Local equity firm continues acquisition-oriented growth plan

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This article was published 09/05/2018 (2706 days ago), so information in it may no longer be current.

Exchange Income Corp. may not be a household name in Canadian equity markets, it’s not part of the tech boom and does not build big fancy monuments to its success.

It’s one of the largest publicly traded companies based in Winnipeg but its 25-person head office is hidden away in a small building in an industrial park near the airport.

And it’s not like it’s all of a sudden found the secret to success. In the 14 years since it acquired a junior capital pool company it has not altered the manner in which it operates.

In 2017, it topped the billion dollar mark in revenue, it was added to the S&P/TSX Composite Index in December 2016 and with a yield currently at around seven per cent it is one of the most attractive dividend investments on the TSX.

True, the dividend yield goes down when the stock price goes up and the fact is the company is now emerging from about a year’s worth of an aggressive short selling campaign that pulled the stock price down from the $40 range at the end of 2016 to the $30 range today. That may be starting to go the other way.

After releasing record breaking first quarter results on Wednesday, the stock shot up more than seven per cent in its second largest trading session of the year.

Last year’s challenges with short sellers clouded the otherwise solid operations of the corporation’s 15 operating entities, and more significantly, the fact that the company is now particularly well-positioned to continue to carry out its acquisition-oriented growth plan.

At Wednesday’s annual meeting, company CEO Mike Pyle said, “We have the same strategy we had in 2004 when we bought Perimeter Aviation. It’s the same as when the stock traded at $42 and same strategy when the short selling nonsense started a year ago. We decided way back when to build a diversified company by investing in a bunch of different companies in like industries getting on different sides of the Canadian dollar and different sides of oil prices.”

The first quarter results — with a 20 per cent increase in revenue and 55 per cent increase in net earnings and 50 per cent increase in earnings per share — broke all sorts of performance records.

With a mix of aviation and aerospace companies – including Perimeter, Calm Air and Keewatin Air – and manufacturing companies that make everything from cell towers to stainless steel tanks, the strong results came from gains from both groups and were produced via organic growth and new acquisitions.

The most substantial new addition came from the November, 2017 purchase of Toronto-based Quest Window Systems. When it bought that company which makes specialized window wall systems for high-rise residential projects it had a $200 million order book. That’s already up to $300 million and Pyle said it almost killed them but they have had to turn down business because it just did not have the capacity.

It recently decided to spend about $20 million to build a new production facility in Dallas that will double capacity.

Even more recently, it concluded an amendment to its credit facility increasing it by $250 million to $1 billion that is more flexible and at lower interest rates. The syndicate of lenders now numbers 11 banks who are clearly fans of EIC’s disciplined approach to acquisitions because they wanted to provide more credit than EIC would accept.

Pyle said that with the integration of Quest as well as the purchase of Moncton Flight College during the first quarter of this year it is unlikely there will be any major deals in the near future. Still, management is more excited than usual about its prospects.

Pyle said, “I believe that the first quarter was one of the most significant and successful quarters in the company’s history. Not only did we achieve strong financial results for the first quarter, but we also undertook a number of important, strategic initiatives that will lay the foundation for future growth and profitability.”

Provincial Aviation Ltd. (PAL), a regional carrier and airborne intelligence, surveillance and reconnaissance solutions provider, will be part of that future growth. It’s based in Newfoundland but when it was announced that it would handle the maintenance part of the $3 billion contract to replace Canada’s aging fleet of search and rescue planes with new Airbus C-295s, EIC made it clear that work would happen in Winnipeg.

On Wednesday, Pyle said construction would begin sometime in 2019 on a new maintenance hangar on the current site of the Royal Aviation Museum of Western Canada.

That ought to boost the local profile a bit.

martin.cash@freepress.mb.ca