EFN, Element Financial

efn feb 16 2016

The fellow that runs this company, Steve Hudson, was the founder of Newcourt  Credit, a company that got into a little bit of trouble many moons ago. At one point, if I remember correctly, it’s instalment receipts were trading at a negative value.  It, as is , was involved in equipment, mostly cars, trucks, planes etc., leasing, financing whatever. The business model is that you can finance at a lower rate than the operator can, or alternatively can depreciate faster or operate more efficiently. In order to do this the collateral value of the equipment must at all times exceed the amount needed to finance it. In a recession or depression this is often no longer the case and that is when your external financiers no longer return your calls, or worse, start calling you.

This stock went up 5-fold in as many or fewer years. Some of the business was bought in big chunks, for instance from GE. Lower financing costs have been a God send, but things may be changing. The run up since inception is a clear 5-wave sequence. This is confirmed by the 4th wave triangle. So far there is a clear 1-2 down followed by a third wave which does not look at all finished. And all this is just wave A. Sell after a bounce to maybe $14/$15. First waves are normally retraced almost entirely.