They have a $58.00 target. GLTA
EQUITY RESEARCH
On The Road With EIF
Our Conclusion
We had the opportunity to host EIF for a day of marketing in Toronto. Joining
us from the company was Mike Pyle, CEO. Below we share some of the key
takeaways from our group lunch.
Key Takeaways
Fostering An Entrepreneurial Spirit: While it is tempting to dive into the
minutiae of each of the businesses that EIF owns, to understand why EIF’s
business model is successful, it is important to take a step back and look at
the company as a whole. When EIF is evaluating acquisition opportunities
there is of course certain financial criteria it must meet, including generating
a ~15% FCF return, but equally important, EIF looks for strong management
and leadership teams within the company. Looking at EIF’s portfolio of
companies, the majority of them still retain management and key personnel
who ran the business prior to being acquired. When EIF makes an
acquisition, it alleviates that company of the non-core responsibilities of
running a business, and allocates those tasks to the head office. This allows
management at these companies to focus on their core capabilities, and
encourages their entrepreneurial spirit, while having the support and backing
of EIF and its balance sheet. We see this as a key component of EIF’s
success.
Returning Cash To Shareholders: A hallmark of EIF is its dividend. The
company has raised its dividend 17 times over the last 19 years with a 5%
CAGR. What we believe is most impressive was the company’s ability to
maintain its dividend throughout the pandemic, and since the pandemic, EIF
has raised it three times. While the company has a solid pipeline of
acquisition opportunities for which it could execute on, it is aware of the value
its shareholder base places on the dividend. The company’s dividend is
currently ~5.8%.
An Airline, But Different: Roughly 70% of EIF’s EBITDA is generated from
its Aviation division, and while EIF operates a number of airlines under its
aviation umbrella, it is not your typical airline. Because the demand drivers
for EIF’s Aviation division are different than that of a typical commercial
airline, in our opinion, the shares should trade differently as well. Many of the
services that EIF provides are considered essential, and are funded in part
by the government. This helps create a level of stability in the demand which
other airlines don’t experience. EIF’s operations through the pandemic were
a testament to the resiliency of if Aviation business. We also find the growth
opportunities compelling in EIF’s Aviation business. 2023 has been a busy
year for EIF with the announcement of the agreement between PAL and Air
Canada, and the awarding of the medevac contracts in BC and Manitoba. In
2024 and 2025, we will start to see the fruits of EIF’s labour as the aircraft for
these contracts are deployed and start generating earnings