Key points:
Q3 results in line. EIF reported Q3/23 adjusted EBITDA of $168MM, in line with consensus of $167M (RBCe: $169MM), as Aviation came in above and Manufacturing below (versus our estimates). Dividend increased +5%.
Board of Directors presentation. Last week, we presented to Exchange’s Board of Directors and received an update from Donald Streuber, Chairman of the Board, as well as Kevin Hillier, President at Carson Air, Hank Gibson, President at Regional One, and David Patrick, CFO at Calm Air. We came away impressed by the company’s leadership and with a better understanding of Exchange’s culture, which we view as a key differentiator and driver of its impressive 20-year track record.
2024 guide below expectations. 2024 guidance of $600–635MM was below our estimate of $656MM and consensus of $658MM coming into the quarter. Overall, the lower guide was due to weaker than expected run- rate EBITDA at Northern Mat (a negative) and a slower than expected ramp- up of the BC and Manitoba Medevac contracts (both neutral to sentiment in our view). With expectations reset, we note that our updated estimates call for EBITDA CAGR of +12% for 2023 to 2025. With the shares trading at 6.4x NTM consensus EV/EBITDA, we flag an attractive entry point at current levels.
Adjusting estimates to reflect lower than expected contribution from Northern Mat. Our 2023 EBITDA estimate decreases to $553MM (from $562MM). Our 2024E EBITDA decreases to $624MM (from $656MM), in line with guidance for EBITDA of $600–635MM. We lower our 2025 estimate to $689MM (from $702MM).
Lowering price target to $65 (from $70); maintaining Outperform.
Following Q3 results and indications from the earnings call that certain revenue and associated profitability from the BC and Manitoba Medevac contracts will be pushed out versus prior expectations, we now value Exchange based on our new 2026E EBITDA of $728MM and discount back one year at 8%. This results in an implied return to target of ~50%. Our blended multiple of 7.6x is ahead of current consensus NTM valuation of 6.4x but in line with the trailing 5-year average of 7.5x.