EXCHANGE INCOME CORPORATION Key Takeaways From The Western Conference: Reaping The
Rewards Of Its Investments
We had the pleasure of hosting EIF at our 27th Annual Western Institutional
Investor Conference in Whistler. With us from the company was Mike Pyle,
CEO. Below are our key takeaways from our fireside chat.
Benefitting From New Aviation Contracts: EIF announced a number of
contract wins last year for its aviation division. While many of these contracts
require significant investment, the company is getting closer to reaping the
benefits of these investments. One of these contracts is the BC Medevac
contract. The contract has an initial ten-year term plus options to extend. The
contract requires 12 new aircraft, with the investment for these aircraft
reaching ~$200MM. What might best demonstrate the upside opportunity
within these contracts is that from the time the contract was signed to the
time the first new aircraft has even been deployed, the BC government has
already added another two aircraft to the contract. We can expect to see run-
rate earnings from this contract in 2025. EIF’s Manitoba Medevac contract is
also all new business for the company and requires an additional five aircraft.
EIF expects initial contributions from this contract to begin in late Q1/24, with
the contract hitting a full run-rate contribution by Q4/24. EIF noted there is
still additional medevac business in Canada that it would like to pursue,
noting opportunities in the Northwest Territories and the Yukon. Another
notable contract for EIF in 2023 was the agreement between PAL and Air
Canada, with PAL taking on some contract flying for Air Canada in Eastern
Canada, where PAL currently operates. The partnership is off to a smooth
start with EIF being Air Canada’s top service provider in terms of on-time
service late last year. Lastly, EIF highlighted the success of its surveillance
business and the opportunities it is seeing in that area as countries continue
to see the importance of surveilling their borders. EIF highlighted potential
opportunities in Denmark, Spain and Australia.
Continuing To Grow Manufacturing: EIF’s Manufacturing division
continues to act as a growth driver for the company. Most topical within the
Manufacturing division has been Northern Mat. EIF acquired Northern Mat in
2022, its largest acquisition to date. While that year happened to be a record
year for Northern Mat with a perfect storm of supply shortages and
heightened pricing, EIF stated that Northern Mat has now returned to a more
normal level, which is still above management expectations. It's also worth
acknowledging that while Northern Mat is not necessarily a cyclical business,
it is a chunky business, and we should expect to see variations on a yearly
basis, whether it be from market forces or from contracts rolling off. However,
EIF benefits from being vertically integrated, allowing it to ramp up and ramp
down quickly when needed. In order to expand Northern Mat, EIF is looking
to expand into the U.S., where resin mats are often used instead wooden
mats like in Canada. By entering the U.S. market, EIF hopes to diversify its
mat offering.
Continue To See M&A Opportunities: While on the surface it may seem that many of EIF’s
manufacturing businesses are unrelated and there are little opportunities for synergies, that is
far from the truth. When EIF acquires a business, it alleviates the acquired company of the
non-core aspects of running the business, such as administrative tasks, cybersecurity, etc.,
and allocates that back to head office. This allows the business to continue to focus on the
core activities and helps fuel the entrepreneurial spirit of the management team. Additionally,
as we have seen through EIF’s most recent acquisition DryAir, while other EIF business
might not manufacture the same products as DryAir, there is some commonality around raw
materials, and there are opportunities for cost savings there. We believe that as EIF
continues to expand, there will be an increasingly bigger opportunity for synergies for new
acquisitions. EIF noted that, at this time, its M&A pipeline remains strong, and for the past
couple of years with rates at higher levels, EIF has seen the competition from private equity
slow, which allows for EIF to be more competitive, particularly on larger acquisitions.
Price Target Calculation
Our $61.50 price target is based on a 7.00x EV/EBITDA multiple on our 2025 $698MM
EBITDA estimate, accounting for our net debt estimate of ~$2.0B. This multiple is modestly
above EIF’s historical average, reflecting the robust M&A opportunities for the company