Upgraded to $44Good morning folks. NBF hs upgraded EIF to $44 this morning. Enjoy the ride.
Exchange Income Corporation – EIF (TSX) $36.74 Target: $44.00 (Was $42.00) Stock Rating: Outperform (Unchanged) Risk Rating: Average (Unchanged) Yield: 5.7% Est. Total Return: 25.5% After adjusting our model for Q3 results (EBITDA/DCPS +9%/+7% vs. forecast) and the Quest Window acquisition (~$85 mln initial cost closing Q4/17 vs. ~$50 mln previously assumed acquisition closing at year end) our 2018e EBITDA and DCPS forecasts bump 4-6%. The net effect is a $44 target price (was $42) on an unchanged ~7x forward EV/EBITDA valuation. EIF has gotten its earnings momentum back on track following more difficult Q4/16 & Q1/17 periods, boding well for near-term comparables (weather/fog headwinds far less pronounced y/y for the regional airlines, RegionalOne persistently outperforming and incremental contribution from Quest which we calculate to be 10%+ accretive to EPS/DCPS vs. representing ~6% of the B/S). Beyond Q3’s operating outperformance it is encouraging to see RegionalOne’s business Page 2 practices validated by another major accounting firm, and concerns regarding EIF’s fleet/parts/inventory value should be comforted by appraisals that suggest the market value is greater than the carrying amount. Specifically: 1) the completed appraisal of the aircraft resulted in a cash tax liability on asset transfer from U.S. to Ireland reinforcing a higher valuation (transfer for tax purposes, as previously disclosed by management); and 2) RegionalOne’s inventory is similarly validated as having a greater market value than carry cost. Our next update is expected to be in two weeks following EIF’s December 5th investor day. We reiterate an Outperform rating.