Exchange Income is reporting Q2/23 after market close on August 10, and hosting a conference call at 8:30 a.m. ET on August 11. We forecast Adjusted EBITDA of $145 million versus consensus of $142 million.
Impact: NEUTRAL
We are maintaining our BUY recommendation and $68.00 target. We have made minor adjustments to our forecasts to reflect updated currency, fuel, economic, and other minor modelling updates, the net impact of which is relatively immaterial to our forecasts. Our lower diluted EPS forecast largely reflects the impact of the change in EBITDA combined with higher interest due to an adjustment to our debt and interest rate assumptions. Our 2023 and 2024 EBITDA forecasts are slightly above guidance, which reflects our view of recent new business awards and the conservatism that we believe is currently in guidance. We continue to view Exchange as an excellent opportunity for yield-focused investors who also appreciate its diversification, prudent leverage, and M&A-driven growth potential.
We forecast that the Aerospace & Aviation (A&A) segment will report 3.3% y/y revenue growth and 18% EBITDA growth in Q2/23. We expect strong EBITDA growth despite a decline of approximately 25% in sales and services revenue at Regional One, due to its historically strong results in Q2/22. We forecast a 340 bps y/y increase in A&A's EBITDA margin to 27.7%, due to fuel costs and a decline in lower margin sales and services revenue at Regional One.
We forecast that the Manufacturing segment will continue its recovery in Q2/23, with revenue growth of 40% y/y and EBITDA growth of 42%. Organic growth of 27%, due primarily to growth at Quest, combined with the acquisitions of BVGlazing and Hansen Industries are expected to drive most of the y/y growth in Q2/23.
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.