Investments
Our Conclusion
EIF reported an essentially in-line Q3; however, the stock was down nearly
5% on the back of weaker-than-expected 2024 guidance. We suspect that
we and the Street were mismodelling some of the contributions from new
contracts within Aerospace & Aviation, as well as contribution from Northern
Mat. Having adjusted our model to better reflect the timing of contracts and
the contributions from recent acquisitions, we maintain our Outperformer
rating and lower our price target to $58.00 (from $64.50).
Key Points
Adjusting Expectations For 2024: EIF announced 2024 EBITDA guidance
of $600MM-$630MM, below our prior expectation of $647MM and the Street
at $658MM. We suspect the variance is due to mismodelling on our part of
the contribution of some contracts with Aerospace & Aviation, as well as
overestimating the contribution from Northern Mat. Looking at the
Government of Manitoba medevac contract, which was announced in Q2,
EIF acquired three of the five aircraft for the contract; those aircraft will be
retrofitted over the next few quarters and will enter into service in early to
mid-2024. For the BC medevac contract, EIF expects to receive its first new
King Air in Q4 and to receive aircraft in a regular cadence over the next six
quarters. The contract will not reach a normal run-rate until 2025. Both of
these contracts are 10 years in length and include options to extend beyond
that. We have moderated our expectations for EIF’s 2024E EBITDA and are
now forecasting EBITDA of $612MM.
M&A Pipeline Remains Strong: Despite an already busy year of M&A and
new contracts, EIF’s M&A pipeline remains strong. The company suggested
it is seeing more opportunities that would fit within its Manufacturing
business, but that is a function of EIF already being a dominant player
amongst niche airlines in Canada. In terms of size of acquisition targets,
while most of them are smaller, there are some larger opportunities (similar
to a Northern Mat) that would fit into either division, Aerospace & Aviation or
Manufacturing. EIF has the room on its balance sheet to continue to be
active on the M&A front with liquidity of ~$1.1B through cash on hand, its
credit facility and the credit facility accordion feature. EIF ended the quarter
with a leverage rate of 2.45x, well within its key financial covenant of 4.0x.
Summary Of Changes: We have adjusted our estimates having actualized
Q3 results and to reflect EIF’s commentary around 2023 guidance and the
company’s 2024 guidance. Our 2023E EBITDA moves to $553MM (from
$562MM) and our 2024E EBITDA moves to $612MM (from $647MM).