Intrinsic value of Exchange Income Corporation - EIF

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$35.05

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$35.05

 
Intrinsic value

$26.06

 
Up/down potential

-26%

 
Rating

sell

 
Value-price divergence* premium content

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*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
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  891
  909
  930
  954
  980
  1,010
  1,043
  1,078
  1,117
  1,158
  1,203
  1,250
  1,301
  1,355
  1,412
  1,473
  1,538
  1,606
  1,678
  1,755
  1,835
  1,920
  2,010
  2,105
  2,204
  2,309
  2,420
  2,536
  2,659
  2,787
  2,923
Variable operating expenses, $m
 
  606
  619
  634
  651
  670
  691
  714
  738
  765
  793
  797
  830
  864
  901
  940
  981
  1,024
  1,071
  1,119
  1,171
  1,225
  1,282
  1,342
  1,406
  1,473
  1,543
  1,618
  1,696
  1,778
  1,864
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
  796
  813
  833
  855
  879
  906
  934
  963
  996
  1,030
  1,040
  1,079
  1,119
  1,162
  1,208
  1,256
  1,305
  1,360
  1,415
  1,474
  1,536
  1,600
  1,668
  1,741
  1,816
  1,895
  1,978
  2,065
  2,157
  2,252
Operating income, $m
  117
  114
  116
  120
  125
  131
  137
  145
  153
  162
  173
  210
  222
  236
  250
  266
  282
  300
  319
  340
  362
  385
  410
  436
  464
  493
  525
  558
  594
  631
  671
EBITDA, $m
  211
  211
  215
  221
  228
  236
  245
  255
  267
  280
  293
  308
  325
  342
  361
  382
  403
  427
  451
  478
  506
  536
  568
  601
  637
  675
  715
  758
  803
  850
  900
Interest expense (income), $m
  24
  27
  28
  29
  30
  31
  32
  33
  35
  37
  38
  40
  42
  45
  47
  49
  52
  55
  58
  61
  64
  68
  71
  75
  79
  84
  88
  93
  98
  103
  109
Earnings before tax, $m
  87
  87
  89
  92
  95
  100
  105
  111
  118
  126
  134
  170
  180
  191
  203
  216
  230
  245
  262
  279
  297
  317
  338
  361
  384
  410
  437
  465
  496
  528
  562
Tax expense, $m
  26
  23
  24
  25
  26
  27
  28
  30
  32
  34
  36
  46
  49
  52
  55
  58
  62
  66
  71
  75
  80
  86
  91
  97
  104
  111
  118
  126
  134
  142
  152
Net income, $m
  61
  63
  65
  67
  70
  73
  77
  81
  86
  92
  98
  124
  131
  139
  148
  158
  168
  179
  191
  204
  217
  232
  247
  263
  281
  299
  319
  340
  362
  385
  410

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
  1,427
  1,460
  1,497
  1,539
  1,586
  1,637
  1,693
  1,753
  1,818
  1,888
  1,963
  2,042
  2,127
  2,217
  2,313
  2,414
  2,521
  2,635
  2,755
  2,881
  3,015
  3,156
  3,304
  3,461
  3,625
  3,799
  3,981
  4,174
  4,376
  4,588
Adjusted assets (=assets-cash), $m
  1,399
  1,427
  1,460
  1,497
  1,539
  1,586
  1,637
  1,693
  1,753
  1,818
  1,888
  1,963
  2,042
  2,127
  2,217
  2,313
  2,414
  2,521
  2,635
  2,755
  2,881
  3,015
  3,156
  3,304
  3,461
  3,625
  3,799
  3,981
  4,174
  4,376
  4,588
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
  729
  743
  761
  780
  802
  826
  853
  882
  913
  947
  984
  1,023
  1,064
  1,108
  1,155
  1,205
  1,258
  1,314
  1,373
  1,435
  1,501
  1,571
  1,644
  1,722
  1,803
  1,889
  1,979
  2,075
  2,175
  2,280
  2,391
Working capital, $m
  171
  149
  152
  156
  161
  166
  171
  177
  183
  190
  197
  205
  213
  222
  232
  242
  252
  263
  275
  288
  301
  315
  330
  345
  362
  379
  397
  416
  436
  457
  479
Total debt, $m
  659
  676
  698
  723
  751
  782
  817
  854
  895
  938
  985
  1,035
  1,088
  1,145
  1,205
  1,270
  1,337
  1,409
  1,485
  1,566
  1,650
  1,740
  1,834
  1,934
  2,039
  2,149
  2,265
  2,388
  2,516
  2,652
  2,794
Total liabilities, $m
  938
  956
  978
  1,003
  1,031
  1,062
  1,097
  1,134
  1,175
  1,218
  1,265
  1,315
  1,368
  1,425
  1,485
  1,550
  1,617
  1,689
  1,765
  1,846
  1,930
  2,020
  2,114
  2,214
  2,319
  2,429
  2,545
  2,668
  2,796
  2,932
  3,074
Total equity, $m
  486
  471
  482
  494
  508
  523
  540
  559
  579
  600
  623
  648
  674
  702
  732
  763
  797
  832
  870
  909
  951
  995
  1,041
  1,090
  1,142
  1,196
  1,254
  1,314
  1,377
  1,444
  1,514
Total liabilities and equity, $m
  1,424
  1,427
  1,460
  1,497
  1,539
  1,585
  1,637
  1,693
  1,754
  1,818
  1,888
  1,963
  2,042
  2,127
  2,217
  2,313
  2,414
  2,521
  2,635
  2,755
  2,881
  3,015
  3,155
  3,304
  3,461
  3,625
  3,799
  3,982
  4,173
  4,376
  4,588
Debt-to-equity ratio
  1.356
  1.440
  1.450
  1.460
  1.480
  1.500
  1.510
  1.530
  1.550
  1.560
  1.580
  1.600
  1.610
  1.630
  1.650
  1.660
  1.680
  1.690
  1.710
  1.720
  1.740
  1.750
  1.760
  1.770
  1.790
  1.800
  1.810
  1.820
  1.830
  1.840
  1.850
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
  63
  65
  67
  70
  73
  77
  81
  86
  92
  98
  124
  131
  139
  148
  158
  168
  179
  191
  204
  217
  232
  247
  263
  281
  299
  319
  340
  362
  385
  410
Depreciation, amort., depletion, $m
  94
  97
  99
  101
  103
  105
  108
  111
  114
  117
  121
  98
  102
  107
  111
  116
  121
  126
  132
  138
  144
  151
  158
  166
  173
  182
  190
  199
  209
  219
  230
Funds from operations, $m
  97
  161
  164
  168
  173
  178
  185
  192
  200
  209
  219
  222
  234
  246
  259
  274
  289
  305
  323
  342
  361
  383
  405
  429
  454
  481
  509
  539
  571
  604
  640
Change in working capital, $m
  -40
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Cash from operations, $m
  137
  230
  160
  164
  168
  173
  179
  186
  194
  202
  211
  214
  225
  237
  250
  264
  278
  294
  311
  329
  348
  369
  390
  413
  438
  464
  491
  520
  551
  583
  618
Maintenance CAPEX, $m
  0
  -70
  -71
  -73
  -75
  -77
  -79
  -82
  -85
  -88
  -91
  -95
  -98
  -102
  -107
  -111
  -116
  -121
  -126
  -132
  -138
  -144
  -151
  -158
  -166
  -173
  -182
  -190
  -199
  -209
  -219
New CAPEX, $m
  -270
  -15
  -17
  -20
  -22
  -24
  -27
  -29
  -31
  -34
  -36
  -39
  -42
  -44
  -47
  -50
  -53
  -56
  -59
  -62
  -66
  -70
  -73
  -77
  -82
  -86
  -90
  -95
  -100
  -105
  -111
Cash from investing activities, $m
  -251
  -85
  -88
  -93
  -97
  -101
  -106
  -111
  -116
  -122
  -127
  -134
  -140
  -146
  -154
  -161
  -169
  -177
  -185
  -194
  -204
  -214
  -224
  -235
  -248
  -259
  -272
  -285
  -299
  -314
  -330
Free cash flow, $m
  -114
  145
  72
  71
  71
  72
  73
  75
  77
  80
  84
  81
  86
  91
  96
  103
  110
  117
  126
  135
  144
  155
  166
  178
  191
  204
  219
  235
  251
  269
  288
Issuance/(repayment) of debt, $m
  175
  18
  22
  25
  28
  31
  34
  37
  40
  44
  47
  50
  53
  57
  60
  64
  68
  72
  76
  80
  85
  89
  94
  99
  105
  110
  116
  122
  129
  135
  142
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
  18
  22
  25
  28
  31
  34
  37
  40
  44
  47
  50
  53
  57
  60
  64
  68
  72
  76
  80
  85
  89
  94
  99
  105
  110
  116
  122
  129
  135
  142
Total cash flow (excl. dividends), $m
  67
  163
  94
  96
  100
  103
  108
  112
  118
  124
  131
  131
  139
  148
  157
  167
  178
  189
  202
  215
  229
  244
  260
  277
  295
  315
  335
  357
  380
  404
  430
Retained Cash Flow (-), $m
  -39
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -25
  -26
  -28
  -30
  -32
  -33
  -35
  -37
  -40
  -42
  -44
  -46
  -49
  -52
  -54
  -57
  -60
  -63
  -67
  -70
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
 
  178
  83
  84
  86
  88
  91
  94
  98
  102
  108
  106
  113
  120
  127
  135
  144
  154
  164
  175
  187
  200
  214
  228
  244
  260
  278
  297
  317
  338
  360
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
 
  165
  71
  66
  61
  56
  51
  47
  43
  38
  34
  29
  25
  22
  19
  16
  13
  11
  9
  7
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
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 engages in aviation services and equipment, and manufacturing businesses worldwide. It 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. This segment also provides scheduled airline and charter service in Newfoundland and Labrador, Quebec, New Brunswick, and Nova Scotia. In addition, it supplies various after-market aircraft, engines, and component parts to regional airline operators; designs, modifies, maintains, and operates custom sensor equipped aircraft; and offers maritime surveillance and support services in Canada, the Caribbean, and the Middle East. The Manufacturing segment manufactures stainless steel tanks, vessels, and processing equipment; heavy duty pressure washing and steam systems; commercial water recycling systems; custom tanks for the transportation of various products primarily oil, gasoline, and water; and precision sheet metal and tubular products. This segment also focuses on the engineering, design, manufacture, construction, maintenance, and service of communication towers; and manufacture of precision parts and components. Exchange Income Corporation is headquartered in Winnipeg, Canada.

FINANCIAL RATIOS  of  Exchange Income Corporation (EIF)

Valuation Ratios
P/E Ratio 16.5
Price to Sales 1.1
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow -7.6
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 2% 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 81.8%.

Life of production assets of 10.4 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 16.4%. 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 30.625 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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Valuation of Stocks

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