Fleetcor: Quality compounder at a discount due to short term factors
Fleetcor is an attractive, capital light, high return, fully scaled and sticky SMB B2B payments company. We think it is a compounder with solid underlying organic growth at ~8%, and a few options for organic growth upside, however we are attracted to FLT’s capital allocation opportunity on a lower leverage balance sheet and almost $1bn in FCF.
Capital light model, means $1bn + per year available for acquisitions versus only ~$100m in last 12-months. We expect acquisitions to pick-up over the next 12-months.
FLT's PE has contracted significantly due to oil price declines which will cause slower growth in 2019. Lower oil prices and mis-execution over the last two years gives the opportunity for longer term investors.
Potential Upside: $273(+35%) over 2 years, with additional upside potential from M&A.
Sensible Downside: $179(-11%) based on low organic growth scenario. In our downside we estimate 3.7% sales growth in 2019, vs street at 7%.
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