Intrinsic value of Exchange Income Corporation - EIF

Previous Close

$31.49

  Intrinsic Value

$64.28

stock screener

  Rating & Target

str. buy

+104%

Previous close

$31.49

 
Intrinsic value

$64.28

 
Up/down potential

+104%

 
Rating

str. buy

We calculate the intrinsic value of EIF stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.40
  11.66
  10.99
  10.39
  9.86
  9.37
  8.93
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
Revenue, $m
  1,001
  1,118
  1,241
  1,370
  1,505
  1,646
  1,793
  1,946
  2,106
  2,271
  2,444
  2,623
  2,809
  3,002
  3,203
  3,412
  3,629
  3,855
  4,091
  4,336
  4,592
  4,859
  5,137
  5,428
  5,731
  6,048
  6,380
  6,726
  7,088
  7,467
Variable operating expenses, $m
  665
  739
  818
  900
  986
  1,076
  1,170
  1,268
  1,369
  1,475
  1,559
  1,673
  1,791
  1,915
  2,043
  2,176
  2,315
  2,459
  2,609
  2,766
  2,929
  3,099
  3,277
  3,462
  3,655
  3,858
  4,069
  4,290
  4,521
  4,763
Fixed operating expenses, $m
  189
  193
  197
  202
  206
  211
  215
  220
  225
  230
  235
  240
  245
  251
  256
  262
  268
  274
  280
  286
  292
  299
  305
  312
  319
  326
  333
  340
  348
  355
Total operating expenses, $m
  854
  932
  1,015
  1,102
  1,192
  1,287
  1,385
  1,488
  1,594
  1,705
  1,794
  1,913
  2,036
  2,166
  2,299
  2,438
  2,583
  2,733
  2,889
  3,052
  3,221
  3,398
  3,582
  3,774
  3,974
  4,184
  4,402
  4,630
  4,869
  5,118
Operating income, $m
  148
  186
  226
  268
  313
  359
  408
  459
  512
  567
  650
  710
  772
  836
  904
  974
  1,047
  1,123
  1,202
  1,285
  1,371
  1,461
  1,555
  1,654
  1,757
  1,865
  1,978
  2,096
  2,220
  2,349
EBITDA, $m
  237
  282
  330
  381
  434
  489
  547
  607
  670
  736
  804
  875
  948
  1,025
  1,105
  1,188
  1,275
  1,365
  1,459
  1,558
  1,660
  1,767
  1,879
  1,996
  2,118
  2,245
  2,379
  2,519
  2,666
  2,819
Interest expense (income), $m
  24
  27
  32
  37
  42
  48
  53
  60
  66
  72
  79
  86
  94
  102
  110
  118
  127
  136
  145
  155
  165
  176
  187
  198
  210
  223
  236
  249
  264
  279
  294
Earnings before tax, $m
  121
  154
  189
  226
  265
  306
  349
  393
  439
  487
  564
  616
  670
  727
  786
  847
  911
  978
  1,047
  1,120
  1,195
  1,275
  1,357
  1,444
  1,534
  1,629
  1,728
  1,832
  1,941
  2,055
Tax expense, $m
  33
  42
  51
  61
  72
  83
  94
  106
  119
  132
  152
  166
  181
  196
  212
  229
  246
  264
  283
  302
  323
  344
  366
  390
  414
  440
  467
  495
  524
  555
Net income, $m
  88
  112
  138
  165
  194
  223
  254
  287
  321
  356
  411
  449
  489
  530
  573
  618
  665
  714
  764
  817
  873
  930
  991
  1,054
  1,120
  1,189
  1,262
  1,337
  1,417
  1,500

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,572
  1,756
  1,949
  2,151
  2,363
  2,584
  2,815
  3,056
  3,306
  3,566
  3,836
  4,117
  4,409
  4,712
  5,028
  5,356
  5,697
  6,052
  6,422
  6,807
  7,209
  7,628
  8,065
  8,521
  8,997
  9,495
  10,015
  10,559
  11,128
  11,723
Adjusted assets (=assets-cash), $m
  1,572
  1,756
  1,949
  2,151
  2,363
  2,584
  2,815
  3,056
  3,306
  3,566
  3,836
  4,117
  4,409
  4,712
  5,028
  5,356
  5,697
  6,052
  6,422
  6,807
  7,209
  7,628
  8,065
  8,521
  8,997
  9,495
  10,015
  10,559
  11,128
  11,723
Revenue / Adjusted assets
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
  0.637
Average production assets, $m
  429
  479
  531
  586
  644
  705
  768
  833
  901
  972
  1,046
  1,122
  1,202
  1,285
  1,371
  1,460
  1,553
  1,650
  1,751
  1,856
  1,965
  2,080
  2,199
  2,323
  2,453
  2,589
  2,730
  2,879
  3,034
  3,196
Working capital, $m
  173
  193
  215
  237
  260
  285
  310
  337
  364
  393
  423
  454
  486
  519
  554
  590
  628
  667
  708
  750
  794
  841
  889
  939
  991
  1,046
  1,104
  1,164
  1,226
  1,292
Total debt, $m
  773
  896
  1,025
  1,161
  1,303
  1,452
  1,606
  1,767
  1,935
  2,109
  2,290
  2,478
  2,674
  2,877
  3,089
  3,308
  3,537
  3,775
  4,023
  4,281
  4,550
  4,831
  5,123
  5,429
  5,748
  6,082
  6,430
  6,794
  7,175
  7,574
Total liabilities, $m
  1,053
  1,176
  1,305
  1,441
  1,583
  1,732
  1,886
  2,047
  2,215
  2,389
  2,570
  2,758
  2,954
  3,157
  3,369
  3,588
  3,817
  4,055
  4,303
  4,561
  4,830
  5,111
  5,403
  5,709
  6,028
  6,362
  6,710
  7,074
  7,455
  7,854
Total equity, $m
  519
  579
  643
  710
  780
  853
  929
  1,008
  1,091
  1,177
  1,266
  1,359
  1,455
  1,555
  1,659
  1,767
  1,880
  1,997
  2,119
  2,246
  2,379
  2,517
  2,661
  2,812
  2,969
  3,133
  3,305
  3,484
  3,672
  3,869
Total liabilities and equity, $m
  1,572
  1,755
  1,948
  2,151
  2,363
  2,585
  2,815
  3,055
  3,306
  3,566
  3,836
  4,117
  4,409
  4,712
  5,028
  5,355
  5,697
  6,052
  6,422
  6,807
  7,209
  7,628
  8,064
  8,521
  8,997
  9,495
  10,015
  10,558
  11,127
  11,723
Debt-to-equity ratio
  1.490
  1.550
  1.590
  1.640
  1.670
  1.700
  1.730
  1.750
  1.770
  1.790
  1.810
  1.820
  1.840
  1.850
  1.860
  1.870
  1.880
  1.890
  1.900
  1.910
  1.910
  1.920
  1.930
  1.930
  1.940
  1.940
  1.950
  1.950
  1.950
  1.960
Adjusted equity ratio
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  88
  112
  138
  165
  194
  223
  254
  287
  321
  356
  411
  449
  489
  530
  573
  618
  665
  714
  764
  817
  873
  930
  991
  1,054
  1,120
  1,189
  1,262
  1,337
  1,417
  1,500
Depreciation, amort., depletion, $m
  89
  96
  104
  112
  121
  130
  139
  149
  159
  169
  154
  165
  177
  189
  202
  215
  228
  243
  257
  273
  289
  306
  323
  342
  361
  381
  402
  423
  446
  470
Funds from operations, $m
  177
  209
  242
  278
  314
  353
  393
  435
  479
  525
  565
  615
  666
  719
  775
  833
  893
  956
  1,022
  1,090
  1,162
  1,236
  1,314
  1,396
  1,481
  1,570
  1,663
  1,761
  1,863
  1,970
Change in working capital, $m
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
Cash from operations, $m
  158
  189
  221
  255
  291
  329
  368
  409
  452
  496
  535
  584
  634
  686
  740
  797
  856
  917
  981
  1,048
  1,117
  1,190
  1,266
  1,345
  1,428
  1,515
  1,606
  1,701
  1,800
  1,905
Maintenance CAPEX, $m
  -56
  -63
  -70
  -78
  -86
  -95
  -104
  -113
  -123
  -133
  -143
  -154
  -165
  -177
  -189
  -202
  -215
  -228
  -243
  -257
  -273
  -289
  -306
  -323
  -342
  -361
  -381
  -402
  -423
  -446
New CAPEX, $m
  -47
  -50
  -53
  -55
  -58
  -60
  -63
  -66
  -68
  -71
  -74
  -77
  -80
  -83
  -86
  -89
  -93
  -97
  -101
  -105
  -109
  -114
  -119
  -124
  -130
  -136
  -142
  -148
  -155
  -162
Cash from investing activities, $m
  -103
  -113
  -123
  -133
  -144
  -155
  -167
  -179
  -191
  -204
  -217
  -231
  -245
  -260
  -275
  -291
  -308
  -325
  -344
  -362
  -382
  -403
  -425
  -447
  -472
  -497
  -523
  -550
  -578
  -608
Free cash flow, $m
  55
  76
  98
  122
  147
  174
  201
  230
  261
  293
  319
  353
  389
  426
  465
  506
  548
  592
  638
  685
  735
  787
  841
  898
  957
  1,019
  1,083
  1,151
  1,222
  1,296
Issuance/(repayment) of debt, $m
  115
  123
  129
  136
  142
  148
  155
  161
  168
  174
  181
  188
  196
  203
  211
  220
  229
  238
  248
  258
  269
  281
  293
  306
  319
  333
  348
  364
  381
  399
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  115
  123
  129
  136
  142
  148
  155
  161
  168
  174
  181
  188
  196
  203
  211
  220
  229
  238
  248
  258
  269
  281
  293
  306
  319
  333
  348
  364
  381
  399
Total cash flow (excl. dividends), $m
  170
  198
  227
  258
  289
  322
  356
  392
  428
  467
  500
  541
  585
  630
  677
  726
  777
  830
  885
  943
  1,004
  1,068
  1,134
  1,203
  1,276
  1,352
  1,432
  1,515
  1,603
  1,695
Retained Cash Flow (-), $m
  -58
  -60
  -64
  -67
  -70
  -73
  -76
  -79
  -83
  -86
  -89
  -93
  -96
  -100
  -104
  -108
  -113
  -117
  -122
  -127
  -133
  -138
  -144
  -151
  -157
  -164
  -172
  -179
  -188
  -196
Prev. year cash balance distribution, $m
  25
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  137
  138
  164
  191
  219
  249
  280
  312
  346
  381
  411
  449
  488
  530
  573
  617
  664
  713
  763
  816
  872
  929
  990
  1,053
  1,119
  1,188
  1,260
  1,336
  1,415
  1,498
Discount rate, %
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
  127
  118
  128
  135
  139
  141
  140
  136
  130
  122
  110
  100
  89
  78
  66
  56
  46
  37
  29
  22
  17
  12
  9
  6
  4
  3
  2
  1
  1
  0
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Exchange Income Corporation is focused on opportunities in aerospace and aviation services and equipment, and manufacturing. The Company operates through two segments: Aviation and Manufacturing. The Aviation segment provides scheduled airline and charter service, and emergency medical services to communities located in Manitoba, Ontario and Nunavut. These services are provided by Calm Air International LP, Perimeter, Keewatin Air LP, Bearskin Lake Air Service LP, Custom Helicopters Ltd. and other aviation supporting businesses. Regional One focuses on supplying regional airline operators with various after-market aircraft, engines and component parts. The Manufacturing segment provides manufactured goods and related services in various industries and geographic markets throughout North America. The Manufacturing segment includes the operations of WesTower CDA, Stainless Fabrication, Inc., Overlanders Manufacturing LP, the Alberta Operations and Ben Machine Products Company Inc.

FINANCIAL RATIOS  of  Exchange Income Corporation (EIF)

Valuation Ratios
P/E Ratio 14.9
Price to Sales 1
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 6.6
Price to Free Cash Flow -6.8
Growth Rates
Sales Growth Rate 10.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 114.3%
Cap. Spend. - 3 Yr. Gr. Rate 25.7%
Financial Strength
Quick Ratio 26
Current Ratio 0
LT Debt to Equity 135.4%
Total Debt to Equity 135.6%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.9%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 5.8%
Ret/ On T. Cap. - 3 Yr. Avg. 4.1%
Return On Equity 13.1%
Return On Equity - 3 Yr. Avg. 8.8%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 37.7%
Gross Margin - 3 Yr. Avg. 34.8%
EBITDA Margin 23%
EBITDA Margin - 3 Yr. Avg. 20.6%
Operating Margin 13.1%
Oper. Margin - 3 Yr. Avg. 10.6%
Pre-Tax Margin 9.8%
Pre-Tax Margin - 3 Yr. Avg. 7%
Net Profit Margin 6.8%
Net Profit Margin - 3 Yr. Avg. 4.4%
Effective Tax Rate 29.9%
Eff/ Tax Rate - 3 Yr. Avg. 73.5%
Payout Ratio 91.8%

EIF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EIF stock intrinsic value calculation we used $891 million for the last fiscal year's total revenue generated by Exchange Income Corporation. The default revenue input number comes from 2016 income statement of Exchange Income Corporation. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our EIF stock valuation model: a) initial revenue growth rate of 12.4% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.8%, whose default value for EIF is calculated based on our internal credit rating of Exchange Income Corporation, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Exchange Income Corporation.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of EIF stock the variable cost ratio is equal to 66.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $185 million in the base year in the intrinsic value calculation for EIF stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.1% for Exchange Income Corporation.

Corporate tax rate of 27% is the nominal tax rate for Exchange Income Corporation. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the EIF stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for EIF are equal to 42.8%.

Life of production assets of 6.8 years is the average useful life of capital assets used in Exchange Income Corporation operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for EIF is equal to 17.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $486 million for Exchange Income Corporation - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 31.145 million for Exchange Income Corporation is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Exchange Income Corporation at the current share price and the inputted number of shares is $1.0 billion.

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