds, by investors other than
Element. Given the specialized nature of the asset classes involved, the resulting investment
vehicles and the limited number of institutions that invest in them, this is a business that requires
specialized expertise and relationships, two things that Elements team brings to the table.
Element has assembled separate, dedicated Structured Finance teams for each of its rail (Chicagobased) and aviation (Connecticut-based) initiatives.
Dealing in Complementary Asset Classes Although this business will take advantage of
Elements experience and presence in the aviation and rail leasing markets in general, it will
initially be focused on asset classes that Element itself is not interested in underwriting for its own
account. The initial focus of these teams will be as follows:
Commercial Aircraft Elements Aviation Finance vertical focuses primarily on helicopters

and business jets, with no interest in larger commercial aircraft owing to both the large
single-asset exposures and the competitive nature of that segment. The aviation team of its
Structured Finance segment, however, has experience with this asset class and aims to
structure investment vehicles comprised of commercial aircraft leases. We expect its first
aircraft-related fund to be launched in 2Q15, with aggregate assets in the $1.0-$1.5 billion
range. Eventually, as Elements Aviation Finance business moves more towards a fee-based
model, we could see originations in its traditional aviation asset classes diverted towards this
sort of fund rather than be syndicated out and partially retained.
Refurbished Railcars Regulatory changes in the US rail sector are expected to result in the
retirement or refurbishment of an estimated 45,000 older-era tank cars in order to meet
new, more stringent regulations. For many of these railcars, the differential between the allin cost (i.e., acquisition plus refurbishment) and the cost of new railcars is expected to be
wider than the differential between lease rates that each type of railcar will receive,
creating a potential investment opportunity. The initial focus of Elements Structured Finance
team in this market will be to establish and manage funds that invest in the acquisition and
refurbishment of such railcars. We dont expect any such railcar funds to be launched any
time soon, however, at least not until new railcar regulations have been finalized, allowing
for refurbishment cost estimates that will be necessary for establishing underlying railcar
valuations.
Guiding to a $20mln Contribution to 2015 Fee Income Managements current guidance for this
new business line calls for $20 million of incremental revenues in 2015 from these teams.
Revenues will be primarily in the form of fee income, representing up front deal structuring fees
and ongoing administration (i.e., asset management) fees, and to a lesser degree will come from
participation interests (<20%) taken in the created investment vehicles. Given the low level of
investment required, this is a capital light business that should be accretive to overall ROE as
well as to earnings growth. It is also a low-cost source of revenue, expected to attract a nominal
opex ratio. Our forecasts assume Structured Finance fee revenues of $18 million in 2015 and $24
million in 2016 in expectation that the launch of additional funds will raise the level of ongoing
administration fees being generated.
The Cyclical Backdrop

Cyclical Trends Have Been of Moderate Influence Through Elements Infancy To date,
although cyclical trends have provided a supportive tailwind to Elements business, other factors
have been far more prominent drivers of its earnings growth, including M&A, the establishment
of new business lines and customer relationships, and a reduction in overall funding costs.
Consider that from pretty much a standing start five years ago, Element has grown to become a
$4.6 billion market cap company managing roughly $10 billion of earning assets, clearly benefiting
from more than just a cyclical upswing. We expect the cyclical influence will remain of moderately
supportive importance over the period of our forecasts as Element continues to grow its presence
in otherwise mature market segments.
But Will Become Increasingly Relevant as the Business Matures The end markets to which
Element is exposed are, to varying degrees, cyclical in nature, and as the company matures the
cyclical influence will become an increasingly important driver of general business levels. We
present here a high level review of some relevant cycle-related issues and will reserve a more
detailed review of macro trends for a later time when (a) Elements earnings trends are more
directly influenced by cyclical factors and/or (b) the cycle appears to be approaching an inflection
point, at which point well need to assess the potentially negative implications.
North American Capex Trends Remain on the Upswing The main driver of leasing industry
volume growth is the level of spending on asset classes that tend to be leased such as
transportation equipment, aircraft, industrial equipment, etc. Exhibits 38 and 39 illustrate the
historical trends in machinery & equipment capex in the US and Canada, showing that spending
has been on a cyclical upswing since correcting in 2009. Note that although aggregate spending
levels are close to the peaks of the previous cycle, they have yet to show signs of deceleration five
years into the current upcycle.
Exhibit 38: Equipment Capex Growth Canada
Exhibit 39: Equipment Capex Growth - US

Equipment Private Fixed Investment
30%
120
25%
10%
60
5%
0%
40
15%
10%
800
US$ bln
80
% Change Y/Y
15%
20%
1,000
20%
100
5%
0%
600
(5%)
400
(10%)
(5%)
Canadian Equipment Capex (LFT Axis)
Y/Y change (RT Axis)
(15%)
200
(20%)
U.S. Equipment Capex (LFT Axis)
Notes :
2013 i s prel i mi na ry a ctua l ; 2014 i s i ntention
Source: Statistics Canada CANSIM database
Source: US Bureau of Economic Analysis
Elevated Equipment Age has been Supporting the Current Capex Cycle Exhibit 40 shows
that the average age of US equipment began to expand in 2009 and has since remained at an
elevated level. This was the result of a financial crisis that impaired the ability of corporate
America to finance the replacement of capital assets on a normal schedule due to lower
profitability and reduced access to capital markets. The current upcycle in spending has
benefited from a combination of deferred replacement activity and, more recently, from
underlying increases in capacity requirements. Two additional observations wed make on
average equipment age:
1.
Average equipment age, in aggregate, peaked four years ago in 2011. The available
data only extends to 2013, but given the cyclicality of this trend wed suspect that
average age is on a declining trend towards normal levels at this point, rendering
this a diminishing contributor to new equipment demand. However, as long as
equipment age remains above-trend, which we suspect is still the case,
replacement demand should remain a contributor to capex and, therefore, to
leasing activity levels.
2.
The average age of transportation equipment, a subset of total equipment, has

actually been in decline since 2010 and by 2013 had already fallen most of the way
back to pre-crisis levels, suggesting that much of the deferred replacement demand
exiting the financial crisis has likely been satisfied by now (Exhibit 41). Further, the
average age of railroad equipment, a subset of transportation equipment, had
already fallen below pre-crisis levels by 2013, although Elements exposure to this
end market is limited and is currently driven by a single vendor relationship rather
than by overall market trends.
2013
2011
2009
2007
2005
2003
2001
1999
1997
(25%)
1995
1993
2013*
2011
2009
2007
2005
2003
2001
1993
1999
(15%)
1997
1995
(10%)
1991
20
1991
C$ bln
1,200
Y/Y Change (RT Axis)
% Change Y/Y
Capital, machinery and equipment expenditure
140
Exhibit 41: Average Age, US Transportation Equipment

6.5
5.5
5.5
Exhibit 43: Transportation Equipment vs. Equipment Growth

100%
20%
15%
80%
10%
60%
% Change Y/Y
5%
0%
(5%)
40%
20%
0%
(10%)
(20%)
(15%)
(40%)
(25%)
(60%)
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
(20%)
Real GDP
Equipment Spending
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
% Change Y/Y
2012
Capex Tends to be an Exaggerated Reflection of GDP Exhibit 42 illustrates both (a) how
closely US equipment capex tracks the direction of US GDP growth and (b) the extreme
volatility of US equipment capex relative to underlying GDP growth. The year-over-year
change in US equipment capex troughed at -20% in 2009 when GDP contraction was
bottoming out at just over -3%, leaving 2009 capex a full 27% below peak 2007 levels. In the
subsequent recovery, capex growth similarly outpaced GDP growth by a wide margin,
particularly in the initial years of recovery. Exhibit 43 further illustrates the even more
extreme volatility in transportation equipment capex, a subset of total equipment capex to
which Element has an overweight exposure.
Exhibit 42: US Equipment Capex vs. GDP Growth
2010
Transportation Equipment
Equipment, Total
2008
2000
2012
2008
2010
2006
2004
4.5
2002
4.5
2006
2004
2002
Years
6.5
2000
Years
Exhibit 40: Average Age, US Equipment
Equipment Spending
Transportation Equipment Spending
Consensus GDP Forecasts Suggest a Continuation of Steady Spending Growth In the

current phase of steady economic expansion, the level of spending has been tracking roughly
in line with GDP growth, and we would expect this to continue through the period of our
forecasts. Consensus US GDP growth forecasts are currently 2.8% for both 2015 and 2016,
according to Bloomberg, with consensus Canadian GDP growth forecasts at 1.9% for 2015
and 2.0% for 2016. For both countries these forecasts suggest a continuation of the recent
mid-cycle growth trend in equipment capex.
Fleet Management Provides Insulation Against Cyclical Volatility There arent any entirely
comparable public competitors whose history we can look to for guidance regarding cyclicality,
but with 58% of Elements assets now in the fleet management business, it is instructive to look at
how peer Ryder Systems fared through the most recent downturn:
1.
In the 2009 downturn, the Fleet Management Systems division of Ryder experienced a
20% y/y decline in total revenues, but just a 7% decline in operating revenues excluding
revenue from fuel services (a more meaningful figure).
If we further exclude a 23% decline in commercial rental revenues, which is not among
Elements offerings, Ryders fleet-related operating revenues only declined by 4% in the
worst year of the downturn. This supports the notion that there should be a muted
cyclicality to fee-heavy fleet management revenues, much of which are annuity-like in
nature. The business did, however, experience a 40% year-over-year decline in its pretax earnings margin in 2009, although this was negatively impacted by reduced pricing
on used vehicle sales, a factor that shouldnt impact Elements fleet earnings.
2.
An important observation is that despite the severity of the most recent economic downturn,
Ryders fleet business remained comfortably profitable with its pre-tax profit margin never falling
below 5%. As a final comment on the topic of fleet management cyclicality, note that the acquired
PHH business experienced only nominal credit losses through the 2008-2009 downturn, as
discussed in our Credit Quality section.
Exhibit 44: Ryder System, Fleet Management Group Revenue & EBT Margin History
5.0
5.0
4.5
4.5
4.0
4.0
10%
10%
10%
9%9%
9%
3.5
Margin (%)
Margin (%)
US $ bln
US $ bln
US $ bln
8%8%
8%
7%7%
7%
3.5
6%6%
6%
3.0
3.0
2.5
2.5
5%5%
5%
4%4%
4%
2005
2006
2007
20072008
2008
20082009
2009
2009 2010
2010
2010 2011
2011 2012
2012 2013
2013
2014
2004 2004
2005 2005
20062006
2007
2011
2012
2013 2014
2014
Revenue
Revenue
(LFT
Axis)
Revenue
(LFT(LFT
Axis)Axis)
Operating
Operating
Revenue
Revenue
(LFT
(LFT
Axis)
Axis)
Operating
Revenue
(LFT
Axis)
EBT
EBTMargin
Margin
(RT
(RTAxis)
Axis)
EBT
Margin
(RT
Axis)
Source: Ryder System Inc., Raymond James Ltd.
Funding & Liquidity

While originating assets that earn an acceptable combination of yield and fees might be the
primary driver of net financial income, funding and liquidity considerations are almost as critical
since (a) funding costs represent half of the spread equation and (b) access to funding is critical to
continued asset growth. Below we discuss a number of topics on the funding theme, with the
overarching conclusion that the company has done an impressive job of managing overall funding
costs while maintaining sufficient funding capacity to support a continuation of its high growth
trajectory.
Funding Mix Has Matured In Line With the Overall Business The evolution of Elements funding
profile to date reflects the maturity and diversification of its business. Exhibit 45 partially
illustrates the extent to which its funding mix has morphed over the past year alone, with Fleet
Management-related secured borrowings rising in the mix commensurate with a similar change in
asset mix, and remaining funding sources becoming more diverse. A few additional considerations
that arent obvious from this chart:
1.
Although not a form of debt financing, preferred shares were added to the capital
structure beginning in Dec-2013, with a series of three separate issuances raising a
combined $365.1 million of capital.
2.
New types of asset-backed funding vehicles have been established to finance longer-life
assets, including two issuances of railcar-backed securitizations (Apr-2014 and Mar2015) that raised a combined US$745.3 million, supported by US$877.8 million of
assets. Note that the 4Q14 pie in Exhibit 45 is presented pro forma the Mar-2015
issuance of US$405 million, which weve assumed was applied against the senior debt
balance outstanding.
3.
The size of the senior revolving credit facility has consistently increased as the
companys asset base and origination capacity have grown, with the number of banks
participating in the lending syndicate also rising.
4.
An expected issuance of investment grade-rated senior unsecured debt later in 2015

would further diversify the funding mix.
Exhibit 45: Evolution of Elements Debt Composition in 2014

As at 4Q13
As at 4Q14 (pro forma the Mar/15 railcar ABS issuance)

Vehicle management assetbased debt
Senior facilities
Life insurance term funding
Securitization programs
Public asset-backed
securities
Convertible debt

Excess Funding Capacity Provides Support for Growth As at 4Q14, Element had over $10 billion
of aggregate funding capacity comprised of the following: (1) Approximately $8.0 billion of
matched funding commitments from a combination of US asset-backed securities markets and 19
specific capital providers; (2) $1.95 billion of a $2.5 billion revolving senior credit facility that has
been syndicated to a group of 12 US and Canadian banks; and (3) $345 million of outstanding
convertible debentures. In total, the company estimates that it had $2.6 billion of excess funding
capacity exiting 2014, in the form of forward commitments, available to support future asset
growth.
A Funding Lesson Well Learned Noticeably absent from Elements current funding mix is
commercial paper, a source of shorter duration and lower cost funding that Newcourt had
employed extensively to its eventual detriment (as discussed on page 8). Investors in Element are
the beneficiaries of that experience, as the same senior management team has pledged not to
repeat the same mistakes and has followed a policy of establishing matched funding that
essentially locks in margins for a tranche of assets once secured funding has been put in place.
Interest Rate Risk Minimized Through the Use of Matched Funding The leases originated by
Element are generally fixed rate in nature and are of varying durations. To the extent that the
companys funding does not match either the structure (fixed vs. floating) or duration of its lease
portfolio, it can be exposed to interest rate risk.
This risk is actively mitigated through the use of matched funding, with the process (in simplified,
generic form) outlined in Exhibit 46 and summarized as follows: (1) Newly originated leases are
funded on an interim basis using available cash and a revolving credit facility (warehouse
facility). (2) After enough leases of similar type have been originated, they are packaged together
into a discrete tranche that is in turn funded by secured borrowings under its term funding
facilities. The term funding for each tranche is collateralized by the underlying leases in that
tranche, and the terms of repayment (i.e., duration) are matched to those of the underlying
leases. As is the case for interest earned on the underlying leases, interest paid on secured
borrowings is at fixed rates. The result is that once a lease has progressed beyond the
warehousing stage, the net spread earned should remain fixed over the term of the lease with no
duration gap arising in the process. (3) Once a tranche of leases has been term funded, proceeds
are used to repay amounts previously borrowed under the warehouse line.
Element bears interest rate risk only on amounts that are currently in the warehousing stage
(where they are subject to variable rate funding), and this risk is mitigated through a minimization
of the warehousing period. The warehousing stage is typically 2-4 weeks for fleet management
and C&V originations and tends to be longer for new rail and aviation leases.
Exhibit 46: Simplified Secured Borrowing Process
Warehouse line is
replenished
Lease
Origination
Tranche
Assembly
Secured
Funding
Individual leases are originated and are "warehoused", awaiting refinancing

Funding is initially provided using Element's warehouse funding facility
Element is exposed to interest rate fluctuations in the period between lease origination and assignment as security to secure d borrowing
facilities (i.e., "warehouse period")
Once critical mass has been achieved, leases of similar type are grouped to form tranches
Tranches are assembled to provide sufficient risk diversification for investors providing secured funding for the underlying group of leases
Once tranches have been formed, the underlying assets are assigned as security and are refinanced using secured funding facil ities
Separate secured funding vehicles are established for different types of assets
Matched funding is achieved by aligning the timing of payments and the structure of rates between secured funding and underly ing assets
Secured funding facilities, including asset-backed securities, are funded by banks and/or institutions attracted to the differen tiated risk,
return and duration characteristics of these investments and that are seeking to diversify their own investment porfolios
Secured borrowing proceeds are used to pay down the warehouse funding line, with those funds againbecoming available to fund new
asset originations

Funding Costs Stepped Lower With the Addition of PHH Elements overall funding cost took a
sizeable step lower with the addition of PHH and its favourable funding structures beginning in
Jul-2014. As shown in Exhibit 47, the average cost of borrowing fell from 3.66% in 2Q14 to 2.68%
in 3Q14, a reduction of 98 bps (or 27%). This sharp decline was a function of two factors:
1.
Favourable Mix Shift Funding costs related to the fleet management business tend to
be relatively low, and fleet management-related borrowings increased in the overall
debt mix from 40% to 60% with the addition of PHH. Consider that as at 4Q14, the
1.30% weighted average interest rate on fleet management asset-backed debt was less
than half the 2.90% weighted average on all other debt outstanding.
2.
Rated Funding Vehicles PHH had two rated funding structures inherited by Element
(Chesapeake in the US, FLRT in Canada) that both attract far lower interest rates than
the funding mechanisms that were already in place supporting the legacy fleet
management business. With Chesapeake and FLRT in the mix, the weighted average
interest rate on fleet management-related debt is now less than half of what it was a
year ago (1.30% in 4Q14 vs. 2.72% in 4Q13).
Exhibit 47: Average Cost of Borrowing

5.0%
PHH a cquisition
i mpact
4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
4Q15E
3Q15E
2Q15E
1Q15E
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
3Q11
2Q11
1Q11
0.0%

and Will Continue to Fall We expect that Elements funding costs will fall further in 2015
before flattening out in 2016, representing a source of near-term earnings growth and ROE
expansion. Management guidance for 2015 calls for the overall cost of financing to fall by 10-15
basis points. The following two developments should each contribute to lower interest costs in
2015:
1.
Application of PHH Funding Structures Across Legacy Assets The legacy funding
vehicle that had supported Elements pre-existing fleet management business in Canada
has, subsequent to 4Q14, been merged with PHHs FLRT vehicle, while all newly-written
US business will continue to benefit from PHHs Chesapeake facility. Essentially, Element
has stepped into PHHs shoes and is now using these highly efficient, rated funding
structures across its entire fleet management business. We estimate that the extension
of these funding structures across the rest of the fleet management business in 1H15
will reduce the companys overall average cost of borrowing by 6 bps on a run rate basis
(i.e., approximately 55 bps of savings on an estimated $800 million of borrowings).
2.
Issuance of Investment Grade-Rated Debt In Sep-2014 Element received an issuer and

senior unsecured rating of BBB+ from Kroll Bond Rating Agency, giving the company
investment grade status for the first time. With this rating in hand, Element is now in
position to access the US term note market by issuing paper that should reduce its
overall cost of capital while further diversifying its funding base. An attempt to access
this market in 3Q14 was called off due to unfavourable conditions (i.e., investor rate
expectations) owing to elevated market volatility, which has since subsided. At this
point, managements plan is to hold off until receiving a second investment grade
rating, expected later in 1H15, and to reattempt an investment grade issuance from a
position of greater strength. We expect proceeds will be used to replace much of the
balance already drawn on the existing senior credit facility rather than to increase
overall leverage.
A More Seasoned Element Appears to be Commanding Lower Coupon Rates As the business
matures and investors become more comfortable with Elements various funding vehicles,
interest rates demanded by the market appear to be moderating a little. One example is the
3.460% blended coupon rate achieved on the Mar-2015 issuance of US$405 million of Secured
Portfolio Railcar Equipment Notes. Despite being funded at an identical advance rate (85% of
related leases) with a similar weighted-average life of roughly six years, the all-in coupon was
modestly lower than the 3.547% achieved for the first issuance of railcar notes in Apr-2014 (for
US$340 million). Separately, the coupon rate has fallen with each successive preferred share
financing, from 6.60% for the Dec-2013 issuance to 6.50% for the Mar-2014 issuance and then to
6.4% for the Jun-2014 issuance.
Standby Fees Will Fall as Leverage Rises An additional source of financing cost relief, albeit
minor, should be a gradual reduction in standby fees paid by Element on unused debt capacity.
Standby fees had been elevated in recent quarters a point of discussion on several quarterly
earnings calls as other forms of capital had been raised to fund acquisitions, leaving leverage
ratios low and headroom on existing credit facilities high. As the level of unused debt capacity falls
in line with an expected increase in financial leverage, the influence of standby fees on overall
financing costs should also fall.
Leverage is Finally on the Rise, to the Benefit of ROE Because it has so frequently and
successfully tapped the equity market for financing since going public (and even before that),
Element has been able to grow rapidly while keeping leverage at very comfortable levels (Exhibit
48). Consider that it exited 2014 with a tangible leverage ratio of 3.7:1, the highest in its young
history but still well below medium-term target levels and not far from its 3.4:1 ratio in 3Q12,
since which time its portfolio of earning assets has grown more than tenfold. Management is now
making it clear that it intends to finance growth primarily with debt, allowing its leverage ratio to
finally begin rising towards medium-term target levels to the benefit of EPS and ROE. Specifically,
management is guiding towards a 4.6:1 tangible leverage ratio by the end of 2015 and for
continued increase in 2016. The maximum tangible leverage ratio allowed by current covenants is
6.0:1, and management has indicated that it might be comfortable eventually taking this ratio
beyond 5.5:1 if it were in support of growth in the fleet management business.
Exhibit 48: Tangible Leverage Ratio
5.5X
5.0X
Ta rgeting a n
eventual ra tio of
5.5:1
4.5X
4.0X
3.5X
3.0X
2.5X
2.0X
1.5X
1.0X
0.5X
4Q15E
3Q15E
2Q15E
1Q15E
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
4Q12
3Q12
2Q12
1Q12
4Q11
0.0X

We Expect Preferred Share Issuance Will Moderate Leverage Expansion If Element is to achieve
its target of $15.1 billion of earning assets (or even the lesser level that were forecasting) by the
end of 2015, we estimate that it will need to raise incremental non-debt financing in order to
contain its tangible leverage ratio to targeted levels. We expect this will be achieved through the
issuance of more preferred equity, but only after a second investment-grade debt rating has been
achieved (allowing for lower financing rates). Our forecasts call for preferred equity issuance of
$100 million in 4Q15 and for a total of $250 million to be raised in 2H16, resulting in tangible
leverage ratios of 4.5x in 2015 and 4.7x in 2016. A higher level of asset growth than we are
forecasting might require even larger preferred equity issuance.
Although we fully expect Element will eventually allow its leverage to climb higher, we believe it
will seek to preserve a fair degree of credit availability through its high-growth phase so that it can
remain prepared to act on acquisition opportunities as they arise. If we assumed no preferred
equity issuance, our resulting estimates would be marginally higher and leverage ratios would
remain within targeted levels, but there would be minimal capacity over the next two years for
asset growth beyond our forecasts.
An Enviable History of Successful Equity Raises Including its first major capital raise as a private
company in Apr-2011, Element has issued a total of $2.3 billion of equity in eight separate
transactions (Exhibit 49). We attribute its success in this department as being equally attributable
to the attractiveness of the intended use of proceeds and to investors appreciation of
managements track record, which began with reference to their Newcourt experience but which
has progressively improved as Element has grown. Notable themes across its history of equity
raises as a public company:
1.
In every case, the stock closed above deal price in the first day of trading following
announcement of the transaction.
2.
In every case, the ultimate size of the deal was upsized from the originally announced
size owing to high investor demand.
3.
In almost every case equity was being raised in support of a specific acquisition
presented as being accretive to the companys earnings and/or strategic development.
As it enters a consolidation period focused on organic growth, management has indicated an

intention to hold off on additional equity issuance in order to drive its financial leverage higher.
But when the time comes to tap the equity market again, its history of consistently making money
for investors should play into its ability to rinse and repeat.
Exhibit 49: Major Common Equity Raises Since Inception
Date
Apr/2011
Issue Price
$4.00
Closing Price,
First Day Traded
N/A
Oct/2011
$4.20
N/A
$175.0 million
Completed a private placement issuance of subscription receipts coincident with its conversion to a public
company via amalgamation with a CPC. This capital raise followed the Aug/2011 acquisition of Alter Moneta
Group for $160.2 million.
May/2012
$5.25
$5.45
$87.1 million
Completed a private placement of special warrants that had been announced in conjunction with the
acquisition of TLS Fleet Management for $146.7 million plus debt. The offering was initially sized at $75.0
million and was subsequently upsized.
Nov/2012
$5.65
$6.03
$110.2 million
Completed a private placement of special warrants announced in conjunction with the acquisition of CoActiv,
a US vendor finance company, which at the time had USD-denominated finance assets worth US$260 million
and CAD-denominated assets worth C$50 million. The offering was initially sized at $100 million and was
subsequently upsized.
Feb/2013
$7.75
$8.02
$172.9 million
Completed a public offering of common shares in a deal that was upsized significantly from its originally
announced size of $125.0 million.
May/2013
$10.15
$10.99
$300.6 million
Completed a private placement of special warrants in a deal that was upsized significantly from its originally
announced size of $200.0 million. This capital raise was announced in conjunction with the announced
acquisition of GE Canada's Canadian fleet portfolio for $570 million.
Dec/2013
$13.75
$14.35
$460.1 million
Completed a public offering of common shares in a deal that was upsized significantly from its originally
announced size of $325.0 million. Also raised $100 million (upsized from $75 million) through the issue of
cumulative 5-year rate reset preferred shares. This capital raise was announced in conjunction with the
announcement of 1) a strategic alliance with Trinity Industries to provide lease financing for up to $2 billion
of railcars and 2) the acquisition of a portfolio of finance assets secured by helicopters from GE Capital for
US$245 million.
Jun/2014
$12.75
$13.04
$948.8 million
Completed a public offering of subscription receipts in a deal that was upsized significantly from its
originally announced size of $750.0 million. This capital raise was announced in conjunction with the
announced acquisition of PHH's North American fleet business for US$1.4 billion.
Amount Raised Comments:

$75.0 million
Raised $75.0 million in a pre-IPO private placement of units, consisting of common shares and the rights to
acquire common shares. Press reports indicated that there was $150 million of investor demand for the issue.
Credit Quality
Credit Risk Isnt Currently a Concern Any analysis of an alternative lender such as Element
requires a look at the credit risk associated with its income-generating portfolio. In the case of
Element, credit losses have, since inception, remained quite low relative to the size of both its
portfolio of earning assets (ranging from 22bps-31bps) and to its operating income level (ranging
from 7%-13%). As a point of comparison, note that in each of the past three years, Elements loss
ratio relative to the average level of underlying assets has actually been comparable to (and lower
than) that of Canadas largest bank, Royal Bank of Canada (RY-TSX), for which Canadian residential
mortgages represented 49% of total loans exiting F2014.
Exhibit 50: EFN Credit Loss History vs. Average Assets and Operating Free Cash Flow
0.36%
14%
0.34%
13%
0.32%
12%
11%
0.30%
10%
0.28%
9%
0.26%
8%
0.24%
7%
0.22%
6%
0.20%
5%
2012
2013
2014
2015E
EFN PCL (Annualized) as % of Average Earning Assets (LFT Axis)

RY PCL as % of Average Net Loans and Acceptances (LFT Axis)
EFN PCL as % of Free Operating Cash Flow (RT Axis)
Source: Element Financial Corporation, Royal Bank of Canada, Raymond James Ltd.
An Evolving Portfolio Mix Points to Even Lower Credit Losses Going Forward The acquisition of
PHH materially altered the composition of Elements asset base, causing fleet managementrelated assets to increase from 24% of total earning assets in 2Q14 to 58% in 4Q14. Fleet
management businesses in general, and PHH in particular, tend to generate nominal credit losses
in normal circumstances. Since 2008, a period inclusive of a major global credit crisis, PHHs
credit loss ratio only rose higher than 1bp once, in 2011 when it incurred a modest $2.4 million
loss related to the Circuit City liquidation.
Losses are rare in this business owing to (a) strict underwriting and ongoing credit review, (b) the
blue-chip nature of the client base (e.g., companies possessing credit ratings account for
approximately three quarters of PHHs portfolio), (c) portfolio diversification (i.e., no customer
accounted for more than 3% of PHHs portfolio, and end-industry exposure is broad-based) and
(d) even in cases of customer bankruptcy, fleet assets are generally deemed to be essential to
ongoing operations such that related obligations continue to be honored.
Since the acquisition of PHH in 2Q14, Elements loss ratio has already moved sharply lower, and
unlike previous instances where similar levels have been achieved temporarily, we expect the
trend to remain low in the range on a more permanent basis. Our forecast calls for loss ratios of
10 bps in 2015 and 9 bps in 2016.
Exhibit 51: PHH Fleet Credit Losses as % of Book Value
Exhibit 52: EFN Credit Losses vs. Finance Receivables
0.09%
0.60%
70%
0.08%
0.50%
60%
0.07%
50%
0.40%
0.06%
40%
0.30%
0.05%
30%
0.20%
0.04%
0.03%
0.10%
0.02%
0.00%
20%
10%
0%
1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
0.01%
PCL (Annualized) as % of Average Earning Assets (LFT Axis)
0.00%
(0.01%)
2008
2009
2010
2011
2012
2013
Fleet Management as % of Total Earning Assets (RT Axis)
H1/2014
The Cross-Cycle View Isnt Scary Either Of course, EFN has only been operating as a public
company through a fairly benign stretch of the current credit cycle such that its portfolio hasnt
yet been truly tested. To gain insight as to potential credit trends across a credit cycle, consider
the charge-off history of CIT Group, a large US-based lessor active in various transportation,
equipment, real estate and commercial leasing businesses (Exhibit 53).
1. Note that CITs credit loss ratio in 2014 was more than double that of Element, and
we think it reasonable to assume that Elements business mix alone should help it
maintain lower absolute levels of losses through the cycle. But we think the
amplitude of CITs credit loss variations is instructive, noting that its loss ratio
peaked in 2009 at 4%, at roughly 10 times cyclical trough levels and approximately
five times higher than the previous six-year average. Similarly, in the previous cycle,
Element predecessor Newcourts arrears ratio (>90 days) more than doubled in 1998
to 1.3%.
2. If Elements credit loss ratio were to increase tenfold from 2014 levels (i.e., to 176
bps, a highly unlikely scenario in our opinion), the resulting loan loss provision would
represent 48% of our 2015 forecast of pre-provision Free Operating Cash Flow. This
suggests that all else equal, its earnings stream could comfortably absorb a credit
shock of the order of magnitude felt by CIT in 2009. And thats before considering
that 58% of Elements portfolio is now invested in fleet management, a segment in
which PHH experienced virtually no credit losses from 2008-2010.
Exhibit 53: CIT Net Charge-offs as % of Average Finance Receivables
4.50%
4.00%
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: CIT, Raymond James Ltd.
Other Contributors to Contained Credit Losses In no particular order: (1) Element focuses on
specific market segments that it knows well, allowing it to manage credit risk effectively. (2)
Concentration limits are placed on individual industry classifications. (3) It tends not to extend
much credit to certain market segments (e.g., resources, hospitality) or against certain asset types
(e.g., intangibles, computer equipment). (4) Leases are secured by underlying asset values. (5)
Single obligor limits are enforced by the credit committee.
Financial Analysis & Outlook

Earning Asset Forecasts
The biggest driver of Elements earnings, by far, is the level of average earning assets, which is a
function of new lease originations, the pace at which expired leases roll off the books, changes in
the CAD:USD FX ratio, and the net level of asset acquisitions made during a period. Asset levels
are the primary influence on most revenues and expenses, and on the extent of leverage required
to fund the portfolios. Our asset-related forecasts are discussed separately in the divisional
outlook sections earlier in this report. Exhibit 54 details our key forecasts related to earning
assets, with comments on notable items below.
Exhibit 54: Earning Asset Forecasts
Earning Asset Forecasts
2014
2015E
2016E
2015E
2016E
Fleet Management
1,462
2,712
3,750
86%
38%
Commercial & Vendor
1,450
1,631
1,805
12%
11%
Rail Finance
1,005
1,337
1,539
33%
15%
800
1,015
1,032
27%
2%
4,717
6,696
8,125
42%
21%
Fleet Management
5,636
6,982
8,531
24%
22%
1,890
2,396
2,785
27%
16%
Rail Finance
1,280
2,960
4,714
131%
59%
940
1,353
1,531
44%
13%
9,745
13,692
17,562
40%
28%
4,298
1,000
1,000
Originations (C$ mln)
Aviation Finance
Total
Earning Assets (C$ mln)
Aviation Finance
Total
Asset Acquisitions (C$ mln)
Fleet Management
Rail Finance
300
300
4,298
1,300
1,300
Fleet Management
58%
51%
49%
19%
17%
15%
Rail Finance
12%
20%
25%
Aviation Finance
11%
12%
11%
Total
100%
100%
100%
Total
Asset Mix
Originations Our 2015 origination forecast of $6.7 billion is above managements $6.5
billion guidance, with all segment forecasts in line with guidance other than Fleet
Management, for which we are a bit higher. Guidance for Fleet Management calls for pro
forma organic originations growth of just 4%, or of close to zero on a constant currency basis,
which we believe is too low considering the GDP-plus nature of the business and where
were at in the current cycle.
Our 2016 originations forecast calls for almost no growth in Aviation, continued low doubledigit growth in C&V, 15% growth in Rail, and 38% growth in Fleet. Although the forecast for
Fleet looks high, it is the result of the asset acquisition were assuming this vertical will make
in late 2015, which will elevate the run rate of lease terminations and related originations.
Asset Acquisitions We estimate that managements year-end earning assets guidance of

$15.1 billion infers asset acquisitions in the neighborhood of $2.3 billion (i.e., based on
origination guidance and our termination and FX assumptions). We assume that any
acquisitions would be in the Fleet and Rail verticals, which are the operations management is
prioritizing for growth.
Weve assumed $300 million of lease portfolio acquisitions in 2H15 within the Rail Finance
vertical. Although this would represent a sizeable investment relative to the 4Q14 Rail
Finance portfolio of $1.2 billion, it would be easily manageable in the context of its funding
availability and, we suspect, the size of the secondary railcar market.
As mentioned earlier, we estimate that the residual ~$2.0 billion of inferred acquisitions
would, if made in the Fleet segment, require buying one of the top #5-#7 US competitors.
Although plausible and entirely manageable without the need for common equity financing
(in our estimation), were not prepared to assume that a fleet business of that size (other
than GE Capitals which we consider separately) will become available for sale in 2015. We
give some credit for Elements potential to source Fleet tuck-ins, and we assume acquisitions
of $1.0 billion (in late 2015), effectively risking the companys inferred acquisition guidance
by ~50%.
Our forecasts assume that a similar level of portfolio acquisitions will be made in each of the
Fleet and Rail verticals in 2016.
FX Impact Element has partially hedged its exposure to the USD through 2015 to an
undisclosed level, with no hedges in place for 2016. We reflect this in our model by applying
the estimated earnings impact of hedging (negative in 2015, neutral in 2016) against Other
Fee revenues in our model.
Earning Asset Growth Our forecasts results in overall earning asset growth of 40% in 2015,
decelerating to 28% in 2016. Note that on a purely organic basis, our 2015 earning asset
growth forecast would still be reasonably high at 28%. In the Rail and Aviation verticals, asset
growth is expected to outpace origination growth by a wide margin owing to the relatively
low rates of lease rollovers in these portfolios.
Earning Asset Mix An important observation is that Fleet is expected to fall in the asset mix
from 58% in 2014 to 49% in 2016 in the absence of larger acquisitions than were forecasting.
Meanwhile, we expect Rail to more than double in the mix from 12% in 2014 to 25% in 2016,
bringing the aggregate representation of Fleet + Rail to 74% by the end of 2016.
Management recently indicated a desire / expectation that these two verticals eventually
represent a combined ~85% in the mix. By our math, this would clearly require more
acquisitions in these segments than were forecasting.
Revenue Forecasts
Exhibit 55: Revenue Forecasts
Revenue Forecasts (C$ mln)
2014
2015E
2016E
2015E
2016E
Interest Income and Rental Revenue
373
681
918
83%
35%
Fleet Management Fees
86
187
239
116%
28%
Syndication Fees
20
25
26
28%
3%
Structured Finance Fees
18.00
24.00
nmf
33%
77%
Other Fees
Total Revenue
Financial Revenue Yield (as a % of AEA) 1
Fleet Management Fee Yield
1
19
23
42
26%
498
935
1,249
88%
34%
8.05%
7.93%
7.99%
(12) bps
6 bps
3.11%
3.02%
3.18%
(10) bps
16 bps
Total Revenue, net of Provision for Credit Losses
The primary driver of both Interest Income and Rental Revenue is the average level of
earning assets, discussed above. Our forecasts do not assume any major shifts in these
revenue yields, measured collectively (net of loan loss provisions) as the Financial Revenue
Yield. We expect competition levels to remain fairly static in Fleet operations, that the
vendor-based nature of C&V leasing will contribute to margin stability there, and that yields
on longer-life rail and aviation assets will be extremely stable through the period of our
forecasts (i.e., given low levels of lease terminations).
We expect the ratio of Fleet Management Fees to average fleet receivables to rise slightly
through both years (from the 4Q14 run rate) as we expect Element will be able to
successfully raise fees in this verticals revenue mix, particularly with Legacy Canadian fleet
customers. This ratio was 2.84% in 4Q14 we expect a gradual improvement to 3.10% by
4Q15, calling for average ratios of 3.02% in 2015 and 3.18% in 2016.
Structured Finance Fees are a bit of a wildcard at this point since this function is new and has
yet to begin generating revenues. Management guidance calls for $20 million of revenue
contribution in 2015. This should be partially supported by the formation of this teams first
aviation-related fund, which we expect to be over $1 billion in size and to be launched in
2Q15, at which point well have better visibility on this revenue source. Given the teams
theyve assembled and the opportunities that exist in both the aviation and rail finance fields,
we are giving benefit of the doubt and are assuming revenue contributions of $18 million in
2015 and $24 million in 2016. Assuming a low level of associated opex, we expect Structured
Finance Fees to contribute ~4c/share to adjusted operating EPS this year.
Expense Forecasts
Exhibit 56: Expense Forecasts
Expense Forecasts
2014
2015E
2016E
2015E
2016E
Adjusted Operating Expense Ratio
2.45%
2.39%
2.24%
(6) bps
(15) bps
Average Cost of Borrowing
2.94%
2.53%
2.50%
(41 bps)
(3) bps
Provision for Credit Losses (as a % of AEA)
0.22%
0.10%
0.09%
(12) bps
(1) bp
Tax Rate on Adjusted Operating Earnings
21.7%
23.0%
23.0%
132 bps
Our 2015 forecast calls for the companys Adjusted Operating Expense Ratio (as a % of
average earning assets) to fall by 20bps from the 4Q14 run rate of 2.52% to a 2015 exit rate
of 2.32%, with the ratio expected to average 2.39% for the full year. This reduction will be
driven by improving efficiency in the Fleet Management vertical, where management
guidance calls for the adjusted opex ratio to fall from ~3.45% in 2H14 to ~3.0% in 2015. We
assume another modest reduction in this ratio in 2016 owing to both a decline of higher-cost
Fleet operations in the mix and to improving scale.
We expect the Average Cost of Borrowing (as a % of secured borrowings) to decline from
2.66% in 4Q14 (i.e., post-PHH run rate) to 2.53% for 2015, on average. We expect this
reduction to be achieved primarily from (a) the application of PHH funding vehicles to the
remainder of legacy Element fleet assets in 1H15 and (b) the replacement of the current
revolver with a new issuance of lower cost, investment-grade rated debt in 2H15. This
reflects the mid-point of the 10-15 bps improvement that management guidance calls for in
2015.
We have assumed a 23% tax rate applicable to adjusted operating income, a little higher than
2014s 21.7%.
Funding Forecasts
Exhibit 57: Funding Forecasts
Funding Forecasts
2014
2015E
2016E
2015E
2016E
Tangible Leverage Ratio
3.72x
4.46x
4.67x
0.74x
0.20x
Preferred Share Issuance (C$ mln)
255
100
1,743
250
2,358
Amount drawn, Revolving Senior Credit Facility (C$ mln)
1,106
We assume that growth will be financed primarily with debt, but that Preferred Shares will
be issued occasionally in order to balance out the capital mix and contain leverage ratios to
targeted levels. As discussed on page 42, we are assuming the issuance of $100 million in
2H15 and of $250 million in 2H16. Wed expect Element to hold off on any new preferred
share issuance until a second investment grade debt rating has been attained, which should
help minimize funding costs. Should Element achieve its asset growth guidance for 2015 (i.e.,
above our forecasts), wed expect preferred share issuance to also be proportionately higher.
We are calling for the Tangible Leverage Ratio to increase from 3.72X at 4Q14 to 4.46x by
the end of 2015. This is slightly below managements guidance of a ~4.60x exit level, due to
our assumption of preferred share issuance. By the end of 2016 we expect this ratio will
expand further to 4.67x, still within managements comfort zone of <5.5x.
We project that the balance drawn from the Revolving Senior Credit Facility will increase
from $1.1 billion at 4Q14 to $1.7 billion in 2015 and to $2.4 billion in 2016. This is a $2.5
billion facility, of which $1.95 billion has been syndicated to date. Further syndication of the
existing facility alone would provide adequate funding headroom to support the type of asset
growth that were forecasting. As long as Element keeps its leverage ratios in check, we
expect it should be able to continue elevating funding commitments to keep up with its asset
growth, as it has in the past, such that borrowing headroom should not become a growth
constraint through the period of our forecasts. Note that we expect funds raised via a new
unsecured but rated facility later in 2015 to be applied against the existing senior facility, a
substitution not yet reflected in our model.
Earnings Forecasts
Exhibit 58: Earnings Forecasts
Earnings Forecasts
2014
2015E
2016E
2015E
2016E
Adjusted Operating EPS
$0.57
$1.04
$1.46
82%
40%
Pre-tax Adjusted Operating EPS
$0.76
$1.38
$1.94
82%
40%
Adjusted Operating Earnings (as a % of AEA)
3.22%
3.43%
3.62%
21 bps
19 bps
9.3%
13.7%
17.3%
450 bps
360 bps
ROE, Pre-tax Adjusted Operating Earnings
We project Adjusted Operating EPS of $1.04 for 2015 and $1.46 for 2016, representing yearover-year growth forecasts of 82% and 40%, respectively. Our 2015 forecast approximates
company guidance, which calls for adjusted operating EPS of $1.05 in 2015 to be earned at a
growing pace, as follows: 21c in 1Q, 23c in 2Q, 28c in 3Q and 33c in 4Q.
Our Pre-tax Adjusted Operating Earnings per Share forecasts are $1.38 for 2015 and $1.94
for 2016.
ROE, calculated based on Pre-tax Adjusted Operating Earnings, is expected to climb from
9.3% in 2014 to 13.7% in 2015 and to 17.3% in 2016.
An important point to make is that our forecasts assume a lower level of acquisitions and
resulting asset growth than management is guiding towards in 2015, with a consistent level
of portfolio acquisitions assumed for 2016. We consider this a source of conservatism in our
forecasts, particularly for 2016.
Valuation & Recommendation

To this point, this report has aimed at providing a working understanding of Elements businesses
and assessing its operational and financial outlooks. The more difficult task, in our opinion, is in
assigning a value to the company. The valuation of Element is complicated by several factors,
which we consider separately below:
Its Historical Valuation Range has Limited Relevance Element itself has a very short history as a
public company, having commenced trading a little more than three years ago in Dec-2011. Not
only does it lack a meaningful valuation history that might provide context, it hasnt even traded
through a complete business cycle yet, only through an expansionary phase of the current
recovery. Additionally, because of its extremely high earnings growth since inception, which to
varying degrees has been at least partially anticipated by investors, its forward PE has generally
tracked higher than would be reasonable in the decelerating (but still high) growth scenario that
we envision beyond 2015.
Exhibit 59 shows that Element has not traded within a well-defined trading range to date. Rather,
its forward PE has compressed from >30x in its earliest days, to roughly 17x-23x from Aug-2012Jul-2014, and more recently to 13x-18x following the PHH deal and associated equity raise.
Conclusion: At a consensus 2015E PE of 17.1x, Element is trading at the high end of its more
recent (i.e., from Jul-2014) trading range. This, considered in isolation, makes sense considering
that (a) it is emerging from a period of consolidation following the issuance of $949 million of
equity in Jun-2014, (b) it recently reported consensus-beating 4Q14 results featuring strong
origination activity, and (c) consensus estimates are calling for adjusted operating EPS growth of
79% in 2015, an acceleration vs. 2014 growth of 68%.
Exhibit 59: Element Financial, Historical Forward PE Multiple
70.0x
Forward PE Multiple
60.0x
50.0x
Ra nge: 17.2x - 23.5x
Avera ge: 20.6x
40.0x
30.0x
Pos t PHH
Avera ge: 15.4x
20.0x
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
10.0x
Element Financial, Consensus Forward PE
Source: Bloomberg, Raymond James Ltd.
Element has a Limited Set of Industry-Based Valuation Comps Element operates in four distinct
markets in a combination unique among publicly-traded companies. For two of those verticals,
C&V and Aviation Finance, there are no pure play public comps to even consider. Although there
are several aircraft leasing companies, their focus is on commercial aircraft, a much different
market than Element is in, featuring larger-ticket assets, a higher degree of concentration risk,
and exposure to the extreme cyclicality of a single industry (airlines). Together, C&V and Aviation
Finance account for 30% of Elements total earning assets and a slightly lower proportion of
operating earnings.
Its other two verticals each have at least one relevant publicly-traded peer to consider, and we
discuss each one separately below:
GATX as a Rail Finance Comp GATX (GMT-NYSE) is really the only relevant comp for its
railcar finance vertical, but even then the comparison is limited by several factors, including:
1.
34% of GATXs assets are in business lines other than North American rail leasing,
namely international rail leasing (a separate business with different dynamics),
steamship operation and in a portfolio of aircraft engines.
2.
Because GATX has been in the railcar leasing business for a long time, its lease portfolio
and related earnings stream are far more mature than that of Elements Rail Finance
division. As a result, its revenues are subject to two sources of volatility that Element
shouldnt experience for several years: (a) gains on asset dispositions at the end of
railcars useful lives, and (b) the cyclicality of the pricing of lease renewals, which can
fluctuate from -15% declines (2009 trough) to increases of nearly 40% (as in 2014).
Given that average lease terms are +/- 60 months through the cycle and only ~20% of
leases roll over in a given year, the impact of lease pricing volatility on revenues tends to
be muted, but it is still an influence on the revenues of more mature businesses such as
GATX.
3.
The small size of Elements existing railcar lease portfolio relative to its new lease
origination level should provide it with several years of outsized earnings growth, even
on flattish origination activity.
4.
Elements overall growth company status differentiates it from GATX which, as a more
mature cyclical company, is generating a higher ~18% ROE, has a dividend yield of 2.7%,
and is expected to repurchase up to ~$125 million of shares in 2015 (according to
company guidance).
Exhibit 60: Historical Forward PE Multiples, GATX, Aircraft Lessors and Container Lessors
23.0x
21.0x
19.0x
Forward PE Multipe
17.0x
15.0x
13.0x
11.0x
9.0x
7.0x
GATX
Aircraft Leasing Companies*
Container Leasing Companies*
Notes :
* Ai rcra ft Lea s i ng Compa ni es - AER, AL, AYR, FLY; Contai ner Lea s i ng Compa ni es - CAP, TAL, TGH; Avera ges a re unwei ghted
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
Jan-14
Oct-13
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
5.0x
Based on consensus estimates, GATX is currently trading at 10.5x 2015E PE, below US-based
aircraft leasing companies (11.4x average), although higher than container leasing companies
(10.1x), for which competitive lease rate pressures are expected to result in flat-to-lower
earnings in 2015.
Consensus forecasts for GATX are calling for EPS growth of 19% in 2015 and 3% in 2016. RJA
estimates for GATX actually call for an 11% EPS decline in 2016 assuming a declining level of
disposition gains and otherwise flattish earnings trends (we carry the lowest estimate on the
Street). In our view, therefore, its 2015E PE is based on cyclical peak earnings, which helps
explain why it is compressed vs. its historical range.
RJAs GATX target price of US$63.00 reflects a 2016E PE of 13.3x, set higher than its current
multiple to reflect improving margins, returns and cash flows. Over the past five years,
GATXs forward PE has averaged 15.2x, although this period covers the entire post-2009
cyclical recovery period when earnings were bouncing sharply (i.e. by +180% from 2010 to
2014). Analyst Arthur Hatfield rates GATX at Outperform.
Conclusion: GATX has a far more muted earnings growth outlook than Element and its
currently lower forward PE should not be considered a constraint in our valuation of
Element.
Ryder System as a Fleet Management Comp Ryder System (R-NYSE) is the closest
comparable for Elements Fleet Management vertical, and in our opinion represents an
important benchmark in valuing Element. Although they tend to deal with different types of
vehicles (Ryder in heavier-duty trucks, Element in light-duty trucks and cars), the nature of
their respective customer bases and business models are very similar. Fleet management
operations accounted for 78% of Ryders pre-tax operating earnings in 2014, with Supply
Chain Solutions (operated networks of vehicles, drivers and warehouses) accounting for the
rest. Similar to Element, Ryder is a growth-oriented business expected (by consensus) to
deliver EPS growth of 15% in 2015 and 13% in 2016 following growth of 16% in 2014 and 21%
in 2013. And its market cap of US$5.3 billion is in the same general range as Elements at $4.6
billion (US$3.8 billion).
1.
Ryder is currently trading at 15.3x 2015E consensus PE, above its historical five-year
average forward PE of 13.9x. The view of our US analyst covering Ryder (Arthur Hatfield)
is that a higher valuation range is now justified considering (a) the outsourcing trend
supporting secular revenue growth in fleet management has become more evident, and
(b) the company is leaner and more profitable following a series of divestitures and
margin improvement initiates in recent years.
2.
Although its earnings growth is expected to be much lower than Elements over the next
few years, it has the offsetting investment attributes of (a) a 1.5% dividend yield
(Element doesnt pay a dividend), (b) a longer track record of consistent earnings
growth, and (c) a much higher ROE, approaching 20%.
Exhibits 61 and 62 show how closely the forward PE multiples of Ryder and Element have
tracked one another since Elements acquisition of PHH. Based on RJA estimates, Element is
trading at an 11% premium vs. Ryder on 2015E PE and at a 13% discount on 2016E PE. Arthur
Hatfield rates Ryder an Outperform with a US$104.00 target price that reflects a target
2016E PE of 14.5x.
Exhibit 61: Historical Forward PE Multiples, EFN & R
Exhibit 62: Historical PE Multiples, Post PHH
24.0x
21.0x
22.0x
19.0x
Forward PE Multiple
18.0x
16.0x
14.0x
17.0x
15.0x
13.0x
12.0x
Element Financial
Ryder System
Fuel Card Processors are Interesting but not Overly Relevant Comps Another group of
comps worth consideration based on the end markets they serve are companies that provide
payment card solutions to fleet operators, namely Fleetcor (FLT-NYSE) and WEX Inc. (WEXNYSE). The primary business of both companies is the provision of fuel cards used by drivers,
the processing of related transactions, and the provision of reports to fleet managers
detailing spending and other transactional data. Similar to Elements fleet business, their
revenues are tied largely to underlying fleet growth trends and are experiencing modest
secular, outsourcing-related growth as the value proposition of their offerings improves.
Since fleet management-related fee income represents ~30% of Elements total revenues,
FLT and WEX are relevant but not overly important comps, in our opinion. In other words,
they are worth keeping an eye on, but do not factor directly into our valuation of Element.
Other reasons limiting their usefulness as comps are (a) the asset-light, high ROE nature of
their transaction processing businesses, (b) the modest sensitivity of their revenues to fuel
price changes, and (c) the 30-plus percent revenue contribution coming from unrelated
businesses (i.e. from international markets for FLT and from the travel, health and employee
markets for WEX). FLT and WEX are currently trading at ~27x and ~22x consensus 2015E
earnings, respectively, at significant premiums to Element justified by their growthier and
higher-return business models, in our view.
We do think that these companies are worth watching for potential insights on fleet market
trends, however. A review of their recent histories shows that (a) WEXs Fleet Payment
Solutions revenues grew at a 15% CAGR from 2009-2014 (or by 9% from 2011-2014,
excluding the early recovery stage of the cycle), with adjusted EPS growing consistently and
at an 18% CAGR over the same time frame, and (b) FLTs US business posted mid-teens
organic growth in 4Q14, although this was largely driven by fuel spread volatility. RJA rates
FLT an Outperform with a US$160 target price based on a 2015E adjusted PE of 27.0x.
Analyst Wayne Johnson cites the prospect for mid-teens plus earnings growth over the next
several years, and believes that its valuation will benefit from accretive acquisitions, healthy
organic growth and expanding margins. Those attributes alone make the FLT and EFN
investment cases somewhat comparable, in our opinion.
Element is Unique among Canadian Financials In our opinion, most Canadian investors (an
important subset of Elements current investor base) consider Element primarily in the context of
the broader Canadian financial services sector. Although the underlying business of Element has
little in common with any peers in this group, these are its primary investment alternatives in the
Ryder System
Apr-15
Mar-15
Feb-15
Jan-15
Dec-14
Nov-14
Element Financial
Conclusion: Ryder is a relevant and meaningful valuation comp for Element, although
significant differences in the overall business composition and maturity of the companies
suggests that Ryders valuation should be regarded more as a reference point than as a prime
determinant of our target valuation for Element.
Oct-14
Jul-14
Sep-14
11.0x
Mar-15
Dec-14
Sep-14
Jun-14
Mar-14
Dec-13
Sep-13
Jun-13
Mar-13
Dec-12
10.0x
Aug-14
Forward PE Multiple
20.0x
domestic market. Heres a brief rundown of our thoughts on the suitability of this group as a
valuation reference for Element:
Canadian banks and life insurers The comparability of these benchmark financials is
limited due to their relatively massive size, diversified business models and more mature
earnings profiles. Earnings growth expectations for these subsectors are also far lower than
were expecting from Element, with consensus calling for average EPS CAGRs through 2016
of 4% for the Big-Six banks and of 11% for the three largest life insurers (vs. Element at 59%).
Their economic exposures are much more heavily weighted towards Canada (which has a
lower GDP growth outlook than the US), and they have sizeable exposure to a highly
leveraged Canadian household (Element has no direct exposure). So although these
subsectors collectively account for 23% of the S&P/TSX Composite Index and typically
represent core financial sector holdings for Canadian large-cap portfolios, their valuations
arent overly relevant to the valuation of Element, in our opinion.
Other mid-cap Canadian financials Given its mid-range market cap of $4.6 billion, Element
can be owned by many investors (e.g., mid-cap funds) that cant own the larger banks and
lifecos and for whom Element is considered more in the context of other mid-cap Canadian
financials. Stocks in this category that might be deemed comps for Element based on market
cap and liquidity include those listed in Exhibit 63 below. High level observations regarding
the comparability of this group are that (a) they are all primarily exposed to Canada and, in
most cases, to Canadian consumers, whereas the majority of Elements business is with USbased businesses (which feature an arguably better medium-term growth dynamic); (b)
Consensus EPS growth forecasts for these stocks are all far lower than we expect from
Element through 2016. On the basis of forecast earnings growth, the two stocks from this list
that bear the most consideration as comps, in our opinion, are Intact Financial and CI
Financial:
1.
Intact Financial Property & casualty insurer Intact (IFC-TSX) is expected to grow EPS by
22% in 2015 and 7% in 2016, not extreme growth and certainly not in line with what we
expect from Element, but higher than for most of these peers. But with Intact we
believe there is upside M&A optionality not yet factored into consensus. Acquisitions
tend to be highly accretive for Intact, and potential deal-related accretion should be
considered part of Intacts medium-term earnings growth outlook, in our opinion, more
closely aligning its medium-term potential with that of Element. Intact is currently
trading at 13.5x consensus 2016E PE, at a premium to Element on a two year window.
Despite its lower forecast earnings growth, it also has a longer track record of excellent
operating performance (in our opinion), pays a dividend, and has a $12 billion market
cap, making it more likely to qualify for inclusion in large cap portfolios.
2.
CI Financial Mutual fund manager CI (CIX-TSX) is currently is expected to grow EPS by

15% in 2015 and by 11% in 2016, decent growth but largely dependent on equity market
performance and still much lower than Elements forecasted growth. Unlike Intact (or
Element), we dont believe that CI offers much M&A related optionality, although we
regard the wealth management business as having higher inherent growth and
profitability than many other financial subsectors. CI trades at 15.2x 2016E consensus
PE, three full points higher than Element.
Exhibit 63: Select Canadian Diversified Financial Comps

Price
Mkt Cap.
Dividend
Earnings Growth 1
Price/Earnings Multiples 1
Ticker
24-Apr-15
(mln)
Yield
2015E
2016E
2015E
2016E
Intact Financial
IFC:TSX
$92.70
$12,194
2.3%
22%
7%
14.3x
13.5x
CI Financial
CIX:TSX
$35.51
$10,065
3.5%
15%
11%
16.8x
15.2x
IGM Financial
IGM:TSX
$44.85
$11,275
5.0%
4%
6%
13.2x
12.4x
Industrial Alliance
IAG:TSX
$43.73
$4,412
2.6%
11%
8%
11.1x
10.3x
Canadian Western Bank
CWB:TSX
$30.86
$2,481
2.7%
1%
6%
11.3x
10.7x
Home Capital Group
HCG:TSX
$46.90
$3,291
1.9%
8%
13%
10.6x
9.4x
Genworth MI Canada Inc.
MIC:TSX
$33.22
$3,095
4.7%
(6%)
(1%)
9.1x
9.2x
Based on Bloomberg consensus estimates
The Case for Valuing Element Using Pre-Tax Earnings

Owing to accelerated depreciation for tax purposes of certain assets (largely rail), Element
estimates that it will be shielded from paying cash taxes for over 20 years based on its internal
growth forecasts. Although it does not have to pay any cash taxes, its reported earnings (and EPS)
include a provision for income taxes, meaning that its earnings chronically understate its cash
flows. This, in our opinion, creates the potential for undervaluing the stock when using standard
PE metrics.
To the extent that PE-based valuation is used as a simplified, point-in-time proxy for DCF-based
valuation, we argue that it makes conceptual sense to value Element on the basis of pre-tax
earnings since the present value of cash taxes it will eventually pay is immaterial. In other words,
we believe that in Elements case, capitalizing a pre-tax earnings figure (i.e., using a PE multiple)
does not materially misstate valuation, whereas capitalizing a post-tax earnings figure does.
To illustrate this concept, we present two versions of a simplified NPV analysis in Exhibit 64 for
which there is only one difference: the analysis on the right is based on an after-tax EPS stream,
while the analysis on the left is based on pre-tax earnings for the first 20 years with cash taxes
applicable thereafter
Note that this is not intended to represent a refined DCF for Element (i.e. we are not using this
as a basis for valuation) as the assumptions are rough and the calculations simple this analysis
is intended purely for illustration purposes.
Exhibit 64: NPV of Operating Earnings With and Without Cash Taxes Over the Next 20 Years
Assumptions: > Current consensus EPS estimates used for years 1 & 2
> 12% earnings growth through years 3-5, 7% for years 6-10, 3% for year 11 and beyond
> A discount rate of 10%
> A cash tax rate of 27% for years where applicable
> In Scenario 1, no cash taxes for years 1-20 then taxes applied to year 21 (capitalized earnings)
Approach #1 - No Cash Taxes for the Next 20 Years:
Approach #2 - Cash Taxes Payable in Every Year:
Adjusted Operating
EPS ($)
1.36
1.24
Adjusted Operating
EPS ($)
1.02
1.89
1.56
1.38
1.14
2.12
1.59
1.55
1.16
2.37
1.62
1.73
1.18
2.66
1.65
1.94
1.20
2.84
1.60
2.07
1.17
3.04
1.56
2.22
1.14
3.25
1.52
2.38
1.11
3.48
1.48
2.54
1.08
10
3.73
1.44
10
2.72
1.05
11
3.84
1.34
11
2.80
0.98
12
3.95
1.26
12
2.88
0.92
13
4.07
1.18
13
2.97
0.86
14
4.19
1.10
14
3.06
0.81
15
4.32
1.03
15
3.15
0.75
16
4.45
0.97
16
3.25
0.71
17
4.58
0.91
17
3.34
0.66
18
4.72
0.85
18
3.44
0.62
19
4.86
0.79
19
3.55
0.58
20
5.01
0.74
20
3.65
0.54
21
3.76
0.51
21
3.76
0.51
Year
NPV ($)
Year
NPV ($)
0.93
Sum of years 1-20:
25.44
Sum of years 1-20:
NPV of years 20+:
5.09
NPV of years 20+:
5.09
Resulting NPV
30.52
Resulting NPV
23.68
Source: Raymond James Ltd., Thompson One
18.59
Our observations from this analysis are as follows:

1.
PE-based valuations using after tax earnings understate Elements value by at least
22%. The NPV of the fully-taxed earnings stream in this example is $23.68/share, 22%
lower than the $30.52/share NPV derived when considering a 20-year tax shield. The
application of a PE multiple to capitalize an after-tax earnings number therefore
understates valuation by an estimated 22%, reflecting the unrecognized value of its tax
shield. To the extent that Element can extend its tax shield beyond 20 years, this
valuation measurement gap would widen further.
2.
PE-based valuations using pre-tax earnings overstate Elements value by 6% at most.

PE-based valuations using pre-tax earnings are also imperfect measures, just less so
than using after-tax earnings. In Exhibit 64, the discounted and capitalized value of year21 after-tax earnings is $5.09/share. This value would be 37% (or $1.88/share) higher if
we were to assume that Elements tax shield were perpetual, representing an
incremental 6% to our NPV estimate. This means that the use of pre-tax earnings in a PE
valuation overstates valuation by up to 6% as it doesnt factor in the present value of
cash taxes payable beyond year 20. To the extent that Element can extend its tax shield
beyond 20 years, this valuation measurement gap would get smaller.
Conclusion: We believe that the use of pre-tax earnings in PE-based valuations of Element makes
better theoretical sense than the use of more standard after-tax earnings metrics. We recognize,
however, that there will likely be resistance among investors to using a non-standard valuation
metric like pre-tax PE, and that it could take time for the market to migrate towards using this
valuation approach (assuming it ever does). For that reason, well stop short of basing our
valuation upon a pre-tax PE. Instead, well take this analysis into consideration as a factor
supporting a higher target PE than might normally be warranted given Elements growth and risk
characteristics.
Other Important Valuation Considerations
An Established Track Record of Meeting / Beating Consensus Exhibit 65 shows how

Elements quarterly operating EPS have compared against consensus since 4Q12 (i.e.,
ignoring its first three quarters as a public company when consensus was less meaningful and
earnings were more nominal). Observations: (1) In no case has adjusted operating EPS fallen
short of consensus by more than half a penny. (2) Over the past nine quarters, Elements
share price has risen by an average of 2.0% the day following the release of results; over the
past four quarters its day-after share price reaction has averaged a higher +4.1%. (3)
Adjusted operating EPS has grown sequentially in every quarter since Element became a
public company (including earlier quarters not shown below).
Exhibit 65: Element Financial, Recent Earnings Surprise History

Period
Reporting Date
Adjusted Operating
EPS
Consensus EPS
Share Price Reaction

the Following Day
4Q14
2/25/14
19c
19.1c
3.3%
3Q14
11/13/14
16c
14.9c
3.1%
2Q14
8/12/14
11c
10.4c
4.7%
1Q14
5/13/14
10c
10.1c
5.2%
4Q13
2/20/13
9c
9.0c
(2.3%)
3Q13
11/13/13
9c
9.4c
2.4%
2Q13
8/13/13
8c
8.5c
(2.3%)
1Q13
5/13/13
8c
6.8c
4.5%
4Q12
3/19/13
6c
5.8c
(0.3%)
Source: Bloomberg, Element Financial Corporation, Raymond James Ltd.
An Improving Risk Profile As discussed earlier in this report, we believe that the
profitability and risk characteristics of Element improved with the mid-2014 acquisition of
PHH and will continue to improve through 2016 (i.e. through the Consolidation and ROE
Expansion phase discussed on pages 10-11) in the absence of major acquisitions. Increasing
recognition of this improvement, we believe, should help sustain a forward PE that might
otherwise naturally decline with the achievement of unusually high EPS growth in 2015.
M&A Optionality Deserves Recognition We pointed out that management has repeatedly
added value for shareholders via M&A and we argued that this is a core competency worth
paying for. For a number of reasons cited earlier, we believe there is a high probability that
this team will execute similarly beneficial deals in the future. Since our earnings forecasts do
not explicitly assume any major acquisitions, we believe that the companys M&A
optionality should be factored into valuation as a supportive factor.
Initiating With an Outperform

We initiate coverage on Element with an Outperform rating and $21.00 target price. Our target
price is based on a 2016E PE of 14.5x, below its recent average forward PE of 15.4x despite its
improving profitability and risk profile, high earnings growth outlook, valuable tax shield and M&A
optionality. On the basis of pre-tax cash EPS, our target implies a 2016E PE of 10.8x.
Exhibit 66: Element Financial Relative Valuation

Price
RJ
Mkt Cap.
Dividend
Currency
24-Apr-15
Rating
($ mln)
Yield
2015E
2016E
2015E
2016E
GMT:NYSE
US$
$55.80
MO2
$2,465
2.7%
21%
(11%)
10.4x
11.7x
R:NYSE
US$
$98.84
MO2
$5,269
1.5%
17%
10%
15.1x
13.7x
FLT:NYSE
WEX:NYSE
US$
US$
$162.24
$110.97
MO2
$14,874
$4,288
n/a
n/a
17%
(2%)
20%
15%
27.0x
22.0x
22.5x
19.1x
Average:
n/a
8%
18%
24.5x
20.8x
$517
$1,389
$1,778
n/a
6.9%
6.0%
11%
(3%)
1%
7%
3%
5%
8.5x
11.3x
11.0x
8.0x
11.0x
10.4x
Average:
6.5%
3%
5%
10.3x
9.8x
$9,949
$3,974
$1,949
$626
n/a
0.4%
3.7%
6.6%
9%
22%
38%
3%
5%
16%
12%
26%
8.9x
13.5x
11.8x
11.3x
8.5x
11.7x
10.6x
8.9x
Average:
3.6%
18%
15%
11.4x
9.9x
Ticker
Earnings Growth
Price/Earnings Multiples
Business Vertical Comparable Companies

Rail Finance
GATX Corporation 1
Fleet Management
Ryder System, Inc. 1
Fleet Transaction Processing
FleetCor Technologies 1
WEX Inc. 2
Other Leasing Companies
Container Lessors
CAI International 2
TAL International 1
Textainer Group Holdings 1
Aircraft Lessors 2
Aercap Holdings
Air Lease Corporation
Aircastle Ltd.
Fly Leasing
CAP:NYSE
TAL:NYSE
TGH:NYSE
AER:NYSE
AL:NYSE
AYR:NYSE
FLY:NYSE
US$
US$
US$
US$
US$
US$
US$
$24.88
$41.76
$31.32
MP3
MP3
$46.86
$38.75
$24.01
$15.12
Other
CIT 2
US$
$48.01
$8,450
1.2%
(1%)
19%
14.1x
11.9x
Canadian Mid-cap Diversified Financial Companies 2

IFC:TSX
C$
Intact Financial
CIX:TSX
C$
CI Financial
IGM:TSX
C$
IGM Financial
IAG:TSX
C$
Industrial Alliance
CWB:TSX
C$
Canadian Western Bank
HCG:TSX
C$
Home Capital Group
MIC:TSX
C$
Genworth MI Canada
$92.70
$35.51
$44.85
$43.73
$30.86
$46.90
$33.22
$12,194
$10,065
$11,275
$4,412
$2,481
$3,291
$3,095
2.3%
3.5%
5.0%
2.6%
2.7%
1.9%
4.7%
22%
15%
4%
11%
1%
8%
(6%)
7%
11%
6%
8%
6%
13%
(1%)
14.3x
16.8x
13.2x
11.1x
11.3x
10.6x
9.1x
13.5x
15.2x
12.4x
10.3x
10.7x
9.4x
9.2x
Average:
3.2%
8%
7%
12.3x
11.5x
$4,605
n/a
82%
40%
16.8x
11.9x
Element Financial 3
CIT:NYSE
EFN:TSX
C$
$17.44
MO2
1 - Raymond James & Associates EPS estimates and rating

2 - Bloomberg consensus EPS estimates
3 - Raymond James Ltd. EPS estimates and rating
Source: Bloomberg, Raymond James & Associates, Raymond James Ltd.
Appendix A: Financial Statements

Exhibit 67: Income Statement
($ thousands, unless otherwise noted)
NET FINANCIAL INCOME
Interest income
Rental revenue, net
2012
2013
2014
2015E
2016E
Interest expense
Net interest income before provision for credit loss
Provision for credit loss
Net interest income
Other revenue items
Net financial income
46,565
46,565
(16,156)
30,409
(1,957)
28,452
8,398
36,850
135,262
1,058
136,320
(49,525)
86,795
(5,404)
81,391
32,201
113,592
298,868
62,645
361,513
(140,383)
221,130
(12,945)
208,185
125,755
333,940
522,942
137,265
660,206
(240,383)
419,824
(11,348)
408,476
253,608
662,084
633,453
258,545
891,998
(322,025)
569,973
(13,771)
556,202
330,489
886,692
OPERATING EXPENSES
Salaries, wages and benefits
General and administrative expenses
Adjusted operating expenses
Amort'n of convertible debenture synthetic discount
Share-based compensation
Total operating expenses
Amortization of intangible assets from acquisitions
Integration costs
Transaction costs
Total expenses
Income (loss) before income taxes
Provision for (recovery of) income taxes
Net income (loss) for the period
(14,442)
(7,498)
(21,940)
(3,107)
(25,047)
(664)
(6,350)
(16,159)
(48,220)
(11,370)
4,950
(6,420)
(34,650)
(13,681)
(48,331)
(11,949)
(60,280)
(2,206)
(11,200)
(35,060)
(108,746)
4,846
(6,496)
(1,650)
(91,251)
(53,219)
(144,470)
(2,863)
(18,851)
(166,184)
(10,447)
(54,178)
(44,963)
(275,772)
58,168
(4,099)
54,069
(170,320)
(101,286)
(271,606)
(6,815)
(28,440)
(306,861)
(31,360)
(4,373)
(342,594)
319,490
(63,898)
255,592
(216,225)
(123,316)
(339,542)
(6,815)
(34,787)
(381,144)
(31,360)
(412,504)
474,188
(94,838)
379,350
ADJUSTED OPERATING INCOME

Net financial income
Adjusted operating expenses
Adjusted operating income
Taxes applicable to adjusted operating income
After-tax adjusted operating income
36,850
(21,940)
14,910
(3,969)
10,941
113,592
(48,331)
65,261
(17,581)
47,680
333,940
(144,470)
189,470
(41,085)
148,385
662,084
(271,606)
390,478
(89,810)
300,668
886,692
(339,542)
547,150
(125,844)
421,305
EARNINGS PER SHARE

Adjusted operating income
Cumulative dividends on preferred shares
Pre-tax adjusted operating income to common SH
14,910
14,910
65,261
65,261
189,470
(19,199)
170,271
390,478
(25,935)
364,543
547,150
(36,060)
511,089
After-tax adjusted operating income

Cumulative dividends on preferred shares
After-tax adjusted operating income to common SH
10,941
10,941
47,680
47,680
148,385
(19,199)
129,186
300,668
(25,935)
274,733
421,305
(36,060)
385,245
$0.76
$0.57
$1.38
$1.04
$1.94
$1.46
Pre-tax adjusted operating income per share

After-tax adjusted operating income per share
Weighted Average Common Shares O/S
$0.19
$0.14
78,132
$0.47
$0.34
138,423
225,289
264,059
264,059
Exhibit 68: Balance Sheet

ASSETS
Cash
Restricted funds
Finance receivables
Equipment under operating leases
Accounts receivable and other assets
Notes receivable
Derivative financial instruments
Property, equipment and leasehold improvements
Intangible assets
Deferred tax assets
Goodwill
Total assets
2012
2013
9,997
51,279
1,314,617
13,029
7,125
6,485
24,825
16,152
65,383
1,508,892
12,401
103,550
2,763,228
239,055
84,165
35,239
6,111
76,963
28,231
105,710
3,454,653
LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities
Accounts payable and accrued liabilities
Current income taxes payable
Derivative financial instruments
Secured borrowings
Convertible debentures
Deferred tax liabilities
Total liabilities
68,197
1,860
645
989,128
25,637
1,085,467
Shareholders' equity
Common share capital
Preferred share capital
Special warrants
Equity component of convertible debentures
Contributed surplus
Retained earnings (accumumlated deficit)
Accumulated other comprehensive income (loss)
Total shareholders' equity
Total liabilities and equity
330,578
101,975
5,712
(14,341)
(499)
423,425
1,508,892
2015E
2016E
66,869
443,238
8,465,989
1,279,670
64,258
45,299
5,746
17,020
391,898
39,405
471,110
11,290,502
72,381
623,003
10,732,353
2,960,014
95,847
61,616
5,746
19,720
360,538
39,405
471,110
15,441,732
76,823
799,096
12,848,285
4,714,262
122,938
79,031
5,746
22,195
329,178
39,405
471,110
19,508,069
80,917
3,014
1,893,910
30,156
2,007,997
368,113
11,196
7,751,395
303,147
25,700
8,459,551
506,618
11,196
11,328,072
309,962
25,700
12,181,548
649,814
11,196
14,652,229
316,777
25,700
15,655,716
1,323,897
110,387
25,059
(15,991)
3,304
1,446,656
3,454,653
2,248,103
365,113
33,135
39,692
18,299
126,609
2,830,951
11,290,502
2,248,103
465,113
33,135
39,692
247,149
226,993
3,260,184
15,441,732
2,248,103
715,113
33,135
39,692
589,317
226,993
3,852,352
19,508,069
2014
Exhibit 69: Cash Flow Statement

OPERATING ACTIVITIES
Net income (loss) for the period
Provision for credit losses
Other items not affecting cash
Changes in non-cash operating working capital items
Cash provided by (used in) operating activities
INVESTING ACTIVITIES
Business acquisition
Investment in finance receivables
Repayments of finance receivables
Investment in equipment under operating leases
Disposals of equipment under operating leases
Proceeds from syndication financings
Decrease/(increase) in restricted funds
Net purchase of capital assets and intangible assets
(Increase)/decrease in notes receivable
Increase in deferred financing costs
Cash used in investing activities
FINANCING ACTIVITIES
Issue of share capital, net
Issue of convertible debentures
Issue (repayment) of secured borrowings, net
Net taxes payable on preferred share dividends
Dividends paid
Cash provided by financing activities
Effect of exchange rates on cash and cash equivalents
Net increase in cash during the period
Cash, beginning of period
Cash, end of period
2012
2013
(6,420)
1,957
9,329
4,866
12,605
17,471
(1,650)
5,404
26,168
29,922
(63,831)
(33,909)
(226,559)
(689,330)
355,352
22,611
(24,692)
(1,291)
(1,703)
(3,466)
(569,078)
(576,791)
(1,862,521)
921,756
(239,234)
52,082
(45,708)
(17,925)
(28,114)
(13,771)
(1,810,226)
(1,240,757)
(3,711,703)
2,383,750
(1,005,443)
4,543
264,525
(32,947)
(12,260)
(10,060)
(18,994)
(3,379,346)
(6,370,231)
4,123,614
(1,637,351)
359,268
(179,765)
(2,700)
(16,317)
(43,736)
(3,767,218)
(7,600,498)
5,101,402
(1,838,737)
369,394
(176,093)
(2,475)
(17,416)
(51,917)
(4,216,340)
188,896
221,622
410,518
1,009,129
837,410
1,846,539
1,177,353
332,399
1,690,875
(19,199)
3,181,428
100,000
3,214,881
(807)
(25,935)
3,288,139
250,000
3,337,481
(1,122)
(36,060)
3,550,299
(141,089)
151,086
9,997
2014
54,069
12,945
86,986
154,000
97,044
251,044
2015E
255,592
11,348
110,735
377,675
106,916
484,591
2016E
379,350
13,771
161,257
554,377
116,105
670,483
1,342
2,404
9,997
12,401
54,468
12,401
66,869
5,512
66,869
72,381
4,441
72,381
76,822
Appendix B: Company History

Exhibit 70: Element Financial Company History
Year
Event
2010
>
Element Financial Corp. is founded.
2011
>
Raised $75.0 million via the issuance of 18.8 million units, consisting of common shares and the rights to acquire common
shares, at a price of $4.00 per unit.
2012
2013
2014
>
Steven Hudson appointed as Chief Executive Officer.
>
Acquired the assets of Quebec-focused equipment leasing company Alter Moneta Group L.P. for $160.2 million.
>
Completed a private placement of $175.0 million via the issuance of 41.7 million subscription receipts at a price of $4.20
per subscription receipt.
>
Listed on the TSX by means of amalgamation with capital pool company Mira II Acquisition Corp.
>
Completed a private placement of $87.1 million via the issuance of 16.6 million special warrants at a price of $5.25 per
special warrant.
>
Acquired TLSI Holdings Inc., Canada's fourth largest fleet leasing company, for $146.7 million plus debt.
>
Established securitization facilities under which fleet management-related lease assets may be sold in exchange for debt
capital to fund asset purchases; initial proceeds of $400 million raised with proceeds largely funding the purchase of TLSI.
>
special warrant.
>
Acquired CoActiv Capital Partners, Inc., a vendor-supported equipment leasing company, for $300 million including
repayment of debt.
>
Entered a securitization funding transaction valued at $199.3 million backed by the finance assets of CoActiv.
>
Acquired Nexcap, a vendor-supported equipment leasing company, for $20 million plus assumed debt.
>
Completed a public offering of $172.9 million via the issuance of 22.3 million common shares at a price of $7.75 per
common share.
>
special warrant.
>
Acquired the Canadian fleet management assets and operations of GE Capital Corp. for $569.6 million and entered a
strategic alliance agreement with GE Capital Fleet Services to collaborate on the pursuit of cross-border business
opportunities.
>
Established Element Equipment Finance LP, a funding vehicle secured by aviation-related leases; an initial tranche of
US$48.5 million was sold, with each class of the issuance subsequently rated by S&P.
>
Established a US$585.0 million revolving credit facility to help fund originations.
>
Established a new vendor finance program with railcar manufacturer Trinity Industries under which Element is periodically
being presented with opportunities to lease railcars worth up to an aggregate of US$2 billion over a two year period.
>
Completed a public offering of $460.1 million via the issuance of 33.5 million common shares at a price of $13.75 per
common share.
>
Completed a public offering of $100.0 million via the issuance of 6.6% cumulative 5-year rate reset preferred shares.
>
Established a US$600.0 million bridge credit facility to fund the purchase of rail car assets originated through its Trinity
Vendor Program.
>
Acquired US$243 million of helicopter assets from GE Capital.
>
Completed a public offering of $128.2 million via the issuance of 6.5% cumulative 5-year rate reset preferred shares.
>
Established a multi-year program to provide lease financing to Celadon Group for transportation equipment and purchased
from it an initial portfolio for $58.6 million.
>
Closed its first railcar-backed asset-backed securitization for US$340.3 million.
>
Established a secured financing agreement to fund the acquisition of US$220 million of rail tank cars, heavy-duty trucks and
trailers for Bridger, LLC., over a 12 month period.
>
Completed a public offering of (i) $948.8 million via the issuance of 74.4 million subscription receipts at $12.75 per
subscription receipt, (ii) $345.0 million via the issuance of extendible convertible subordinated debentures, and (iii) $125
million via the issuance of 6.4% cumulative 5-year rate reset preferred shares for total proceeds of $1.4 billion.
>
Acquired fleet management company PHH Arval for US$1.4 billion
>
Received its first investment grade credit rating, a BBB+ issuer and senior unsecured rating from Kroll Bond Rating Agency.
Appendix C: Management & Board of Directors

Management
Steven Hudson, FCA, BBA has been the Chief Executive Officer of Element since 2011. Previously,
Mr. Hudson was the founder and CEO of Newcourt Credit Group, an equipment and asset finance
company with assets of $36 billion at the time it was sold in 1999. Mr. Hudson holds an Honours
Bachelor of Business Administration degree from York University and is a Fellow of the Institute of
Chartered Accountants of Ontario.
Bradley Nullmeyer, CA, BComm has been the President of Element since 2012. Previously, Mr.
Nullmeyer co-founded Newcourt Credit Group and had lead responsibility for corporate
acquisitions and the development of international vendor finance programs and joint ventures at
the company. He was also previously the President of Vendor Finance for CIT USA and most
recently, Co-CEO of OTEC Research Limited, a Canadian health products research enterprise. Mr.
Nullmeyer holds a Bachelor of Commerce degree from McMaster University and is a member of
the Institute of Chartered Accountants of Ontario.
Bruce Smith, CA, BComm has been the President of Element Canada & Chief Operating Officer of
Element since 2011. Previously, Mr. Smith was a Managing Director and Senior Vice President of
Vendor Finance at CIT Financial. He also held several senior management positions at Newcourt
Credit Group and also served as President and General Manager of Dell Financial Services in
Canada. Mr. Smith holds a Bachelor of Commerce degree from McMaster University and is a
member of the Institute of Chartered Accountants of Ontario.
David McKerroll, CA, BComm has been the President of the Rail and Aviation business units since
2014. Previously, Mr. McKerroll was one of the founders of Newcourt Credit Group and served as
President of Newcourt Capital which focused on providing structured finance and advisory service
in the aerospace, rail, energy and infrastructure segments. He also held the role of Group CEO of
CIT Structured Finance and later as the Group CEO of CIT Capital Finance where he managed a
portfolio in excess of US$10 billion. Mr. McKerroll holds a Bachelor of Commerce degree from
McMaster University and is a member of the Institute of Chartered Accountants of Ontario.
Michel Beland, CA, BBA has been the Chief Financial Officer since 2011 and Chief Administrative
Officer since 2014. Previously, Mr. Beland served as the Chief Operating Officer and Chief
Financial Officer at MMV Financial, a private equity-backed specialty finance firm. He was also
previously a member of the North American management team at Newcourt Credit Group where
he held the positions of Vice President Finance, Senior Vice President of Operations, and CFO. Mr.
Beland holds a Bachelor of Business Administration degree from the Universit du Qubec and is a
member of the Comptables Agrs du Qubec.
Dan Jauernig, CA, CMA, BMath has been an Executive Vice President at Element since 2014.
Previously, Mr. Jauernig held the roles of Chief Executive Officer and President at Classified
Ventures LLC, and of Chief Financial Officer, Newcourt Credit Group and President, Newcourt
Services. Mr. Jauernig holds a Bachelor of Mathematics degree from the University of Waterloo
and is a member of the Institute of Chartered Accountants of Ontario. He is also a Certified
Management Accountant and a United States Certified Public Accountant.
Board of Directors
William W. Lovatt, BComm, CFA, CGA has been the Chairman of the Board since 2015 and a
director of Element since 2014. He currently sits on both the Audit and Credit Committees.
Previously, Mr. Lovatt was Executive Vice President and Chief Financial Officer of Great-West
Lifeco Inc. Mr. Lovatt served as a member of the Accounting Standards Oversight Council from
2000 to 2006 and on the Canadian Governments Department of Finances Advisory Committee
on Liquidity in the Financial Markets in 2009. Mr. Lovatt holds a Bachelor of Commerce degree
from the University of Saskatchewan, he holds the Chartered Financial Analyst designation and he
is a Fellow Certified General Accountant.
Richard E. Venn, BSc, MBA has been the Vice-Chairman of the Board since 2015 and a director of
Element since 2014. He is the Chair of the Risk Committee and also sits on the Compensation &
Corporate Governance Committee. Previously, Mr. Venn was with CIBC where he held senior roles
in investment banking, merchant banking, corporate development and the banks international
operations. He holds a BSc in Engineering Science degree from the University of Toronto and an
MBA from Harvard Business School.
Steven K. Hudson Refer to Management section.

Paul Stoyan, LLB has been a director of Element since 2010, and is the Chairman of the
Compensation and Corporate Governance Committee. Mr. Stoyan practices business law with a
special emphasis on mergers and acquisitions, corporate finance and corporate governance and is
the Chairman of Gardiner Roberts LLP, a Canadian law firm. Mr. Stoyan holds a Bachelor of Laws
and a Bachelor of Arts from the University of Toronto. Mr. Stoyan has earned the professional
independent director designation (ICD.D) from the Institute of Corporate Directors and the
University of Torontos Rotman School of Management.
Harold D. Bridge, BComm, MBA, FCA, CF has been a Director of Element since 2011. Mr. Bridge is
the Chairman & Chief Executive Officer of Kathar Enterprises Inc., a Toronto-based firm that
provides corporate finance, mergers & acquisition and financial advisory services. Previously, Mr.
Bridge was a partner in the financial advisory, audit and consulting services practice at Deloitte &
Touche LLP and was Executive Vice President and Director at Deloitte & Touche Corporate Finance
Canada Inc. Mr. Bridge has been an advisor to the Equipment Lessors Association and the CICAs
Sub Committee on Leasing and is the co-author of Leases: Financial Reporting and Analysis,
published by the CICA. Mr. Bridge holds a Bachelor of Commerce from the University of Toronto, a
Master of Business Administration degree from Queens University, a Corporate Finance
designation from the CICA, he is a Fellow of the Ontario Institute of Chartered Accountants and he
has earned the professional independent director designation (ICD.D) from the Institute of
Corporate Directors and the University of Torontos Rotman School of Management.
Gordon Giffin, BA, JD has been a Director of Element since 2013. Hon. Ambassador Giffin is the
Chair of the Public Policy and International department practice of McKenna Long & Aldridge LLP
and he serves as an Advisory Board Member of Canadian-American Business Council. Previously,
Hon. Ambassador Giffin served as the nineteenth U.S. Ambassador to Canada from 1997 to 2001.
He holds a Bachelor of Arts from Duke University and a Juris Doctris from Emory University School
of Law.
Pierre Lortie, BSc Appl, PEng, LicAppl.econ, MBA, FCAE, CM has been a director of Element since
2011 and is the Chairman of the Credit Committee of the Board of Directors. Mr. Lortie is Senior
Business Advisor at Dentons Canada LLP. Previously, Mr. Lortie was President and Chief Operating
Officer of Bombardier Transportation, Bombardier Capital, Bombardier International, and
President of Bombardier Aerospace, Regional Aircraft. He was also the Chairman of the Board,
President and Chief Executive Officer of Provigo Inc., President and Chief Executive Officer of the
Montreal Stock Exchange and a Senior Partner of Secor Inc. Mr. Lortie holds a Master of Business
Administration degree from the University of Chicago, a license in applied economics from the
Universit Catholique de Louvain, Belgium, and a Bachelors degree in applied sciences
(engineering physics) from Universit Laval. He has earned the professional independent director
designation (ICD.D) from the Institute of Corporate Directors and the McGill University Desautels
Faculty of Management. Mr. Lortie is a Fellow of the Canadian Academy of Engineering and a
member of the Order of Canada.
Joan Lamm-Tennant, BBA, MBA, PhD has been a director of Element since 2014. She is currently
the Global Chief Economist and Risk Strategist of Guy Carpenter & Company, LLC, the reinsurance
and risk advisory operating company of Marsh & McLennan Companies. She currently holds the
Laurence and Susan Hirsch Chair in International Business at the Wharton School, University of
Pennsylvania and Adjunct Professorship at the University of Wisconsin. Previously, Ms. LammTennant was the founding President of General Reinsurance Capital Consultants. Ms. LammTennant holds a PhD in Finance and Investments from the University of Texas, Austin, a Masters in
Business Administration in Finance and Bachelors of Business Administration with Honors in
Accounting from St. Mary's University, Texas.
Hon. Brian Tobin, PC, OC has been a director of Element since 2015. Mr. Tobin is currently a Vice
Chairman of BMO Capital Markets. Mr. Tobin served as Federal Minister of Industry from October
2000 to January 2002, prior to which he served as the Premier of Newfoundland and Labrador
from 1996 to 2000. Mr. Tobin served as a Member of Parliament from 1980 to 1996 and served as
Minister of Fisheries and Oceans in the federal cabinet from 1993 to 1996. He was named as an
Officer of the Order of Canada in 2013 for his contribution to Canadian public policy. Mr. Tobin
also serves as Lead Director and Vice Chairman of Aecon Group Inc. and Chairman of the Board of
New Flyer Industries Inc.
Appendix D: Share Ownership

Element Financial Corporations shares trade on the TSX under the symbol EFN. As of April 27,
2015, there were approximately 264 million basic weighted average shares of the company
outstanding.
Exhibit 71: Share Ownership Structure as of April 27, 2015

Shareholder Summary
Institutions/Corporations
Fiera Capital Corporation (TSX:FSZ)
CI Investments Inc.
Mackenzie Financial Corporation
BlackRock, Inc. (NYSE:BLK)
BMO Asset Management Inc
TD Asset Management, Inc.
IG Investment Management, Ltd.
RBC Global Asset Management Inc.
Industrial Alliance Investment Management Inc.
CIBC Asset Management Inc.
Top 10 Institutions
Other Institutions/Corporations
Total Institutions/Corporations
# Shares
% O/S
15,347,534
10,201,841
8,282,935
7,449,295
6,902,553
6,207,046
5,221,610
5,142,620
3,041,300
2,976,667
70,773,401
36,683,448
107,456,849
5.8%
3.9%
3.1%
2.8%
2.6%
2.4%
2.0%
1.9%
1.2%
1.1%
26.8%
13.9%
40.7%
Hudson, Steven K. (Chief Executive Officer, Executive Director)
2,483,797
0.9%
Nullmeyer, Bradley D. (President and President of North American Operations)
1,241,712
0.5%
Small, Steven Charles (Former Executive Vice-Chairman and Member of Credit Committee)
1,203,966
0.5%
Smith, Bruce (Chief Operating Officer and President of Element Canada)
566,066
0.2%
Bland, Michel (Chief Financial Officer and Chief Administrative Officer)
515,090
0.2%
Sands, J. Stephen (Chief Credit Officer of Commercial & Vendor Finance and Fleet Management)
381,411
0.1%
Stoyan, Paul James (Lead Director and Chairman of Compensation & Corporate Governance Committee)
336,191
0.1%
Hudson, Todd (Executive Vice President of Originations)
319,300
0.1%
Venn B.Sc., MBA, Richard E. (Vice-Chairman, Chairman of Risk Committee)
241,867
0.1%
212,314
7,501,714
1,408,275
8,909,989
0.1%
2.8%
0.5%
3.4%
147,682,073
55.9%
Publ ic & Other

56%
Ins titutions &

Corpora tions
40.7%
Insiders/Individuals
McKerroll, David D. (President of Rail and Aviation Business Units)

Top 10 Insiders
Other Insiders/Individuals
Total Insiders/Individuals
Public & Other
Total Shares Outstanding
264,048,911
Ins iders &

Indivi duals
3.4%
100.0%
Source: S&P Capital IQ, Raymond James Ltd.
Risks
Funding Risk Element is dependent upon its ability to secure funding for its loans and
leases to customers, and to fund existing obligations. Funding to date has been obtained
from the issuance of equity, lending through term funding facilities and a warehouse line,
and the securitization and syndication of lending assets. Should access to these or other
forms of funding become limited, Element might not be able to fund future asset growth.
Should its cost of capital increase, it might negatively impact profitability as well as Elements
ability to compete for profitable business.
Exposure to Economic Cycles A deterioration of economic conditions may materially

adversely affect businesses and industries that collectively constitute a significant portion of
Elements customer base and may make it more difficult for Element to maintain new
business origination and credit quality. Volatility in financial markets related to an economic
downturn may also adversely affect Elements ability to raise capital necessary to fund new
business.
Reliance on Key Senior Managers Elements performance is highly dependent on the

performance of its highly experienced executive management team and other senior
employees. The loss of service of any of these senior managers could harm Elements future
performance with respect to new business generation, acquisition identification and
execution, business integration, etc.
Competition Risk Elements market segments are highly competitive, with competitors
including independent lease finance companies, manufacturers captive finance companies,
banks and third-party brokers, some of which have greater financial capacity, access to
capital (potentially at lower finance costs) or broader service offerings. Element competes
primarily on the basis of pricing, terms and structure, factors that restrict the ability to
establish a sustained competitive advantage.
Interest Rate Risk Should Element fail to adequately match the duration and structure of
interest rates earned on finance assets with interest expense paid on its secured borrowing
facilities (as per normal operating policy), it would expose earnings to fluctuations in interest
rates. In the regular course of business, Element is exposed to interest rate risk on finance
receivables in the warehouse period prior to achieving matched funding, although this risk is
limited through limitations on the level of warehoused receivables.
Integration Risk Element has made a number of significant acquisitions in recent years, and
there are no assurances that integration with existing businesses will result in the expected
levels of cost synergies and earnings accretion. There are also unknown or undisclosed risks
inherent in any acquisition. The increased complexity and scale of the business following a
period of rapid acquisition-supported growth poses the risk of senior management
distraction to the potential detriment of adequate financial and business controls.
Credit Risk Elements investment in finance assets exposes it to the risk of credit losses
should customers and counterparties fail to discharge their contractual obligations due to
reasons such as adverse economic conditions, business failure or fraud. While most of its
loans and leases are secured by a lien on specified collateral, there is no assurance that the
value of this collateral will fully insulate Element from losses in the event of default and
subsequent foreclosure.
Concentration Risk Element specializes in certain broad industry segments, and as a result,
its portfolio has and may develop concentrations of risk exposure related to those industry
segments. A deterioration of business conditions in any industry to which Element has
concentrated exposure might negatively impact the growth and credit quality of its portfolio.
Currency Risk Given that Element hosts a significant portion of its business in the US, it
faces significant currency risk against the US dollar.
Risks Related to the Trinity Vendor Program The success of the Trinity Vendor Program to
Element will be determined largely by the volume of acceptable railcar lease financing
opportunities presented by Trinity and on the quality of the railcar assets acquired. The
terms offered by Trinity on future tranches of railcar assets may not be attractive to Element,
and the predetermined diversification criteria for such tranches may cease to benefit
Element. There is also risk that Trinity may fail to meet expected standards in their reporting
on and servicing of the railcar assets.
Company Citations
Company Name
Aecon Group
American Railcar Industries, Inc.
AT&T Inc.
Bombardier Inc.
FleetCor Technologies
GATX Corporation
Huntington Bancshares Inc.
Marsh and McLennan Companies, Inc.
Ryder System, Inc.
TAL International Group, Inc.
Textainer Group Holdings Limited
The Greenbrier Companies, Inc.
Trinity Industries, Inc.
Ticker
ARE
ARII
T
BBD.B
FLT
GMT
HBAN
MMC
R
TAL
TGH
GBX
TRN
Exchange
TSX
NASDAQ
NYSE
TSX
NYSE
NYSE
NASDAQ
NYSE
NYSE
NYSE
NYSE
NYSE
NYSE
Currency
C$
US$
US$
C$
US$
US$
US$
US$
US$
US$
US$
US$
US$
Closing Price
13.40
48.98
34.09
2.42
163.46
54.29
10.71
56.68
97.54
41.89
31.51
57.21
28.13
RJ Rating
2
4
2
3
2
2
2
2
2
3
3
4
4
RJ Entity
RJ LTD.
RJ & Associates
RJ & Associates
RJ LTD.
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
RJ & Associates
Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions.
Stocks that do not trade on a U.S. national exchange may not be registered for sale in all U.S. states. NC=not covered.
IMPORTANT INVESTOR DISCLOSURES

Raymond James & Associates (RJA) is a FINRA member firm and is responsible for the preparation and distribution of research created in
the United States. Raymond James & Associates is located at The Raymond James Financial Center, 880 Carillon Parkway, St. Petersburg,
FL 33716, (727) 567-1000. Non-U.S. affiliates, which are not FINRA member firms, include the following entities that are responsible for
the creation and distribution of research in their respective areas: in Canada, Raymond James Ltd., Suite 2100, 925 West Georgia Street,
Vancouver, BC V6C 3L2, (604) 659-8200; in Latin America, Raymond James Latin America, Ruta 8, km 17, 500, 91600 Montevideo,
Uruguay, 00598 2 518 2033; in Europe, Raymond James Euro Equities SAS (also trading as Raymond James International), 40, rue La
Boetie, 75008, Paris, France, +33 1 45 64 0500, and Raymond James Financial International Ltd., Bishopsgate Court, 4-12 Norton Folgate,
London, England, E1 6DB, +44 207 426 5600.
This document is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in
any locality, state, country, or other jurisdiction where such distribution, publication, availability or use would be contrary to law or
regulation. The securities discussed in this document may not be eligible for sale in some jurisdictions. This research is not an offer to
sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not
constitute a personal recommendation nor does it take into account the particular investment objectives, financial situations, or needs
of individual clients. Information in this report should not be construed as advice designed to meet the individual objectives of any
particular investor. Investors should consider this report as only a single factor in making their investment decision. Consultation with
your investment advisor is recommended. Past performance is not a guide to future performance, future returns are not guaranteed, and
a loss of original capital may occur.
The information provided is as of the date above and subject to change, and it should not be deemed a recommendation to buy or sell
any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such
information is accurate or complete. Persons within the Raymond James family of companies may have information that is not available
to the contributors of the information contained in this publication. Raymond James, including affiliates and employees, may execute
transactions in the securities listed in this publication that may not be consistent with the ratings appearing in this publication.
With respect to materials prepared by Raymond James Ltd. (RJL), all expressions of opinion reflect the judgment of the Research
Department of RJL, or its affiliates, at this date and are subject to change. RJL may perform investment banking or other services for, or
solicit investment banking business from, any company mentioned in this document.
All Raymond James Ltd. research reports are distributed electronically and are available to clients at the same time via the firms website
(http://www.raymondjames.ca). Immediately upon being posted to the firms website, the research reports are then distributed
electronically to clients via email upon request and to clients with access to Bloomberg (home page: RJLC), Capital IQ and Thomson
Reuters. Selected research reports are also printed and mailed at the same time to clients upon request. Requests for Raymond James
Ltd. research may be made by contacting the Raymond James Product Group during market hours at (604) 6598000.
In the event that this is a compendium report (i.e., covers 6 or more subject companies), Raymond James Ltd. may choose to provide
specific disclosures for the subject companies by reference. To access these disclosures, clients should refer to:
http://www.raymondjames.ca (click on Equity Capital Markets / Equity Research / Research Disclosures) or call tollfree at
18006672899.
ANALYST INFORMATION
Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system.
Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including
success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from
institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in
stocks under coverage that are attributable to the analysts efforts, v) net revenues of the overall Equity Capital Markets Group, and vi)
compensation levels for analysts at competing investment dealers.
Analyst Stock Holdings: Effective September 2002, Raymond James equity research analysts and associates or members of their
households are forbidden from investing in securities of companies covered by them. Analysts and associates are permitted to hold long
positions in the securities of companies they cover which were in place prior to September 2002 but are only permitted to sell those
positions five days after the rating has been lowered to Underperform.
The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said
person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this
research report. In addition, said analyst has not received compensation from any subject company in the last 12 months.
RATINGS AND DEFINITIONS

Raymond James Ltd. (Canada) definitions: Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least
15% and outperform the S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and
outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to perform
generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly
rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next
six to twelve months and should be sold.
Raymond James & Associates (U.S.) definitions: Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and
outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain
MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and
outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs,
an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return
modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expected to perform generally in line with the
S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12
months and should be sold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to
market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances,
including when Raymond James may be providing investment banking services to the company. The previous rating and price target are
no longer in effect for this security and should not be relied upon.
Raymond James Latin American rating definitions: Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0%
over the next twelve months. Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over
the next twelve months. Market Perform (MP3) Expected to perform in line with the underlying country index. Underperform (MU4)
Expected to underperform the underlying country index. Suspended (S) The rating and price target have been suspended temporarily.
This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in
certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous
rating and price target are no longer in effect for this security and should not be relied upon.
Raymond James Europe rating definitions rating definitions: Strong Buy (1) Expected to appreciate, produce a total return of at least
15%, and outperform the Stoxx 600 over the next 6 to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600
over the next 12 months. Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months.
Underperform (4) Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months. Suspended (S) The rating and
target price have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply
with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment
banking services to the company. The previous rating and target price are no longer in effect for this security and should not be relied
upon.
In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might
carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available
investments.
Suitability Categories (SR): Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater
stability of principal. Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, at least a small
dividend, and the potential for long-term price appreciation. Aggressive Growth (AG)
Medium or higher risk equities of companies in
fast growing and competitive industries, with less predictable earnings and acceptable, but possibly more leveraged balance sheets. High
Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues,
higher price volatility (beta), and risk of principal. Venture Risk (VR) Companies with a short or unprofitable operating history, limited or
less predictable revenues, very high risk associated with success, and a substantial risk of principal.
RATING DISTRIBUTIONS
Coverage Universe Rating Distribution*
RJL
RJA
RJ LatAm RJ Europe
Strong Buy and Outperform (Buy)
65%
54%
50%
Market Perform (Hold)
33%
40%
Underperform (Sell)
2%
6%
Investment Banking Distribution

RJL
RJA
RJ LatAm RJ Europe
47%
46%
24%
0%
0%
50%
28%
16%
9%
0%
0%
0%
25%
0%
0%
0%
0%
* Columns may not add to 100% due to rounding.
RAYMOND JAMES RELATIONSHIP DISCLOSURES

Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all
companies under research coverage within the next three months.
Company Name
Disclosure
Raymond James Ltd. has received compensation for investment banking services within the last 12
Company Name
Disclosure
months with respect to Element Financial Corporation.
STOCK CHARTS, TARGET PRICES, AND VALUATION METHODOLOGIES

Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and
quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management
effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to
change depending on overall economic conditions or industry- or company-specific occurrences.
Target Prices: The information below indicates our target price and rating changes for EFN stock over the past three years.
Valuation Methodology: For Element Financial our valuation methodology utilizes a forward Price/Earnings multiple on our
Adjusted Operating EPS forecast and takes into account its growth potential, earnings quality and visibility, acquisition
opportunities, risk profile, historical trading range and the market valuations of select comparable companies.
RISK FACTORS
General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James
research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact
expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change
investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or
accounting policies or practices could alter the prospective valuation.
Funding Risk
Element is dependent upon its ability to secure funding for its loans and leases to customers, and to fund existing obligations. Funding to
date has been obtained from the issuance of equity, lending through term funding facilities and a warehouse line, and the securitization
and syndication of lending assets. Should access to these or other forms of funding become limited, Element might not be able to fund
future asset growth. Should its cost of capital increase, it might negatively impact profitability as well as Elements ability to compete for
profitable business.
Exposure to Economic Cycles
A deterioration of economic conditions may materially adversely affect businesses and industries that collectively constitute a significant
portion of Elements customer base and may make it more difficult for Element to maintain new business origination and credit quality.
Volatility in financial markets related to an economic downturn may also adversely affect Elements ability to raise capital necessary to
fund new business.
Reliance on Key Senior Managers
Elements performance is highly dependent on the performance of its highly experienced executive management team and other senior
employees. The loss of service of any of these senior managers could harm Elements future performance with respect to new business
generation, acquisition identification and execution, business integration, etc.
Competition Risk
Elements market segments are highly competitive, with competitors including independent lease finance companies, manufacturers
captive finance companies, banks and third-party brokers, some of which have greater financial capacity, access to capital (potentially at
lower finance costs) or broader service offerings. Element competes primarily on the basis of pricing, terms and structure, factors that
restrict the ability to establish a sustained competitive advantage.
Interest Rate Risk
Should Element fail to adequately match the duration and structure of interest rates earned on finance assets with interest expense paid
on its secured borrowing facilities (as per normal operating policy), it would expose earnings to fluctuations in interest rates. In the
regular course of business, Element is exposed to interest rate risk on finance receivables in the warehouse period prior to achieving
matched funding, although this risk is limited through limitations on the level of warehoused receivables.
Integration Risk
Element has made a number of significant acquisitions in recent years, and there are no assurances that integration with existing
businesses will result in the expected levels of cost synergies and earnings accretion. There are also unknown or undisclosed risks
inherent in any acquisition. The increased complexity and scale of the business following a period of rapid acquisition-supported growth
poses the risk of senior management distraction to the potential detriment of adequate financial and business controls.
Credit Risk
Elements investment in finance assets exposes it to the risk of credit losses should customers and counterparties fail to discharge their
contractual obligations due to reasons such as adverse economic conditions, business failure or fraud. While most of its loans and leases
are secured by a lien on specified collateral, there is no assurance that the value of this collateral will fully insulate Element from losses in
the event of default and subsequent foreclosure.
Concentration Risk
Element specializes in certain broad industry segments, and as a result, its portfolio has and may develop concentrations of risk exposure
related to those industry segments. A deterioration of business conditions in any industry to which Element has concentrated exposure
might negatively impact the growth and credit quality of its portfolio.
Currency Risk
Given that Element hosts a significant portion of its business in the US, it faces significant currency risk against the US dollar.
Risks Related to the Trinity Vendor Program
The success of the Trinity Vendor Program to Element will be determined largely by the volume of acceptable railcar lease financing
opportunities presented by Trinity and on the quality of the railcar assets acquired. The terms offered by Trinity on future tranches of
railcar assets may not be attractive to Element, and the predetermined diversification criteria for such tranches may cease to benefit
Element. There is also risk that Trinity may fail to meet expected standards in their reporting on and servicing of the railcar assets.
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability
categories, is available for Raymond James at rjcapitalmarkets.com/Disclosures/index and for Raymond James Limited at
www.raymondjames.ca/researchdisclosures.
INTERNATIONAL DISCLOSURES
FOR CLIENTS IN THE UNITED STATES:
Any foreign securities discussed in this report are generally not eligible for sale in the U.S. unless they are listed on a U.S. exchange. This
report is being provided to you for informational purposes only and does not represent a solicitation for the purchase or sale of a security
in any state where such a solicitation would be illegal. Investing in securities of issuers organized outside of the U.S., including ADRs, may
entail certain risks. The securities of non-U.S. issuers may not be registered with, nor be subject to the reporting requirements of, the
U.S. Securities and Exchange Commission. There may be limited information available on such securities. Investors who have received
this report may be prohibited in certain states or other jurisdictions from purchasing the securities mentioned in this report. Please ask
your Financial Advisor for additional details and to determine if a particular security is eligible for purchase in your state.
Raymond James Ltd. is not a U.S. brokerdealer and therefore is not governed by U.S. laws, rules or regulations applicable to U.S.
brokerdealers. Consequently, the persons responsible for the content of this publication are not licensed in the U.S. as research analysts
in accordance with applicable rules promulgated by the U.S. Self Regulatory Organizations.
Any U.S. Institutional Investor wishing to effect trades in any security should contact Raymond James (USA) Ltd., a U.S. brokerdealer
affiliate of Raymond James Ltd.
FOR CLIENTS IN THE UNITED KINGDOM:

For clients of Raymond James & Associates (London Branch) and Raymond James Financial International Limited (RJFI): This document
and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons
who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment
professionals) or 49(2) (High net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000
(Financial Promotion) Order 2005 (as amended) or any other person to whom this promotion may lawfully be directed. It is not intended
to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is
therefore not intended for private individuals or those who would be classified as Retail Clients.
For clients of Raymond James Investment Services, Ltd.: This report is for the use of professional investment advisers and managers and
is not intended for use by clients.
For purposes of the Financial Conduct Authority requirements, this research report is classified as independent with respect to conflict of
interest management. RJA, RJFI, and Raymond James Investment Services, Ltd. are authorised and regulated by the Financial Conduct
Authority in the United Kingdom.
FOR CLIENTS IN FRANCE:
This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed,
being persons who are Eligible Counterparties or Professional Clients as described in Code Montaire et Financier and Rglement
Gnral de lAutorit des Marchs Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of
persons and may not be relied upon by such persons and is therefore not intended for private individuals or those who would be
classified as Retail Clients.
For institutional clients in the European Economic Area (EEA) outside of the United Kingdom: This document (and any attachments or
exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted.
Proprietary Rights Notice: By accepting a copy of this report, you acknowledge and agree as follows:
This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by
Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate or
commercially exploit the information contained in this report, in printed, electronic or any other form, in any manner, without the prior
express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose.
This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret or other
intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec.501 et seq, provides for civil and
criminal penalties for copyright infringement.
Additional information is available upon request. This document may not be reprinted without permission.
RJL is a member of the Canadian Investor Protection Fund. 2015 Raymond James Ltd.
EQUITY RESEARCH
HEAD OF EQUITY RESEARCH
DARYL SWETLISHOFF, CFA
RAYMOND JAMES LTD. CANADIAN INSTITUTIONAL EQUITY TEAM WWW.RAYMONDJAMES.CA

INSTITUTIONAL EQUITY SALES
604.659.8246
CONSUMER
CONSUMER & RETAIL

KENRIC TYGHE, MBA
KRISZTINA KATAI (ASSOCIATE)
416.777.7188
416.777.7060
ENERGY
OIL & GAS ENERGY SERVICES, HEAD OF ENERGY RESEARCH

ANDREW BRADFORD, CFA
TIM MONACHELLO (ASSOCIATE)
OIL & GAS PRODUCERS
KURT MOLNAR
BRADEN PURKIS (SR ASSOCIATE)
GORDON STEPPAN, CFA (ASSOCIATE)
SR. OIL & GAS PRODUCERS | OIL SANDS
CHRIS COX, CFA
MICHAEL BARTH (ASSOCIATE)
403.509.0503
403.509.0562
403.221.0414
403.509.0518
403.221.0411
403.509.0523
403.509.0511
INDUSTRIAL & TRANSPORTATION
416.777.4912
416.777.7084
416.777.7098
604.659.8439
604.654.1236
604.659.8255
604.659.8028
416.777.4943
416.777.7042
FOREST PRODUCTS
604.659.8246
604.659.8257
727.567.1756
416.777.7189
TECHNOLOGY & COMMUNICATIONS
TECHNOLOGY, ALTERNATIVE ENERGY & CLEAN TECH

STEVEN LI, CFA
JONATHAN LO (ASSOCIATE)
EQUITY RESEARCH PUBLISHING
SENIOR SUPERVISORY ANALYST
HEATHER HERRON
HEAD OF PUBLISHING | SUPERVISORY ANALYST
CYNTHIA LUI
TYLER BOS (SUPERVISORY ANALYST | EDITOR)
INDER GILL (RESEARCH EDITOR)
KATE MAJOR (RESEARCH PRINCIPAL | EDITOR)
CHRISTINE MARTE (RESEARCH EDITOR)
ASHLEY RAMSAY (SUPERVISORY ANALYST |EDITOR)
416.777.4920
416.777.4927
416.777.4929
416.777.4926
416.777.4930
416.777.4934
416.777.4945
416.777.4993
416.777.4942
416.777.4931
416.777.4928
416.777.4915
SCOT ATKINSON, CFA

NICK POCRNIC
TERRI MCEWAN (ASSISTANT)
604.659.8225
604.659.8230
604.659.8228
MONTREAL (514.350.4450 | 1.866.350.4455)

JOHN HART
DAVID MAISLIN, CFA
TANYA HATCHER (ASSISTANT)
514.350.4462
514.350.4460
514.350.4458
LONDON
0.207.426.5612
CO-HEAD OF TRADING
BOB MCDONALD, CFA
ANDREW FOOTE, CFA
TORONTO (CANADA 1.888.601.6105 | USA 1.800.290.4847)
PAM BANKS
OLIVER HERBST
ANDY HERRMANN
ERIC MUNRO, CFA
JAMES SHIELDS
BOB STANDING
PETER MASON (ASSISTANT)
VANCOUVER (1.800.667.2899)
NAV CHEEMA
FRASER JEFFERSON
DEREK ORAM
MONTREAL (514.350.4450 | 1.866.350.4455)
JOE CLEMENT
PATRICK SANCHE
604.659.8222
416.777.4924
416.777.4923
416.777.4947
416.777.4937
416.777.4983
416.777.4941
416.777.4921
416.777.7195
604.659.8224
604.659.8218
604.659.8223
514.350.4470
514.350.4465
INSTITUTIONAL EQUITY OFFICES
REAL ESTATE
REAL ESTATE & REITS

KEN AVALOS, MBA
JOHANN RODRIGUES (ASSOCIATE ANALYST)
LAURA ARRELL (U.S. EQUITIES)

SEAN BOYLE
JEFF CARRUTHERS, CFA
RICHARD EAKINS
JONATHAN GREER
DAVE MACLENNAN
ROBERT MILLS, CFA
BRADY PIMLOTT (ASSOCIATE)
NICOLE SVEC-GRIFFIS, CFA (U.S. EQUITIES)
NEIL WEBER
ORNELLA BURNS (ASSISTANT)
SATBIR CHATRATH (ASSISTANT)
INSTITUTIONAL EQUITY TRADING
FINANCIAL SERVICES
FOREST PRODUCTS
DARYL SWETLISHOFF, CFA
DAVID QUEZADA, CFA (ASSOCIATE ANALYST)
TORONTO (CAN 1.888.601.6105 | USA 1.800.290.4847)
ADAM WOOD
MINING
DIVERSIFIED FINANCIALS
MICHAEL OVERVELDE, CFA, CPA, CA
BRENNA PHELAN, CFA, CPA, CA (ASSOCIATE)
416.777.4935
416.777.7172
416.777.4951
VANCOUVER (1.800.667.2899)
INDUSTRIAL | TRANSPORTATION, HEAD OF INDUSTRIAL RESEARCH

BEN CHERNIAVSKY
604.659.8244
THEONI PILARINOS, CFA
604.659.8234
EDWARD GUDEWILL (ASSOCIATE)
604.659.8280
INFRASTRUCTURE & CONSTRUCTION
FREDERIC BASTIEN, CFA
604.659.8232
SAMIR GHAFIR (ASSOCIATE)
604.659.8470
TRANSPORTATION | AGRIBUSINESS & FOOD PRODUCTS
STEVE HANSEN, CMA, CFA
604.659.8208
DANIEL CHEW (ASSOCIATE)
604.659.8238
BASE & PRECIOUS METALS
ALEX TERENTIEW, MBA, P.GEO
PRECIOUS METALS
PHIL RUSSO
LUC TROIANI (ASSOCIATE)
PRECIOUS METALS
CHRIS THOMPSON, M.SC. (ENG), P.GEO
BRIAN MARTIN, CFA (ASSOCIATE)
URANIUM | JR EXPLORATION & DEVELOPMENT
DAVID SADOWSKI
MILTON-ANDRES BERNAL (ASSOCIATE)
HEAD OF SALES
MIKE WESTCOTT
GREG JACKSON (ECM, BUSINESS MANAGER)
MICHELLE MARGUET ( ECM, INSTITUTIONAL MARKETING)
416.777.4918
416.777.6414
403.509.0509
604.659.8210
416.777.4948
604.659.8202
416.777.7173
604.659.8200
604.659.8226
Calgary
Suite 4250
525 8th Avenue SW
Calgary, AB T2P 1G1
403.509.0500
Montreal
Vancouver
Suite 3000
Suite 2100
1800 McGill College
925 West Georgia Street
Montreal, PQ H3A 3J6
Vancouver, BC V6C 3L2
514.350.4450
604.659.8000
Toll Free: 1.866.350.4455
Toll Free: 1.800.667.2899
Toronto
International Headquarters
Suite 5400, Scotia Plaza 40 King Street West The Raymond James Financial Center
Toronto, ON M5H 3Y2
880 Carillon Parkway
416.777.4900
St.Petersburg, FL
Toll Free Canada: .888.601.6105
USA 33716
Toll Free USA: 1.800.290.4847
727.567.1000

Element Financial Corporation

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Element Financial Corporation

Uploaded by

Copyright:

Available Formats

Canada Research

Published by Raymond James Ltd.