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  5. EIF: I have owned PKI for 10 years and have done OK but now am building a case to sell. [Exchange Income Corporation]
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Q: I have owned PKI for 10 years and have done OK but now am building a case to sell. I see PKI as a company whose assets spans an oil refinery to M&M frozen foods with oil distribution and convenience stores in between. Now is facing significant capex to add EV charging stations and facing more competition in this area with the announcement that the major auto companies are to build out charging stations across Canada.

Please shot holes into my thesis. Am looking to replace with EIF, your thoughts on this company would be appreciated. Thanks. Derek
Asked by Derek on August 01, 2023
5i Research Answer:

PKI has challenges, certainly, but has managed past challenges fairly well. It likes to follow the example of ATD, on its stores at least, squeezing out costs and boosting margins. Its distribution margins vary, but we see the shift to EV as a multi-decade process and not one that should really impact the stock currently in terms of discounted valuation. Earnings can be cyclical, but since a weak year in 2010 it has had steady cash flow and significant free cash flow. Its stock is up 2.5X in the past decade, with nice dividends along the way. It is cheap at 13X earnings. Now, that being said, we did take it out of our portfolios a while back. We would consider it steady, but not perhaps 'great'. EIF is quite different, more of an income stock, but has performed well over time, with regular dividend increases. It is a bit more expensive and has less free cash flow (but is growing). Some of its businesses are near-monopolies in their regions and we are quite comfortable with the stock overall. We would be fine with this switch, if one is looking for higher yield and some 'different' growth opportunities. As essentially a holding company, EIF could move into different areas anytime.