TSX:MDA - Post Discussion
Post by
retiredcf on Nov 09, 2023 7:26am
RBC 2 (Raise Target)
Their upside scenario target is $20.00. GLTA
Outperform
TSX: MDA; CAD 12.20
Price Target CAD 15.00 ↑ 14.00
Strong backlog growth supports confidence in 2024, maintain Outperform and PT to $15
Our view: MDA posted strong 3Q23 results, beating consensus revenue estimates by 5% and adj. EBITDA estimates by ~20%. Organic revenue growth was 19%, and adj. EBITDA margins were 20.9% and gross margins were 28.2%. The total backlog now stands at just over $3B, and in our view provides substantial confidence on the 2024-2025 outlook. Management sounded confident about additional contract wins, and has capacity to support substantial growth. FCF reflects WC investments, but increase in 2023 guidance a positive. We are maintaining our Outperform rating and increasing our price target to $15.
Key points:
MDA Ltd. (MDA) reported 3Q23 earnings results with revenue of $205M, up 19% YoY and adj. EBITDA of $42.8M compared to consensus estimates of $35.7M. The top-line growth in the quarter was again driven by Satellite Systems (up 31%) and Robotics & Space Operations (up 13%). We believe the company continues to demonstrate strong execution. We also believe continued strength in revenue and backlog growth will support a more bullish sentiment on the stock even as investments to support the growth remain elevated.
Management is moving up slightly from the long-term 18%-20% margin guidance. While the 2023 guidance implies ~1x 4Q23 margins, we believe the longer-term outlook should support margins closer to ~20%. Execution on the Telesat program will be important for 2024-2026 margins, but considering the flat Telesat revenues in 2024, we expect more potential margin pressure from Telesat in 2025-2026. Moreover, incremental contracts will be important for future margins, but we believe pricing on the digital satellite capacity and potential merchant supplier contracts should support elevated margin expectations.
The company posted the $2.1B Telesat order in 3Q23. The total backlog is now at just over $3B, and the TTM bookings were ~$2.5B. Even with the Telesat award, management has adequate capacity for other new business opportunities. Telesat is expected to account for just ~200 of the expected 2,000 satellite capacity over the 2024-2028 period. Management was less specific on the new business opportunities, but continues to highlight opportunities both as a merchant supplier (antennas, electronics, payloads) and as a satellite prime, primarily leveraging its digital satellite technology.
The increase to 2023 guidance a positive, but expected. The company has raised its 2023 adj. EBITDA target, and with the revenue update, total sales for the full year are expected to be up ~25% YoY. Management also narrowed the capital expenditure guide for the full year to now $200M- $210M. We are maintaining our OP rating and increasing our PT to $15, which is based on a 9x multiple applied to our FY25 adj. EBITDA estimate.
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