Exchange Income Corp.
(EIF-T) C$48.88
Q4/23; Record Results and Organic Growth to Continue
Event
Yesterday after market close, Exchange reported Q4/23 Adjusted EBITDA of $144
million vs. TD/consensus of $148 million/$143 million. Adjusted diluted EPS was
$0.70 vs. TD/consensus of $0.67/$0.72.
Impact: NEUTRAL
We are maintaining our BUY recommendation and increasing our target to $65.00
from $63.00. The increase in our target price primarily reflects the shift forward of
our valuation period by one quarter and lower valuation-period net debt, partially
offset by slightly lower forecast EBITDA. Our lower estimates primarily reflect the net
impact of carrying forward the lower-than-forecast Q4/23 Manufacturing EBITDA,
updated medevac revenue assumptions, and other minor modeling updates. Lower
net debt is primarily due to updated capital expenditure assumptions related to recent
contract awards. Our 2024 EBITDA estimate is in-line with guidance. We believe that
management's prudently conservative approach to guidance may mean that final
results exceed our estimates.
Exchange reported strong Q4/23 results, with EBITDA, EPS, and FCF coming in
relatively in-line with our forecast. A&A EBITDA and margin was stronger-than-
forecast. Manufacturing EBITDA was lower which we believe is primarily due to
revenue mix and our lack of appreciation for the margin pressure as Environment
Access Solutions normalizes. Adjusted EBITDA increased 16% y/y in the quarter,
and is expected to grow at high-single-digits to low-double-digits organically through
2025. We continue to believe the company should trade at a higher multiple given
our forecast growth, which assumes no additional M&A, and management's ability
to generate shareholder value through prudent capital deployment.
A&A growth is expected through 2025 based on the new medevac contracts (fully
operational in 2025), the Air Canada contract, leasing revenue, and organic growth.
Acquisitions and our forecast for Multi-Storey Window Solutions growth and margin
expansion are expected to offset the normalization at Northern Mat in 2024.
TD Investment Conclusion
We believe Exchange's overall business diversification positions it better than its
less-diversified peers to navigate the challenges presented by the pandemic. We
also believe Exchange represents a good investment for yield-focused investors
based on its forecast FCF and management's track record of maintaining a
disciplined approach to investments at accretive valuations.