Exchange Income Corp.
(EIF-T) C$51.82
Exchange Subsidiary Awarded Fixed Wing Medevac Contract Event
This morning, Exchange announced that its Keewatin Air subsidiary has been awarded a 10-year contract by the province of Manitoba to provide critical care fixed wing medevac coverage for the entire province. Exchange has not disclosed an estimate of total revenue.
Impact: SLIGHTLY POSITIVE
We view winning another medevac contract as positive given that these contracts tend to come with higher-than-average margins, stable and predictable earnings, and low economic sensitivity. We believe that the contract award is indicative of the company's strong competitive positioning within the industry. We do not believe that the equity market should be entirely surprised by the award given Exchange's track record, its existing medevac footprint which currently spans numerous provinces/ territories, and management's confidence during the Q1/23 conference call in their ability to win additional medevac contracts. We expect that the related capital expenditure commitments (undisclosed) will be financed using Exchange's existing liquidity and will be well justified by the long-term economics of the contract.
The contract requires a fleet of five jet and turbo-prop aircraft for which Exchange is currently in the process of acquiring and modifying. We estimate that Exchange's liquidity will be sufficient to finance the capital requirements of the contract based on its recent equity issuance of $173 million, liquidity of $892 million at the end of Q1/23, and 2.6x leverage ratio as of Q1/23 (4.0x covenant). The aircraft are expected to begin entering into service at the end of Q1/24. This contract award follows a 10-year contract awarded last month to Exchange by the Province of B.C. to provide fixed wing medevac coverage using 12 aircraft for total expected capex of approximately $200 million. With the two recent contract awards, Exchange now has medevac contracts with the province of Manitoba, B.C., Nunavut, Alberta, Newfoundland, and Nova Scotia.
We continue to believe that Exchange's history of stable dividend growth, the outlook for future growth, and the disciplined execution of its acquisition-oriented business model make it an attractive investment opportunity for both income-focused and growth investors. We forecast that Exchange will generate double-digit EBITDA growth in both its segments through 2023.