December 18,2024 Exchange Income Fund (EIF) has an unusual name that doesn't give shareholders much of an idea what the company actually does.But shareholders and investors realize that 6 months ago it traded at $45/share and now at $57/share (for a 28% increase until Dec.1).This has garnered more interest by investors in what EIF does.EIF is a small aerospace and manufacturing company with a market cap of $2.75 billion..It is an acquisition oriented operation and has been in business for more than 20years. It has continuously grown and diversisifed tremenduously.In October 2023 it acquired Dry Air Manufacturing.In addition,on November 13,2024 it closed the acquisition of a Florida based company called Spartan Mats.It was a cash and stock deal wort$120 million.EIF management expects the deal to be immediately accretive to earnings.
Q3 Report
Exchange Income Fund had a very good Q3.For instance it achieved record revenues of $710 million,adjusted EBITDA of $193 million and adjusted net earnings went from $1.19 per share in Q3 2023 to $1.29 per share in 2024.They also secured a contract for fixed wing aircraft in Newfoundland.EIF management has been very busy in Q3.
EIF is involved in aviation,aerospace and manufacturing.But about 3 quarters of the revenues come from aviation and aerospace.That's because it owns 6 or 7 small airlines such as Calm Air and Perimeter Air.These airlines serve passenger and cargo traffic largely in western Canada and the north.Traffic should be considered steady rather than liable to have large seasonal increases in revenues.Yet EIF management is working hard on getting contracts to increase the profitability of the aviation side.For example,their new fixed-wing contract in Newfoundland. will be served by their existing business.This would seem to be a good fit.As this blog believes that there is unused capacity in all of their airlines.And there is the possibility of new business in areas such as Nunavut, Labrador and Newfoundland. In effect,the aviation side has been and will be fuelling the growth in the manufacturing branch.However over the last 3 years it is the manufacturing arm that is increasing due to acquisitions.This blog believes that there is still the possibility of one or two small tuck in acquisitions or 1 medium -sized acquisition on the manufacturing side of business.But it is clear that the steady increases in revenues and earnings will come from the 6 or 7 airlines it owns.
A Target Price
First it must be said that EIF should think about changing it's name to a one more connected to what it does.For example,Industrial Development Co. or Northern Innovation Co.Secondly it needs to spend more on marketing it's air passenger and cargo business so as to increase the capacity of it's airlines.Having said that,this blog believes that there will be increases in revenues and earnings from it's recent acquisitions as it works to enhance synergies.Consequently this blog is expecting Q4 net adjusted earnings of $1.15-$1.35.On an annual basis this would be $3.40 -$3.65 per share.At today's share price the P/E ratio would be about 15 times.With perhaps a forward P/E of 13 to 14 times.This is a solid and conservative P/E ratio.This blog believes that the P/E ratio could eventually move to the 15-16 times range as investors see the possibilty for growth here.However ,as stated in the title, EIF has moved up from $45 since August.So investors have already "baked in" some of the impact of the new acquisitions.This blog believes that there still is some price appreciation left.So the target price will be in the $56-$62 area until Q1 2025.As Q4 has already been accounted for.
Dale Mcintyre is a consulting economist that writes blogs primarily for Yahoo Finance and Marketbeat.
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