TD Exchange Income Corp.
(EIF-T) C$46.62
Q4/23 Preview
Event
Exchange Income will report Q4/23 results after market close on February 22, and
host a conference call at 8:30 a.m. ET on February 23. We forecast EBITDA of $148
million versus consensus of $143 million.
Impact: NEUTRAL
We are maintaining our BUY recommendation and $63.00 target price. 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 2023 EBITDA forecast is near the midpoint of guidance,
whereas our 2024 forecast is slightly above. 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 Aerospace & Aviation (A&A) will report 18% y/y revenue growth and
20% EBITDA growth in Q4/23. Organic growth, the PAL contract with Air Canada,
and R1 are expected to drive growth. We forecast a 40 bps improvement in A&A's
EBITDA margin to 26.2%, primarily due to fuel costs and our forecast for a larger
percentage of R1 sales coming from leasing revenue (higher margin relative to sales
and services revenue).
We forecast that Q4/23 Manufacturing revenue and EBITDA will increase 41%
and 20% y/y, respectively, based on 8% organic growth, and the acquisitions of
BVGlazing, Hansen Industries, and DryAir Manufacturing, partially offset by a decline
in Environmental Access Solutions. We forecast that EBITDA margin will decline 340
bps to 19.7% due to a particularly strong comparable quarter, cost-inflation pressure
and Environmental Access Solutions, partially offset by the recovery at Multi-Storey
Window Solutions.
We will focus on updates to timing and contributions from the recent Medevac
contract wins with the governments of B.C. and Manitoba, insights into capital
expenditure plans for 2024, Multi-Storey Window Solutions momentum, and any
signs that the economic environment is impacting business units.
TD Investment Conclusion
We believe Exchange's business diversification positions it better than less-
diversified peers to navigate economic conditions and that it 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.