Exchange Income Corp.
(EIF-T) C$44.77
Q3/22 Preview Event
Exchange Income will report Q3/22 results after market close on November 9, and will host a conference call at 8:30 a.m. ET on November 10. We forecast adjusted EBITDA of $130 million versus consensus of $135 million.
Impact: SLIGHTLY NEGATIVE
We are maintaining our BUY recommendation but reducing our target price to $63.00 from $66.00. Our reduced target is due to lower valuation period EBITDA and higher net debt. We are lowering our forecasts to reflect updated currency, fuel price, and economic assumptions. Our view of the company's strong execution and operational outlook is unchanged. It is entirely our assumptions regarding external factors that are affecting our forecasts. We continue to believe Exchange's organic growth prospects, attractive dividend yield, and acquisition-oriented business model make it an attractive investment opportunity for income-focused and growth investors.
We forecast 25% y/y revenue growth and 12% EBITDA growth for the Aerospace & Aviation (A&A) segment in Q3/22. We expect strong y/y growth due to the Crew Training International acquisition and the general recovery in other aviation businesses affected by the pandemic. We forecast a 340 bps y/y decline in A&A's EBITDA margin to 28.9%, due to fuel costs, the absence of CEWS, and the continued headwinds related to inflation and other inefficiencies. We expect margins to begin recovering in 2023.
We expect the Manufacturing segment to continue its recovery in Q3/22, and forecast revenue growth of 63% y/y (10% organic) and EBITDA growth of 155% (4% growth sequentially). The y/y increase in Manufacturing revenue is primarily attributed to the acquisition of Northern Mat & Bridge. EBITDA margin is expected to continue to experience headwinds as passing through cost increases to customers at Quest requires additional time, and labour and inflationary challenges persist throughout other businesses.
TD Investment Conclusion
We believe Exchange's overall business diversification positions it better than its less-diversified peers, to navigate the challenges presented by the pandemic. We also believe Exchange represents a good investment for yield-focused investors based on its forecast FCF and management's track record of maintaining a disciplined approach to investments at accretive valuations.