I’ve been reading up on the Telesat/MDA story and find it fascinating. I wonder if it could also be lucrative for a small investor such as myself?
From reviewing the financials (to the limited extent I understand those documents) and other materials relating to MDA, my impression is that it presents a real investment opportunity. It does real business and it appears from its recent contracts that its revenues over the next few years could rise significantly. At its current revenue base it appears its debt is well covered and its balance sheet looks healthy.
Telesat, to me, is less clear. It seems the recent announcement that MDA will build the satellites for the Telesat Lightspeed project at significant savings to the previous plan is propelling the recent steep increase in share price. But beyond that euphoria, is the company on solid footing?
The MD&A of March 2023 states:
“After decades of developing and successfully operating our geosynchronous orbit-based satellite services business, we are now poised to revolutionize the provision of global broadband connectivity by developing what we believe will be the one of world’s most advanced constellations of LEO satellites and integrated terrestrial infrastructure, Telesat Lightspeed.
Leading into 2023, we remain focused on increasing the utilization of our existing satellites, the development of our global Telesat Lightspeed constellation, and identifying and pursuing opportunities to invest in expansion satellite capacity all while maintaining our operating discipline.”
Nowhere though have I been able to find any prediction of the revenue that will accrue to Telesat from deployment of the Telesat Lightspeed constellation. A service I subscribe to notes that future earnings can’t be reliably calculated by extrapolating past data or using analyst projections (there aren’t any) and it doesn’t look like management has offered anything either. Who are Telesat’s customers and what are they going to pay for getting aboard the Lightspeed train?”
Telesat’s balance sheet appears highly leveraged and its debt isn’t well covered by operating cash flow. If Telesat Lightspeed is a truly transformational project I’d have expected to see something, somewhere, discussing the money it will make for Telesat and how it will reduce the debt and increase shareholder value, but as far as I can tell – nothing but crickets.
I would greatly appreciate your advice regarding MDA – are there risks/concerns that I might be overlooking?
Regarding Telesat, do you know of any revenue projections that I’ve overlooked and, if not, is it odd none are being made? Also, any other comment you have regarding Telesat would be appreciated. Is something really big about to happen here? It seems the process should be far enough along, given that billions of dollars have been committed by lenders, governments and the company itself, to answer that question. But maybe not, and maybe it's all still highly speculative ...?
Thanks, 5i, and please deduct as you see fit.
Peter
MDA is a unique company in the Canadian market and looks decent. It is a bit leveraged, but with strong expected growth we would not see this as a concern. Certainly with new contracts revenue is going to ramp up. If it can control expenses margins should be improved nicely. We think it is buyable for more aggressive investors. Another big contract we think could change the valuation significantly, as it would indicate good customer traction and acceptance. We agree TSAT is not as easy to call. There is one analyst noted but no estimates. It has had a big run, and any delays in its project/cash flow would see some profit taking. It says it has 'customers worldwide'. It did lose a South American customer this year. It does not name customers, but offers this: ' Approximately 45% of our revenue is derived from North American DTH customers who signed long term (~15 years) contracts. Roughly half of our revenue is derived from providing vital connectivity services to companies that we have served for decades, including telecommunication companies, mobile network operators, users in the aeronautical and maritime markets, energy and natural resource companies, and governments'. With the merger of Loral in 2021, there is difficulty in predicting how TSAT may play out. For now investors love it, but we do expect shares to consolidate somewhat, and we do consider it higher risk.