Exchange Income Fund (EIF) - A weird name but a good solid business

Exchange Income Fund has been around for awhile but has only gotten the attention of many investors recently.It is based in Winnipeg in the aviation,aerospace and manufacturing sectorsAnd it makes acquistions of small and medium tier companies in a few select industrial areas.It made another acquisition in March (B V Glazing) for $95 million and in April (Hansen Industries) for $42.5 million recently. Now is about half of the market cap of the much older Onex($5.5 billion) located in Ontario.

      History

    EIF has been around for awhile.For example, in 2004 it had a market capitalization of $8 million.But with a steady stream of acquisitions and organic growth it had a market cap of $2.2 billion in 2022.And it has already made another tuck-in acquisition in 2023 ,Hansen Inc.which EIF acquired for about $45 million.In 2022 it made 5 tuck-in acquisitions and one platform acquisition.And it's earnings and e.p.s. rose about 36% in 2022.So now it's P/E ratio is about 17.However EIF can support this multiple and may bring it down  as it has solid organic growth.
 Q4 Highlights  

On April 10 EIF reported both it's fourth quarter and annual performance for 2022.Both showed good gains over 2021.Revenues and adjusted EBITDA showed increases of 30%($390 million) and 10%($90 million) over 2021.While net earnings increased to $23 million or $.61 per share for an increase of 71%.             

 

Guidance and Forecast

Exchange Income Fund has already raised the guidance for 2023 for revenues and adjusted EBITDA.And in only 4 months of 2023 it has made two acquisitions totaling $150 million in market cap.Whereas in 2022 it made 5 small acquisitions and one larger one.Furthermore the average size of it's acquisitions is getting larger.This blog expects at least 1 more in 2023 within the $100-$125 million category.Revenue increased 40% in 2022 and adjusted EBITDA by 30%.This blog expects a further 25-35% increase in both metrics in 2023.While earnings could increase by 25%- 40%.Consequently this blog expects earnings of $3.15- $3.50 and only a small increase in the  dividend maybe to$2.60 per share.The consensus target price of analysts is $63 per share for 2023.This blog expects a steady climb to$60 and then plateauing in the $60-$61 range for 2023.                            If EIF is going to advance beyond this path it must be more like Onex that acquires larger companies in a somewhat distressed state.This,of course, will require more management from EIF.And then it can acquire companies not just in western Canada but almost anywhere in north America.But this is a big step to take.

    Dale Mcintyre is a freelance writer that writes primarily for Marketbeat and Zacks Research Co.           https://www.marketbeat.com/ ;www.zacksinvestmentresearch.com