Winnipeg Free Press - PRINT EDITION

Exchange Income bitten by report

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THE good news for Exchange Income Corp. investors is the shares in the Winnipeg company rallied by about $2 before the close of trading.

The bad news is the stock still closed down nine per cent on heavy trading after an investor column in the Globe and Mail wrote about a recent research report on the company.

The report, produced by Veritas Investment Research, questioned EIC's ability to continue to pay the generous dividends that's attracted many investors to the company.

EIC owns four regional airlines in Manitoba and central Canada as well as a number of industrial companies, including a cellphone tower construction and maintenance company called WesTower.

That company accounted for more than 60 per cent of EIC's total revenue in the first quarter but only 13.3 per cent of its operating profit or EBITDA (earnings before interest, taxes, depreciation and amortization).

WesTower has a new slate of senior managers, and EIC executives have been forthcoming about a massive restructuring to bring in better profit margins.

Among other things, Veritas analyst Mike Yerashotis is concerned AT&T, with whom WesTower has a massive contract, is cutting back on its tower-production program.

"Our primary concern is WesTower's profitability, generally," Yerashotis said. "Spending reductions at AT&T are a key factor that we believe will negatively impact both revenue and margins. Additionally, our accounting analysis indicates that a portion of WesTower's work-in-progress may not be recoverable, which we believe indicates weaker performance at WesTower than reported historical results may suggest."

In a company statement released Thursday by EIC in the midst of the tumultuous day of trading, it said, "The corporation is aware of certain media and industry communications, which we believe to be materially inaccurate. The corporation will release its second-quarter 2014 results on Tuesday, Aug. 12, and we believe this will shed considerable light on the inaccuracy of these reports."

It also said it has no intention of changing its current dividend schedule of 14 cents per share per month, giving it a yield of 10 per cent.

The share price closed down $1.64 to 16.80 on Thursday, its lowest level in almost four years.

Yerashotis said third-quarter results will likely be more telling to him when it comes to bolstering his confidence in the company's ability to continue to offer the generous dividends.

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition August 8, 2014 B6

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