Skip to main content

The Globe and Mail

Battered dividend-paying small cap on the road to recovery

Analysts optimistic about airline and manufacturing firm’s prospects, but hold out for proof of WesTower Communications division turnaround.


Investors looking for a beaten down stock with exposure to a range of industrial sectors are watching the comeback of aviation and manufacturing company Exchange Income Corp.

Shares of Winnipeg-based Exchange, which operates regional airlines, communication towers and steel fabrication facilities, have rallied since hitting a two-year low in October.

The stock nosedived after the company reported problems with the rapid expansion of its WesTower Communications division, which makes and installs cellphone towers across North America. The company landed a big contract with AT&T, but had trouble finding enough resources to manage it. It was forced to bring in extra help, which led to lower margins and profits.

Story continues below advertisement

Exchange has since jumped on the problem, hiring new management and consultants to find ways to cut costs. It said last month that its WesTower division had "stabilized and began its recovery." That has brought comfort to some investors; the shares are up 25 per cent since they fell to $16.75 on Oct. 7.

Analysts say it could be a couple more quarters until the stock fully recovers, but most believe a bounce back is inevitable.

"The company is kind of in the penalty box. It's a prove me story now," said National Bank Financial analyst Trevor Johnson, who has a "buy" on the stock and $24 price target. "We think the prove out has already begun and that it will continue."

Mr. Johnson is one of seven analysts with a "buy" or equivalent rating on the stock, while one says "hold," according to S&P Capital IQ. The consensus price target over the next year is $26.31.

That's near its 52-week high of $26.72 reached a year ago, but still shy of its all-time high just above $29 in November, 2012.

Exchange offers a good mix of businesses and its recent setback with WesTower has created "an attractive entry point," said AltaCorp Capital analyst Chris Murray.

"As they continue to put up improved performance I think the stock will continue to move higher," said Mr. Murray, who has a "buy" and $27 target.

Story continues below advertisement

Exchange was founded in 2004 with goal of snapping up companies in the industrial and transportation sectors. The company has purchased about a dozen companies over the years, including its most recent acquisition, last year, of U.S. aircraft and engine parts company Regional One Inc., adding to its portfolio of regional airline companies.

About 30 per cent of Exchange's revenues are from its aviation division and the rest from manufacturing, which includes products such as stainless steel tanks and pressure-washing systems, as well as the WesTower business.

Bruce Campbell, a portfolio manager at StoneCastle Investment Management Inc., sold the stock about a year ago. He's thinking about buying back in once there's more proof its WesTower issues are fixed.

"It's one we have on our radar screen," Mr. Campbell said. "I'd like to see the margins improve. Once that's announced … I'm going to feel more comfortable."

The stock took a small hit in April after the company said Canada Revenue Agency was assessing its tax filings related to its conversion from an income trust to a corporation in 2009. Analysts don't appear worried, saying Exchange is one of a handful of former trusts being targeted. The shares have since recovered.

Many investors are attracted to the company's dividend, now yielding about 8 per cent. Analysts don't believe the dividend is at risk, despite recent problems that have weighed on the company's stock. The company pays a monthly dividend of 14 cents a share ($1.68 annualized).

Story continues below advertisement

"We believe that investors should enjoy the very solid dividend while management continues to build equity value through its disciplined acquisition strategy," said Canaccord Genuity analyst Chris Bowes in a recent note. He has a "buy" on the stock and a $26 target.

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to