Exchange Income Corp.
(EIF-T) C$49.48
Q2/23; Record Results & Plenty of Organic Growth Drivers Event
Exchange reported Q2/23 Adjusted EBITDA of $147 million vs. TD/consensus of $145 million/$143 million. Adjusted diluted EPS was $0.93 vs. TD/consensus of $0.85/$0.95.
Impact: NEUTRAL
We are maintaining our BUY recommendation and reducing our target price slightly to $66.00 from $68.00. The decrease in our target price reflects the impact of higher valuation-period net debt. The higher net debt is due to updated assumptions regarding the timing and value of numerous capital expenditures related to several significant recent contract awards. The modest increase in our estimates reflects the carry forward of a portion of the stronger-than-forecast Q2/23 results and margin, the inclusion of the Manitoba medevac contract, refined revenue and margin assumptions, and other minor modelling updates. Investors should not view our target adjustment as material to our positive view of the investment opportunity in Exchange.
Exchange reported strong Q2/23 results, with revenue, FCF, Adjusted EPS, and Aerospace & Aviation EBITDA stronger than forecast. Both segments continue to report impressive y/y EBITDA growth, driven by acquisitions, the recovery in passenger traffic, leasing revenue, new government-sponsored revenue, and Multi- Storey Window Solutions. We forecast that Exchange will continue to generate double-digit EBITDA growth in both segments through 2023, based on the ramp- up in production in Multi-Storey Window Solutions, improved contract pricing, contributions from two recent acquisitions, and new government-sponsored revenue sources. We believe that the company's 2023 guidance provides for potential upside based on our forecasts, the company's track record, and the potential for an acquisition(s) in the $200 million-$300 million range.
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.
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.