Exchange Income Corp T.EIF

Alternate Symbol(s): EIFZF | T.EIF.DB.L | T.EIF.DB.M | T.EIF.DB.K

Industrials Airlines

Exchange Income Corporation is a Canada-based diversified acquisition-oriented company. The Company operates through two segments: Aerospace & Aviation and Manufacturing. The Aerospace & Aviation segment is comprised of three lines of business: Essential Air Services, Aerospace, and Aircraft Sales & Leasing. Its Essential Air Services includes both fixed wing and rotary wing operations. Aerospace includes its vertically integrated aerospace offerings that provide customized and integrated special mission aircraft solutions primarily to governments across the globe. Aircraft Sales & Leasing includes aftermarket aircraft, engine and parts sales and aircraft and engine leasing, along with aircraft management services. The Manufacturing segment is comprised of three lines of business: Environmental Access Solutions, Multi-Storey Window Solutions and Precision Manufacturing & Engineering. The Company also focuses on portable hydronic (glycol-based) climate-controlled equipment.

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Post by retiredcfon Aug 13, 2021 10:06am

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Post# 33700161

RBC (Initial Response)

August 12, 2021

Outperform

TSX: EIF; CAD 42.23

Price Target CAD 43.00

Exchange Income Corporation

Early take: Q2 results ahead of expectations, driven by improving recovery trends within Aviation

Our view: Based on our initial take, we have a positive view on EIF’s Q2 results, as EBITDA, revenues, and FCF (less maintenance capex) came in better than our and consensus expectations. The company continues to manage well through pandemic-related headwinds and appears to be building broad-based momentum across its various sub-segments/ subsidiaries on the back of easing travel restrictions and improving vaccination rates (particularly in Canada).

First impression

Q2/21 results ahead of expectations. EIF reported Q2/21 adjusted EBITDA of $81MM (which included a $7MM CEWS benefit), which exceeded our estimate of $76MM and consensus of $75MM and was up 31% Y/Y (Exhibit 1). Variance to our estimates was on both the top-line and margins, which we discuss in further detail (along with other highlights from the quarter) below:

Top-line: Total revenues of $322MM were above our $309MM and consensus of $313MM. Manufacturing revenues were the primary reason for the delta, coming in at $124MM, above our $113MM estimate, while Aviation revenues of $198MM were slightly ahead of our $196MM estimate.
Margins: EBITDA margins of 25.2% were above our 24.5% estimate, primarily driven by strength at the Legacy Airlines and Provincial.
CFO: Cash flow from operations was $39MM during Q2, above our $33MM estimate despite being negatively impacted by NWC outflows.
FCF less maintenance capex: FCF less maintenance capex of $37MM was

above our $30MM forecast.
Aggregate leverage: Net debt/LTM EBITDA (excl. converts and leases)

ended the quarter at 2.2x, in line with our forecast of 2.2x.

Areas of focus for the call. The Q2/21 conference call is scheduled for Friday, August 13, at 8:30AM ET (dial-in: 1-888-664-6392) and we will be looking for further detail regarding: 1) recent trends in domestic air travel demand and aircraft utilization as we head into the fall; 2) timing on closing of the recently announced acquisitions for which LOIs have been signed; and 3) colour on the outlook for Quest and any updates on how the uptick in interest for future projects may impact the backlog into 2022.