Our view: Topics of discussion at our RBC-hosted lunch with mgmt centered on 1) solid momentum in Aviation, 2) upside in Manufacturing, and 3) growth opportunities in the US matting business from the Spartan Mat acquisition. Overall, the meetings reinforced the strength of Exchange's diversified operating model, which has driven total return CAGR of ~20% over the last 20 years. We continue to see EIF's growth profile as robust (guidance for +13% EBITDA growth in 2025) and do not believe it is appropriately reflected in the share price today. Reiterate Exchange as a top idea in Canadian aerospace.
Key points:
RBC hosted lunch with Exchange's CEO. Yesterday, we hosted an investor lunch at our Toronto office with CEO Mike Pyle. Key highlights below:
Aviation exhibiting strong momentum. We heard from management about the continued success in the Aviation segment, as illustrated by recent medevac and ISR contract wins. Management highlighted that their Netherlands ISR contract win in 2020 gave them credibility in Europe, which we see as key in our view to the company's past and future success among NATO allies. In medevac, we continue to see the opportunity as meaningful from current contracts ramping up and potential new wins in the North. Moreover, we view the pricing increases secured in the Nunavut contract, coupled with the redeployment of BC aircraft to the Newfoundland contract, as drivers of margin expansion going forward.
Manufacturing at troughs, but upside potential significant. On the near- term outlook, the company expects earnings to be pressured due to customer delays in Window project starts. However, the Windows segment is seeing a continued pickup in demand, with management noting strong bookings ($200MM in Q3) resulting in backlog growth and market share gains. We expect new orders to convert in late 2025 and 2026, and do not believe this upside is appropriately reflected in valuation. Key is that we view the Manufacturing segment as well positioned for meaningful operating leverage when the macro environment inflects. And while we remain cautious on the near-term outlook, management flagged they are seeing early indication that conditions are starting to improve.
Spartan Mat as a growth platform. Management fielded several questions on its recent foray into the US composite matting market, highlighting the advantages of direct access to the US market, input diversification, and T&D exposure. We view the acquisition as a strategic positive poised to benefit from secular tailwinds in infrastructure spending. Key is the market share for composites is ~15% of the matting market (according to mgmt), which, when combined with cross-selling opportunities and new business initiatives such as renting, creates a compelling growth platform for Exchange, in our view.