Intrinsic value of Exchange Income Corporation - EIF

Previous Close

$29.87

  Intrinsic Value

$23.75

stock screener

  Rating & Target

sell

-20%

  Value-price divergence*

0%

Previous close

$29.87

 
Intrinsic value

$23.75

 
Up/down potential

-20%

 
Rating

sell

 
Value-price divergence*

0%

*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 0.9

 

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
  2.30
  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
  4.87
Revenue, $m
  891
  911
  935
  961
  990
  1,022
  1,057
  1,095
  1,135
  1,179
  1,226
  1,275
  1,328
  1,385
  1,444
  1,508
  1,575
  1,646
  1,720
  1,799
  1,883
  1,971
  2,064
  2,161
  2,264
  2,372
  2,486
  2,606
  2,733
  2,865
  3,005
Variable operating expenses, $m
 
  607
  622
  639
  658
  678
  700
  724
  750
  778
  808
  813
  847
  883
  921
  962
  1,004
  1,050
  1,097
  1,148
  1,201
  1,257
  1,316
  1,378
  1,444
  1,513
  1,586
  1,662
  1,743
  1,828
  1,917
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
  797
  816
  838
  862
  887
  915
  944
  975
  1,009
  1,045
  1,056
  1,096
  1,138
  1,182
  1,230
  1,279
  1,331
  1,386
  1,444
  1,504
  1,568
  1,634
  1,704
  1,779
  1,856
  1,938
  2,022
  2,112
  2,207
  2,305
Operating income, $m
  117
  115
  118
  123
  128
  135
  142
  151
  160
  170
  181
  219
  232
  246
  262
  278
  296
  314
  335
  356
  379
  403
  429
  456
  485
  516
  549
  584
  620
  659
  700
EBITDA, $m
  211
  212
  218
  225
  232
  241
  251
  263
  275
  289
  303
  319
  337
  355
  375
  397
  420
  444
  470
  497
  527
  558
  591
  626
  663
  703
  745
  789
  835
  885
  937
Interest expense (income), $m
  24
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  44
  46
  48
  51
  54
  56
  59
  63
  66
  70
  74
  78
  82
  86
  91
  96
  101
  106
  112
Earnings before tax, $m
  87
  88
  90
  94
  99
  104
  110
  117
  124
  132
  142
  178
  189
  201
  213
  227
  242
  258
  275
  293
  313
  333
  355
  379
  404
  430
  458
  488
  519
  553
  588
Tax expense, $m
  26
  24
  24
  25
  27
  28
  30
  31
  34
  36
  38
  48
  51
  54
  58
  61
  65
  70
  74
  79
  84
  90
  96
  102
  109
  116
  124
  132
  140
  149
  159
Net income, $m
  61
  64
  66
  69
  72
  76
  80
  85
  91
  97
  103
  130
  138
  146
  156
  166
  177
  188
  201
  214
  228
  243
  259
  277
  295
  314
  334
  356
  379
  404
  429

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
  1,431
  1,468
  1,509
  1,555
  1,605
  1,660
  1,719
  1,782
  1,851
  1,924
  2,002
  2,085
  2,174
  2,267
  2,367
  2,472
  2,583
  2,701
  2,825
  2,956
  3,094
  3,239
  3,393
  3,554
  3,724
  3,903
  4,092
  4,290
  4,498
  4,718
Adjusted assets (=assets-cash), $m
  1,399
  1,431
  1,468
  1,509
  1,555
  1,605
  1,660
  1,719
  1,782
  1,851
  1,924
  2,002
  2,085
  2,174
  2,267
  2,367
  2,472
  2,583
  2,701
  2,825
  2,956
  3,094
  3,239
  3,393
  3,554
  3,724
  3,903
  4,092
  4,290
  4,498
  4,718
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
  746
  765
  786
  810
  836
  865
  896
  929
  964
  1,003
  1,043
  1,087
  1,133
  1,181
  1,233
  1,288
  1,346
  1,407
  1,472
  1,540
  1,612
  1,688
  1,768
  1,852
  1,941
  2,034
  2,132
  2,235
  2,344
  2,458
Working capital, $m
  171
  149
  153
  158
  162
  168
  173
  180
  186
  193
  201
  209
  218
  227
  237
  247
  258
  270
  282
  295
  309
  323
  338
  354
  371
  389
  408
  427
  448
  470
  493
Total debt, $m
  659
  679
  703
  731
  762
  795
  832
  872
  914
  960
  1,009
  1,061
  1,117
  1,176
  1,239
  1,306
  1,376
  1,451
  1,530
  1,613
  1,700
  1,793
  1,890
  1,993
  2,101
  2,215
  2,335
  2,461
  2,594
  2,734
  2,881
Total liabilities, $m
  938
  959
  983
  1,011
  1,042
  1,075
  1,112
  1,152
  1,194
  1,240
  1,289
  1,341
  1,397
  1,456
  1,519
  1,586
  1,656
  1,731
  1,810
  1,893
  1,980
  2,073
  2,170
  2,273
  2,381
  2,495
  2,615
  2,741
  2,874
  3,014
  3,161
Total equity, $m
  486
  472
  484
  498
  513
  530
  548
  567
  588
  611
  635
  661
  688
  717
  748
  781
  816
  852
  891
  932
  975
  1,021
  1,069
  1,120
  1,173
  1,229
  1,288
  1,350
  1,416
  1,484
  1,557
Total liabilities and equity, $m
  1,424
  1,431
  1,467
  1,509
  1,555
  1,605
  1,660
  1,719
  1,782
  1,851
  1,924
  2,002
  2,085
  2,173
  2,267
  2,367
  2,472
  2,583
  2,701
  2,825
  2,955
  3,094
  3,239
  3,393
  3,554
  3,724
  3,903
  4,091
  4,290
  4,498
  4,718
Debt-to-equity ratio
  1.356
  1.440
  1.450
  1.470
  1.480
  1.500
  1.520
  1.540
  1.550
  1.570
  1.590
  1.610
  1.620
  1.640
  1.660
  1.670
  1.690
  1.700
  1.720
  1.730
  1.740
  1.760
  1.770
  1.780
  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
  64
  66
  69
  72
  76
  80
  85
  91
  97
  103
  130
  138
  146
  156
  166
  177
  188
  201
  214
  228
  243
  259
  277
  295
  314
  334
  356
  379
  404
  429
Depreciation, amort., depletion, $m
  94
  98
  100
  102
  104
  106
  109
  112
  115
  119
  122
  100
  104
  109
  114
  119
  124
  129
  135
  142
  148
  155
  162
  170
  178
  187
  196
  205
  215
  225
  236
Funds from operations, $m
  97
  162
  166
  170
  176
  182
  189
  197
  206
  215
  226
  230
  242
  255
  269
  285
  301
  318
  336
  356
  376
  398
  422
  446
  473
  501
  530
  561
  594
  629
  666
Change in working capital, $m
  -40
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
Cash from operations, $m
  137
  158
  162
  166
  171
  177
  184
  191
  199
  208
  218
  222
  234
  246
  260
  274
  290
  306
  324
  343
  363
  384
  407
  430
  456
  483
  511
  541
  573
  607
  643
Maintenance CAPEX, $m
  0
  -70
  -72
  -74
  -76
  -78
  -80
  -83
  -86
  -89
  -93
  -96
  -100
  -104
  -109
  -114
  -119
  -124
  -129
  -135
  -142
  -148
  -155
  -162
  -170
  -178
  -187
  -196
  -205
  -215
  -225
New CAPEX, $m
  -270
  -17
  -19
  -22
  -24
  -26
  -28
  -31
  -33
  -36
  -38
  -41
  -43
  -46
  -49
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -76
  -80
  -84
  -89
  -93
  -98
  -103
  -109
  -114
Cash from investing activities, $m
  -251
  -87
  -91
  -96
  -100
  -104
  -108
  -114
  -119
  -125
  -131
  -137
  -143
  -150
  -158
  -166
  -174
  -182
  -190
  -200
  -210
  -220
  -231
  -242
  -254
  -267
  -280
  -294
  -308
  -324
  -339
Free cash flow, $m
  -114
  71
  71
  71
  72
  73
  75
  77
  80
  83
  87
  85
  90
  96
  102
  109
  116
  124
  133
  143
  153
  164
  176
  188
  202
  216
  231
  248
  265
  284
  303
Issuance/(repayment) of debt, $m
  175
  21
  25
  28
  31
  34
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  70
  75
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126
  133
  140
  147
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
  21
  25
  28
  31
  34
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  70
  75
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126
  133
  140
  147
Total cash flow (excl. dividends), $m
  67
  92
  95
  99
  102
  106
  111
  117
  123
  129
  136
  137
  146
  155
  165
  175
  187
  199
  212
  226
  241
  256
  273
  291
  310
  330
  351
  374
  398
  423
  450
Retained Cash Flow (-), $m
  -39
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -69
  -72
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
 
  106
  83
  85
  87
  90
  93
  97
  102
  107
  112
  111
  118
  126
  134
  143
  152
  162
  173
  185
  197
  211
  225
  240
  257
  274
  292
  312
  333
  355
  378
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
 
  98
  71
  66
  62
  57
  53
  48
  44
  40
  36
  30
  26
  23
  20
  17
  14
  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 14.1
Price to Sales 1
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 6.3
Price to Free Cash Flow -6.5
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 2.3% 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 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 31.588 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 $0.9 billion.

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Stock chart of EIF 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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