Exchange Income Corp T.EIF.DB.J

RBC

[retiredcf]

Looks like they agree with my initial positive reaction. GLTA

October 5, 2023

Exchange Income Corporation
EIF announces tuck-in acquisition highlighting attractive valuation multiples

TSX: EIF | CAD 44.22 | Outperform | Price Target CAD 71.00

Sentiment: Positive

Our view. EIF today announced the acquisition of DryAir for $60MM. We view M&A as an important catalyst for EIF shares and our initial take on the deal is positive. The deal is expected to be accretive to EPS and the deal "exceeds [EIF's] investment thresholds on a historical basis and especially on forward looking metrics" according to management. We believe this implies below 5x on an EV/ EBITDA basis or >15% return on a FCF basis, which equates to >$12MM of EBITDA from the deal and compares to 2023 consensus EBITDA of $560MM. Important is that we believe the current interest rate environment is creating attractive opportunities for acquisitions evidenced by today's announcement. We continue to like EIF shares at current levels, and see new opportunities with the UK government, the SkyAlyne military training contract, and M&A as key catalysts for the shares.

What happened? EIF announced today it has acquired DryAir Manufacturing for a purchase price of approximately $60MM. The purchase price was funded by the issuance of $15MM of EIF shares and cash in the amount of $45MM from the Corporation’s credit facility.