Exchange Income Corporation is a diversified, acquisition-oriented corporation focusing on opportunities in aerospace, aviation, and manufacturing. The corporation enjoys a diversified revenue stream from businesses ranging from medevac transportation services, aftermarket aviation parts, to communication tower construction, high-pressure water cleaning systems, and precision metal manufacturing, and more. Its Provincial subsidiary is a global leader in maritime surveillance servicing governments around the world.
Exchange Income owns a unique group of companies in the aviation and manufacturing sectors. It offers a wide range of operations within the aerospace and aviation industries including providing scheduled airline, charter service, and emergency medical service to communities located across different regions. The corporation also provides a variety of manufactured goods and services in a number of industries and markets throughout North America.
The principal operating subsidiaries of the Corporation are Bearskin, Calm Air, Custom Helicopters, Keewatin Air, Provincial Aerospace, Regional One, Quest, WesTower, Ben Machine, etc. Exchange Income segments are Aerospace & Aviation (~60% of 2020 consolidated revenues) and Manufacturing (~40%). By geographies, Canada is its largest market accounting for 61% of revenues, followed by the U.S. (25%), Europe (~1%), and Other.
- Opportunity Score: 52
- Ticker: TSE:EIF
- Sector: Industrials
- Industry: Airlines
- Market Cap: 1.54B
- P/E: 36.48
- Dividend Yield: 5.60%
- Payout Ratio (TTM): 198.80%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 6/10
- Dividend Income Fit: 7/10
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Revenue Growth & Market Exposure
Exchange Income enjoys a diversified revenue stream from different markets and geographies around the globe. These businesses have recurring revenue streams throughout their business cycle and the distinct nature of businesses adds diversity during times of any fluctuations.
The corporation is in a good position to expand its service offerings to customers given its multiple diversified subsidiaries. EIC caters to governments, First Nation Communities, other companies, and individuals. It should also benefit from high levels of defense spending worldwide and steady economic recovery in its markets. The corporation continually invests to increase infrastructure to support its operations, additional aircraft, and base, and for the replacement of production equipment or components.
Exchange Income grows by acquiring quality businesses characterized by strong management teams, generating steady cash flow, and being immediately accretive to its earnings. The WIS acquisition last year contributed $25 million in revenue for the first quarter of 2021.
EIC witnessed an improved performance in its latest quarter when compared to the previous year. While scheduled airline services remain challenged by travel restrictions and lower passenger traffic, the Manufacturing segment is witnessing recovery. EIC made a few investments and acquisitions in the Manufacturing space to better position it to capitalize from opportunities in the new normal scenario.
The corporation continued executing long-term projects, including FWSAR, scope expansion of the DFO contract, and the Netherlands contract. EIC also has a number of strategic acquisition opportunities at hand and expects to add accretive acquisitions later in the year.
Exchange Income is a Dividend Aristocrat having one of the best track records of dividend growth on the Canadian stock exchange. A diversified business model, disciplined investment, and acquisition of companies with steady cash flows have supported dividend growth over the years.
The corporation last raised its dividend payout by ~4% in 2019 and has compounded them at 4.7% per annum over the last five years. It sports a juicy dividend yield of 5.7% but a high payout ratio. Exchange Income has generated consistent annual returns of over 20% in the last fifteen years. The corporation renewed its NCIB in February 2021 and can purchase a maximum of ~3.25 million shares by February 2022.
The operations of Stainless, WesTower, Quest, AWI and Provincial have long-term construction contracts which grant revenue visibility. EIC’s initiatives like controlling expenses and managing capital expenditures and working capital have further supported dividend payments and reducing the debt over the years. The corporation has no long-term debt due until December 2022. A strong balance sheet further increases its access to capital to invest in strategic acquisitions and operating subsidiaries.
Exchange Income’s diversified companies provide a resilient cash flow stream that facilitates its dividend to grow. The corporation has experienced a good rate of growth in each of the last five years. It also stands a good chance to benefit from the growing demand for communication infrastructure. F
uture growth is expected to be driven by existing operations, acquisitions, and major capital investment. EIC has a proven track record of successfully growing its business through accretive acquisitions. Its long-standing strategy of acquiring and successfully integrating diversified businesses not only mitigates risks but also provides opportunities for growth.
Exchange Income faces competition from domestic as well as international companies. Air Canada, Westjet Airlines, Chorus Aviation, Canada Jetlines, Ace Aviation are Exchange Income’s leading competitors.
These are leading airline companies in Canada. Exchange Income’s strategy of acquiring companies that operate in a milder competitive environment and offer niche services in remote areas makes it an unparalleled leader.
Exchange Income’s diversity and flexibility have positioned it better than the other traditional airlines. The company should benefit from volume improvements as travel restrictions begin to ease across national and international borders. The company’s ability to provide essential services and prompt customer service while actively managing operational costs have been key to strong dividends and a solid balance sheet.
Exchange Income is a good income-generating stock with huge growth potential, strong dividend history, and a decent balance sheet. Organic growth and contributions from acquisitions as well as signs of recovery and pent-up demand should drive earnings growth.