Intrinsic value of Exchange Income Corporation - EIF

Previous Close

$36.00

  Intrinsic Value

$109.36

stock screener

  Rating & Target

str. buy

+204%

Previous close

$36.00

 
Intrinsic value

$109.36

 
Up/down potential

+204%

 
Rating

str. buy

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 1.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   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, %
  10.41
  20.30
  18.77
  17.39
  16.15
  15.04
  14.03
  13.13
  12.32
  11.59
  10.93
  10.33
  9.80
  9.32
  8.89
  8.50
  8.15
  7.84
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
Revenue, $m
  891
  1,072
  1,273
  1,494
  1,736
  1,997
  2,277
  2,576
  2,894
  3,229
  3,582
  3,952
  4,339
  4,744
  5,165
  5,604
  6,061
  6,536
  7,030
  7,542
  8,075
  8,629
  9,205
  9,804
  10,428
  11,076
  11,752
  12,455
  13,189
  13,954
  14,752
Variable operating expenses, $m
 
  710
  838
  979
  1,133
  1,300
  1,478
  1,669
  1,872
  2,085
  2,310
  2,521
  2,768
  3,026
  3,295
  3,575
  3,866
  4,169
  4,484
  4,811
  5,151
  5,504
  5,871
  6,253
  6,651
  7,065
  7,495
  7,944
  8,412
  8,900
  9,409
Fixed operating expenses, $m
 
  190
  194
  199
  204
  209
  215
  220
  225
  231
  237
  243
  249
  255
  261
  268
  275
  281
  289
  296
  303
  311
  318
  326
  335
  343
  352
  360
  369
  379
  388
Total operating expenses, $m
  774
  900
  1,032
  1,178
  1,337
  1,509
  1,693
  1,889
  2,097
  2,316
  2,547
  2,764
  3,017
  3,281
  3,556
  3,843
  4,141
  4,450
  4,773
  5,107
  5,454
  5,815
  6,189
  6,579
  6,986
  7,408
  7,847
  8,304
  8,781
  9,279
  9,797
Operating income, $m
  117
  173
  241
  316
  399
  488
  584
  687
  797
  912
  1,034
  1,189
  1,323
  1,463
  1,609
  1,762
  1,921
  2,086
  2,257
  2,436
  2,622
  2,815
  3,016
  3,224
  3,442
  3,669
  3,905
  4,151
  4,407
  4,675
  4,955
EBITDA, $m
  211
  266
  347
  436
  534
  640
  754
  875
  1,005
  1,142
  1,286
  1,437
  1,596
  1,762
  1,934
  2,115
  2,302
  2,497
  2,700
  2,911
  3,130
  3,358
  3,595
  3,842
  4,098
  4,366
  4,644
  4,935
  5,238
  5,554
  5,883
Interest expense (income), $m
  24
  27
  35
  43
  53
  63
  75
  87
  100
  113
  128
  143
  159
  176
  193
  211
  230
  250
  270
  292
  314
  337
  361
  385
  411
  438
  466
  495
  526
  557
  590
Earnings before tax, $m
  87
  146
  206
  273
  346
  425
  510
  600
  697
  799
  907
  1,046
  1,164
  1,287
  1,416
  1,551
  1,690
  1,836
  1,987
  2,144
  2,308
  2,478
  2,655
  2,839
  3,031
  3,230
  3,438
  3,655
  3,882
  4,118
  4,365
Tax expense, $m
  26
  39
  56
  74
  93
  115
  138
  162
  188
  216
  245
  282
  314
  348
  382
  419
  456
  496
  537
  579
  623
  669
  717
  767
  818
  872
  928
  987
  1,048
  1,112
  1,178
Net income, $m
  61
  106
  150
  199
  252
  310
  372
  438
  509
  583
  662
  763
  850
  940
  1,034
  1,132
  1,234
  1,340
  1,451
  1,565
  1,685
  1,809
  1,938
  2,072
  2,212
  2,358
  2,510
  2,668
  2,834
  3,006
  3,186

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  26
  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
  1,425
  1,683
  1,999
  2,346
  2,725
  3,135
  3,575
  4,044
  4,543
  5,069
  5,623
  6,204
  6,812
  7,447
  8,109
  8,798
  9,515
  10,261
  11,035
  11,841
  12,677
  13,547
  14,451
  15,391
  16,370
  17,388
  18,448
  19,553
  20,705
  21,906
  23,159
Adjusted assets (=assets-cash), $m
  1,399
  1,683
  1,999
  2,346
  2,725
  3,135
  3,575
  4,044
  4,543
  5,069
  5,623
  6,204
  6,812
  7,447
  8,109
  8,798
  9,515
  10,261
  11,035
  11,841
  12,677
  13,547
  14,451
  15,391
  16,370
  17,388
  18,448
  19,553
  20,705
  21,906
  23,159
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
  0.637
Average production assets, $m
  382
  459
  545
  640
  743
  855
  975
  1,103
  1,238
  1,382
  1,533
  1,691
  1,857
  2,030
  2,211
  2,399
  2,594
  2,797
  3,009
  3,228
  3,456
  3,693
  3,940
  4,196
  4,463
  4,741
  5,030
  5,331
  5,645
  5,972
  6,314
Working capital, $m
  179
  185
  220
  259
  300
  345
  394
  446
  501
  559
  620
  684
  751
  821
  894
  970
  1,049
  1,131
  1,216
  1,305
  1,397
  1,493
  1,593
  1,696
  1,804
  1,916
  2,033
  2,155
  2,282
  2,414
  2,552
Total debt, $m
  659
  847
  1,059
  1,292
  1,546
  1,820
  2,115
  2,430
  2,763
  3,116
  3,487
  3,877
  4,284
  4,709
  5,153
  5,615
  6,095
  6,595
  7,114
  7,653
  8,214
  8,797
  9,402
  10,032
  10,688
  11,370
  12,080
  12,821
  13,592
  14,397
  15,237
Total liabilities, $m
  938
  1,127
  1,339
  1,572
  1,826
  2,100
  2,395
  2,710
  3,043
  3,396
  3,767
  4,157
  4,564
  4,989
  5,433
  5,895
  6,375
  6,875
  7,394
  7,933
  8,494
  9,077
  9,682
  10,312
  10,968
  11,650
  12,360
  13,101
  13,872
  14,677
  15,517
Total equity, $m
  486
  555
  660
  774
  899
  1,035
  1,180
  1,335
  1,499
  1,673
  1,855
  2,047
  2,248
  2,457
  2,676
  2,903
  3,140
  3,386
  3,642
  3,907
  4,184
  4,471
  4,769
  5,079
  5,402
  5,738
  6,088
  6,453
  6,833
  7,229
  7,642
Total liabilities and equity, $m
  1,424
  1,682
  1,999
  2,346
  2,725
  3,135
  3,575
  4,045
  4,542
  5,069
  5,622
  6,204
  6,812
  7,446
  8,109
  8,798
  9,515
  10,261
  11,036
  11,840
  12,678
  13,548
  14,451
  15,391
  16,370
  17,388
  18,448
  19,554
  20,705
  21,906
  23,159
Debt-to-equity ratio
  1.356
  1.530
  1.610
  1.670
  1.720
  1.760
  1.790
  1.820
  1.840
  1.860
  1.880
  1.890
  1.910
  1.920
  1.930
  1.930
  1.940
  1.950
  1.950
  1.960
  1.960
  1.970
  1.970
  1.980
  1.980
  1.980
  1.980
  1.990
  1.990
  1.990
  1.990
Adjusted equity ratio
  0.329
  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
  61
  106
  150
  199
  252
  310
  372
  438
  509
  583
  662
  763
  850
  940
  1,034
  1,132
  1,234
  1,340
  1,451
  1,565
  1,685
  1,809
  1,938
  2,072
  2,212
  2,358
  2,510
  2,668
  2,834
  3,006
  3,186
Depreciation, amort., depletion, $m
  94
  93
  106
  120
  135
  152
  169
  188
  208
  229
  251
  249
  273
  299
  325
  353
  381
  411
  442
  475
  508
  543
  579
  617
  656
  697
  740
  784
  830
  878
  929
Funds from operations, $m
  97
  200
  256
  319
  388
  462
  541
  626
  717
  813
  913
  1,012
  1,123
  1,238
  1,359
  1,485
  1,615
  1,752
  1,893
  2,040
  2,193
  2,352
  2,517
  2,690
  2,869
  3,055
  3,250
  3,452
  3,664
  3,884
  4,115
Change in working capital, $m
  -40
  31
  35
  38
  42
  45
  48
  52
  55
  58
  61
  64
  67
  70
  73
  76
  79
  82
  85
  89
  92
  96
  100
  104
  108
  112
  117
  122
  127
  132
  138
Cash from operations, $m
  137
  168
  222
  281
  346
  416
  493
  575
  662
  755
  852
  948
  1,056
  1,168
  1,286
  1,409
  1,536
  1,669
  1,808
  1,951
  2,101
  2,256
  2,418
  2,586
  2,761
  2,943
  3,133
  3,331
  3,537
  3,752
  3,977
Maintenance CAPEX, $m
  0
  -56
  -67
  -80
  -94
  -109
  -126
  -143
  -162
  -182
  -203
  -225
  -249
  -273
  -299
  -325
  -353
  -381
  -411
  -442
  -475
  -508
  -543
  -579
  -617
  -656
  -697
  -740
  -784
  -830
  -878
New CAPEX, $m
  -270
  -77
  -86
  -95
  -103
  -112
  -120
  -128
  -136
  -143
  -151
  -158
  -166
  -173
  -180
  -188
  -195
  -203
  -211
  -220
  -228
  -237
  -247
  -256
  -267
  -278
  -289
  -301
  -314
  -327
  -342
Cash from investing activities, $m
  -251
  -133
  -153
  -175
  -197
  -221
  -246
  -271
  -298
  -325
  -354
  -383
  -415
  -446
  -479
  -513
  -548
  -584
  -622
  -662
  -703
  -745
  -790
  -835
  -884
  -934
  -986
  -1,041
  -1,098
  -1,157
  -1,220
Free cash flow, $m
  -114
  35
  68
  106
  148
  195
  247
  303
  364
  429
  498
  564
  641
  722
  807
  896
  988
  1,085
  1,185
  1,289
  1,398
  1,511
  1,628
  1,750
  1,877
  2,009
  2,147
  2,290
  2,439
  2,595
  2,757
Issuance/(repayment) of debt, $m
  175
  189
  212
  233
  254
  275
  295
  315
  334
  353
  371
  389
  407
  425
  444
  462
  480
  499
  519
  539
  561
  583
  606
  630
  655
  682
  710
  740
  772
  805
  840
Issuance/(repurchase) of shares, $m
  6
  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  
  181
  189
  212
  233
  254
  275
  295
  315
  334
  353
  371
  389
  407
  425
  444
  462
  480
  499
  519
  539
  561
  583
  606
  630
  655
  682
  710
  740
  772
  805
  840
Total cash flow (excl. dividends), $m
  67
  225
  280
  339
  402
  470
  542
  618
  698
  782
  869
  953
  1,049
  1,148
  1,251
  1,357
  1,469
  1,584
  1,704
  1,829
  1,959
  2,094
  2,234
  2,380
  2,533
  2,691
  2,857
  3,030
  3,211
  3,399
  3,596
Retained Cash Flow (-), $m
  -39
  -94
  -104
  -115
  -125
  -135
  -145
  -155
  -164
  -174
  -183
  -192
  -201
  -210
  -218
  -227
  -237
  -246
  -256
  -266
  -276
  -287
  -298
  -310
  -323
  -336
  -350
  -365
  -380
  -396
  -414
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
 
  155
  175
  224
  277
  335
  397
  463
  533
  608
  686
  762
  848
  938
  1,032
  1,130
  1,232
  1,338
  1,448
  1,563
  1,682
  1,807
  1,936
  2,070
  2,210
  2,355
  2,507
  2,665
  2,831
  3,003
  3,183
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
 
  144
  150
  175
  196
  213
  225
  231
  232
  228
  219
  204
  189
  171
  151
  131
  111
  92
  75
  59
  46
  35
  26
  18
  13
  9
  6
  4
  2
  1
  1
Current shareholders' claim on cash, %
  100
  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 17
Price to Sales 1.2
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 7.6
Price to Free Cash Flow -7.8
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 20.3% 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 30.691 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 $1.1 billion.

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Financial statements of EIF
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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