Q1/24; RECORD RESULTS AND ORGANIC GROWTH TO CONTINUE
THE TD COWEN INSIGHT
On May 7th, Exchange reported Q1/24 Adjusted EBITDA of $111 million (14% y/y growth) vs. TD/cons of $117 million/$110 million. Adjusted diluted EPS was $0.20 vs. TD/cons of $0.21/$0.19. We don't think Q1 will provide a particular catalyst for the stock, but that it will trend steadily higher as the market appreciates the company's strong financial track record and outlook for 2024 and beyond.
Impact: NEUTRAL
We are maintaining our BUY recommendation and $65.00 target price. Our unchanged target reflects the shift forward in our valuation period by one quarter offset by higher valuation-period net debt and a slight bias lower to our EBITDA forecasts. Our lower EBITDA estimates primarily reflect the net impact of carrying forward a portion of Q1/24 results, updated Manufacturing revenue assumptions, and other minor modeling updates. Our higher EPS estimates primarily reflect the impact of carrying forward the lower-than- forecast Q1/24 D&A and interest expense. 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.
Exchange reported record results, in-line with management's expectations. EPS and EBITDA was in-line with consensus and FCF was higher-than-forecast. A&A EBITDA margin was stronger-than-forecast. Manufacturing EBITDA margin was lower which we believe was primarily due to revenue mix, our incorrect modelling of the seasonality at DryAir, and margin pressure as Environmental Access Solutions normalizes.
Management is currently reviewing a number of M&A opportunities and have submitted bids for various contracts. We believe our forecast for low-double-digit Adjusted EBITDA growth in 2024 and 2025 could prove to be conservative given that our forecast does not include future acquisitions or contract wins. We continue to believe that Exchange should trade at a higher multiple given its financial track record of resiliency and growth, forecast growth, dividend and management's ability to generate incremental shareholder value through prudent capital deployment.
A&A EBITDA growth is expected through at least 2025 based on the new medevac contracts (fully operational in 2025), the Air Canada contract, leasing revenue, and other sources of organic growth. Acquisitions, Multi-Storey Window Solutions growth and margin expansion, and abating headwinds at Environmental Access Solutions in H2/24 are expected to drive Manufacturing EBITDA growth from Q4/24 onwards.