Added a few more this morning. GLTA
Exchange Income Corp.’s “solid” fourth-quarter 2023 and reaffirmation of its financial guidance reaffirm a positive outlook for 2024, according to ATB Capital Markets analyst Chris Murray.
“Valuations remain attractive, and we see normalizing conditions at several portfolio companies,” he said. “This, combined with the ramp-up of new medevac contracts and an active M&A environment, positions EIF for accelerated H2/24 and 2025 growth.”
Shares of the Winnipeg-based acquirer of industrial businesses jumped 4.8 per cent on Friday quarterly revenue and adjusted fully diluted earnings per share of $656.7-million and 70 cents, respectively, falling in line with Mr. Murray’s forecast of $657.4-million and 68 cents. He said the results were “highlighted by M&A-led growth and a positive impact from recent contract wins in Aviation, which led to 15.8-per-cent year-over-year EBITDA growth despite facing a challenging comp in Manufacturing.”
Exchange Income also reiterated its expectation for adjusted EBITDA of $600-million to $635-million in the current fiscal year, which implies double-digit growth across its existing asset base “with M&A providing potential upside.”
“Management expects the impact of supply chain challenges and inflationary pressure to continue to challenge performance at certain portfolio companies, particularly in manufacturing, albeit to a moderating degree,” said Mr. Murray. “The Company continues to see positive demand trends across its portfolio, with passenger volumes in some regions exceeding 2019 levels. We continue to view the Company as positioned to deliver significant growth in 2024 and 2025, led by normalizing operating/demand conditions at larger operating companies, namely Regional One and Quest, recent contract wins in aviation, and a meaningful contribution from acquisitions completed in 2023, including BV Glazing, Hansen Industries, and DryAir.
“Management was constructive on trends it is seeing across its portfolio companies. Management is anticipating a gradual increase in leasing activities at Regional One throughout 2024 and expects to exit the year at a pre-pandemic level run rate, boding well for margin trends in H2/24 and 2025 as incremental activity comes with very high margin contribution (more than 80 per cent). The Company continues to see strong demand for quoting at Quest and remains bullish on the longer-term outlook but acknowledged that rate pressures are causing some project delays and slowing conversion to backlog. While Northern Mat is set to lap a challenging comp in Q1/24, management remained constructive on current levels of profitability (i.e., $75-million in annualized EBITDA) and the overall outlook for the business, expecting the remainder of 2024 to be similar to comparable 2023 quarters.”
Raising his forecast for both 2024 and 2025, Mr. Murray increased his target for Exchange Income shares, which possess an unanimous buy-equivalent recommendation from analysts on the Street, to $63 from $60, keeping his own “outperform” rating. The average target on the Street is $63.55, according to LSEG data.
Others making target adjustments include:
* Raymond James’ Steve Hansen to $73 from $70 with a “strong buy” rating.
“By all accounts, 2024 is shaping up as a pivotal year for EIF’s Essential Aviation & Aerospace segments, with a flurry of marquee contracts already in-flight or beginning to ramp (BC & Manitoba medevac, Air Canada, UK surveillance),” said Mr. Hansen. “Despite this flurry of ‘embedded growth’, management still has additional growth opportunities in their sights, including adjacent medevac tenders, a long-term UK surveillance opportunity (2 times scope), and Canada’s Future Aircrew program, just to name a few.”
“We continue to recommend shares of Exchange Income Corp. (EIC) based upon our constructive view of the firm’s: 1) robust embedded growth prospects; 2) M&A optionality; 3) longstanding track record for value creation; and 4) compelling valuation & total return prospects.”
* TD Securities’ Tim James to $65 from $63 with a “buy” rating.
* Canaccord Genuity’s Matthew Lee to $65 from $63 with a “buy” rating.