Exchange Income Corp T.EIF

RBC

[retiredcf]

August 11, 2022

Exchange Income Corporation
Q2 results ahead of expectations; 2022 guidance raised; Dividend hiked (again)

TSX: EIF | CAD 47.88 | Outperform | Price Target CAD 62.00

Sentiment: Positive

Our view: EIF today reported Q2 results that exceeded expectations on Manufacturing margins. The company also raised 2022 guidance as well as increased its dividend for the second time in as many quarters. The updated guide at the midpoint implies 2022 EBITDA of $440MM or H2 EBITDA of $258MM, 5% above consensus H2 estimates. We also highlight that management noted a "very robust acquisition pipeline" - we do not build M&A into our estimates and note acquisitions would represent upside. Overall, we are taking a very positive view on the results, and view today's announcement as a testament to the meaningful growth opportunity ahead at EIF. Key on the call will be colour on: 1) the M&A pipeline; 2) Northern Mat results; 3) Quest orders and production gaps; and 4) Regional One leasing revenue.

Q2/22 results ahead of expectations. EIF reported Q2/22 adjusted EBITDA of $115MM, above consensus of $101MM (RBCe: $109MM). Variance to our estimate was on Manufacturing margin. See Exhibit 1.

We connected with management following the release. Key highlights below.

• Northern Mat results key driver of Q2 beat. Manufacturing EBITDA of $39MM came in well ahead our expectations of $21MM driven by robust results at Northern Mat. Mgmt noted Northern Mat "generated results at the highest end of our expectations", and was a key driver of the increased guidance in our view. While Q2 and Q3 are seasonally strong quarters for Northern Mat, we nevertheless are positive on the growth outlook looking ahead.

• Quest increased order backlog by $100MM. While Quest is still working through short-term production gaps, the $100MM growth in backlog in Q2 is a key positive in our view and sets the stage into 2024. We continue to expect an inflection in profitability at Quest as we expect supply chain and production gaps to ease during the next few quarters.

• 2022 guidance increased, implying +5% upside to H2 consensus expectations. Management increased adjusted 2022 EBITDA guidance to $435MM to $445MM (from $410MM to $430MM), which compared to consensus $414MM (RBCe: $424MM) coming into the quarter.

• Acquisition pipeline robust. Mgmt pointed to a robust acquisition pipeline in the release, and noted that they are examining opportunities in the temporary road access market. We view M&A as a key catalyst and would view a pick-up in deals as upside to our estimates.

• Dividend increased. EIF announced a dividend increase to $2.52 (from $2.40) following a hike last quarter. We note that the dividend represents a forward yield of 5.3% and the two recent increases in our view highlight the confidence mgmt has in the growth outlook.

  Conference Call

  • August 12 @ 8:30AM ET • Phone: [phone]