Exchange Income Corp T.EIF

RBC

[retiredcf]

Potential for them to raise their target once the dust settles. GLTA

November 7, 2024

Exchange Income Corporation

Q3 beat, 2025 guide comes in above, major acquisition - expect results to be very well- received

TSX: EIF | CAD 55.89 | Outperform | Price Target CAD 65.00

Sentiment: Positive

Our view: EIF today reported Q3 results that were ahead of consensus expectations (details below). The company also announced a major acquisition and provided 2025 guidance that at the midpoint was ahead of consensus expectations - and we therefore expect the results to be very well-received tomorrow. Key highlights from our call back from management:

• 2025 guide comes in ahead of consensus. Management guided to 2025 EBITDA of $690MM to $730MM which compares to consensus $693MM. Management has historically been conservative in their initial guides, and we flag numerous upside opportunities, including potential ISR and Medevac contracts. We therefore see the initial look into 2025 as potentially conservative and as a positive. Key is that the guide represents +15% EBITDA growth y/y, which we see as not appropriately reflected in the company's 7x NTM consensus EV/EBITDA valuation multiple. Finally, we flag that declining interest rates in our view will drive FCF growth over and above the increase in EBITDA.

• Acquisition of Spartan Mat. Exchange announced the acquisition of Spartan Mat today for a purchase price of US$120MM, which is to be funded through the issuance of US$18MM of shares and cash in the amount of US$102MM. We view the move into the US matting business as a strategic positive reflecting meaningful long-term infrastructure funding tailwinds in the market, which we view Spartan as well positioned to capitalize on. Furthermore, we do not expect Exchange to raise equity for the deal given we expect certain convertible debt to be converted to shares in the medium-term.

• Resultscomedespiteaweakindustrialbackdrop.TheQ3beatcameonstrongresultsinAviationwhichmorethanoffsetcurrent manufacturing headwinds. We believe this speaks to the diversity of Exchange's business model given significant weakness across the broader industrial environment in Q3. Moreover, management noted that the manufacturing segment has started to show signs of strength, which we believe represents upside into next year to the extent these trends persist.

  Q3/24 results above consensus expectations. EIF reported Q3/24 adjusted EBITDA of $193MM, ahead of consensus $187MM (RBCe: $190MM). See Exhibit 1.

• Aviation EBITDA above. Aviation EBITDA of $155MM was ahead of our $144MM estimate.

• Manufacturing EBITDA below. Manufacturing EBITDA of $51MM was below our $60MM estimate.

• 2025 guidance announced. Management announced 2025 guidance and accordingly expects adjusted EBITDA to come in the  range of $690–730MM, which compares to consensus $693MM (RBCe: $692MM). See Exhibit 2.

  Conference call

  • November 8 at 8:30AM ET • Dial-in: 1-888-886-7786

[JohnSP]

Thanks, will find out if we gap up today in 15 min. November's dividend will be 12th at CAD0.22, with these results, surprised they didn't also annouce an annual dividend increase, as they did with 2023Q3 Results.

[JohnSP]

Well opened up only ~1%, but on a down / risk off day, thinly traded stock, 3 month average is 95k shares/day.

[retiredcf]

Not exactly risk off with the DOW up another 400 points. That said, WSP had good results and received a multitude of increased targets yet it is down 4%.  Once again proves that you need a thick skin and good sense of humour for investing. GLTA