Executing On Aviation In 2024 Our Conclusion
After much of the recent focus being on EIF’s Manufacturing division given
its Northern Mat acquisition, we see the focus shifting to Aviation in 2024.
EIF announced a number of new contract wins across its Aviation division in
2023, and in 2024 we will see EIF execute on these contracts and continue
to grow the earnings within this division. We maintain our $61.50 price target
and Outperformer rating.
Key Points
Executing On Aviation: 2023 was key for EIF’s Aerospace & Aviation
division. PAL entered a commercial agreement with Air Canada, which
commenced in July of 2023 and has required EIF to invest in additional Q400
aircraft to service the contract. To date, four aircraft are flying the regional
routes. EIF also announced 10-year contracts with renewal options for both
B.C. and Manitoba. The B.C. contract requires EIF to acquire 12 King Air
aircraft, the first of which was received in Q4/23, and is currently undergoing
its conversion to a medevac configuration. Since November, EIF has been
servicing the B.C. government with existing aircraft in its fleet. The Manitoba
contract requires a fleet of five planes, a combination of jet and turboprop.
The turboprop has been modified and placed into service during Q1/24, with
the jets expected to come online in the back half of 2024. For the two
medevac contracts, the earnings contribution will become more evident in
the back half of 2024 and in 2025. Lastly, EIF announced the deployment of
the Force Multiplier with the U.K. Home Office for an 18-month period. The
U.K. Home Office has issued an RFP for a long-term contract and EIF
submitted a proposal in January. These contracts build on EIF’s other
aviation businesses which are seeing solid fundamentals. Additionally, EIF
maintains the capacity to continue to bid on other aerospace and aviation
contracts to drive further growth.
Seeing A Normalization In Environmental Services: There have been a
number of anomalies within EIF’s matting business since it was acquired in
2022, which have helped earnings surprise to the upside. As some of the
factors that had been impacting the business start to normalize (i.e., supply
and pricing), we are starting to see a more normalized earnings pattern from
this business. With that said, while EIF’s guidance is assuming a normalized
level of earnings, the business can be heavily influenced by external factors,
such as weather, both positively and negatively. Looking at Q1 for example,
last year the business benefitted from two projects that had a significant
number of mats on rent, and the mild weather helped the project avoid
typical winter slowdowns/shutdowns. For Q1/24, EIF will not have the benefit
of these two projects and expects results to be more in line with its historical
seasonal results, with Q1 being the slowest quarter. EIF noted that the
remainder of the year is expected to be comparable to 2023’s results Q2
through Q4.