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Opinion for Exchange Income (EIF-T)

Signal Price Bias Subject Owned

(A Top Pick March 14/17. Up 9%.) *Short* A small manufacturer and aviation company. The aviation side of the business is far more important to them. They operate several regional airlines that service northern Canada, as well as the east coast. They also have an aircraft leasing business, Regional1 in the US. His issue is very much around their allocation of capital and that they spend their cash flow in a very dramatic way. CapX is greater than their operational cash flow, plus they have debt, plus they pay a dividend. Not a sustainable way to run a business.

Daniel Lloyd
Founder & Portfolio Manager, Sui Generis Investment Partners

1 Comment


May 3rd 2017 at 12:33pm

Several problems with Daniel Lloyd's comments:
a) because CapEx is bigger than income, you can't pay a dividend? Not so. For example, if I spend a million dollars on CapEx (buy some houses, or a plane, or a car rental company, or some farm land ...take your pick) and then I make $250,000 in income off of that business, you are going to tell me not to pay myself a dividend? Poppycock. (BTW, that's the exact ratio of CapEx to profit that EIF has .... 1:.25)
b) Daniel Lloyd would sell shares into the market now ... at $35/share. Note that EIF sold shares into the market at $42.45/share. Who is the smart one here? (Maybe EIF should institute a share buy back at these prices. They would make $7/share ... considerably better than Daniel Lloyd who is already down on his initial short)
c) Mr. Lloyd complains that they issue too many shares. Get a grip. I own a raft of REITs. Just about every one has issued shares and used it for capex. I don't see you issuing shorts on them.

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