TD ESTIMATE CHANGES
Q1/24 PREVIEW; FORECAST STRONG ORGANIC GROWTH
THE TD COWEN INSIGHT
Exchange Income will report Q1/24 results after market close on May 7, and host a conference call at 8:30 a.m. ET on May 8. We forecast EBITDA of $117 million versus consensus of $110 million. We expect results to demonstrate the resiliency of the business model and organic growth opportunities (we forecast 9.7% organic growth in Q1/24).
Impact: NEUTRAL
We are maintaining our BUY recommendation and $65.00 target. We have made minor adjustments to our forecasts to reflect updated currency, fuel, economic, and other minor modelling updates, the net impact of which is relatively immaterial to our forecasts. Our 2024 EBITDA forecast is near the midpoint of guidance and in-line with consensus. We continue to view Exchange as an excellent opportunity for yield-focused investors who also appreciate its diversification, prudent leverage, and M&A-driven growth potential.
We forecast that Q1/24 Aerospace & Aviation (A&A) revenue will increase 16% y/y and EBITDA 25%. Growth is expected to be driven by organic growth, the PAL contract with Air Canada, R1, and the new BC and Manitoba medevac contracts. We forecast that EBITDA margin will increase 180 bps to 24.4% primarily due to fuel costs and our forecast for a larger percentage of R1 revenue coming from higher margin leasing revenue.
We forecast that Q1/24 Manufacturing revenue will increase 30% y/y and EBITDA 8.4%. Growth is expected to be driven by organic growth at Multi-Storey Window Solutions,
and the acquisitions of BVGlazing, Hansen Industries, and DryAir Manufacturing, partially offset by a decline in Environmental Access Solutions. We forecast that EBITDA margin will decline 260 bps to 13.4% due to a particularly strong comparable quarter, cost-inflation, and Environmental Access Solutions weakness, partially offset by the recovery at Multi- Storey Window Solutions.
We will focus on updates to timing and contributions from the recent Medevac contract wins with the governments of B.C. and Manitoba, updates regarding capital expenditure plans for the remainder of 2024, Multi-Storey Window Solutions momentum, M&A opportunities, and any signs that economic conditions are impacting business units.
Our Investment Thesis
Successful track record of investing in cash flow generating industrial companies at 4-6x EBITDA which provides immediate valuation bump due to EIF valuation range of 6-8x.
Track record includes growth in per share metrics and cash flow, without a single year of
reducing the dividend (growth in most years) while maintaining prudent leverage.
The stock is currently at lower-end of historical valuation range despite proving business
model value through pandemic, strong dividend yield and balance sheet, and historically
significant business wins in 2023.
Strong management team who are good stewards of capital in our view with only
one acquisition requiring disposition, and almost all acquisitions providing short-term accretion.