Urthecast Corp T.UR

Sell side research / 2

[ice9997]

Canaccord, Feb 7th

UrtheDaily Gets Key Customer Commitment

Investment Recommendation
Hot on the heels of firming up its first OptiSAR customer, UrtheCast this morning
announced an anchor customer for its UrtheDaily constellation. UrtheDaily is smaller in
terms of the scope of the build vs. OptiSAR but we do believe daily medium resolution
imagery of the entire global landmass has countless applications. Moving both these
constellations further from concept to reality continues to have very positive implications
for UR shares (up >70% since January 17). Our current valuation of C$2.25 per share
is based on C$1.75 for the existing business and a C$0.50 heavily discounted value
of the OptiSAR build phase (our prior note illustrates that opportunity alone could be
worth much more). There is no value at this point ascribed to UrtheDaily given uncertain
contract terms, values and timing but we believe this opportunity alone could also drive
significant upside to the current share price. UrtheCast remains SPECULATIVE BUY-rated
with a C$2.25 target.
Investment Highlights
• GEOSYS lends credence to the UrtheCast value proposition. GEOSYS is a subsidiary
of Land O’ Lakes which through its WinField and GEOSYS subsidiaries is one of the
world’s largest agricultural services providers. GEOSYS selected UrtheCast’s UrtheDaily
program to fulfill its future geospatial imagery needs after a competitive RFP. The press
release noted that GEOSYS is one of UrtheCast’s largest current customers.
• Moving UrtheDaily closer to fruition. The press release held no financial specifics
but we understand that this anchor agreement, combined with other smaller
commitments, means that the company is getting close to sufficient financial support
to move UrtheDaily into build phase.
• While smaller in scope, the potential for UrtheDaily is also immense. On top of
being smaller in terms of the constellation build, UrtheDaily is a different model than
OptiSAR. The objective here is to secure enough purchase commitments like GEOSYS
to enable UrtheCast to project finance the build phase (we estimate >$100M in
build cost). Once built, the data set produced can be sold repeatedly. This market
opportunity is growing quickly, driven by the emergence of new analytics and big
data capabilities. We think demand for the data products based on this imagery
set can easily grow to the hundreds of millions per year. This view seems to agree
with the high valuations placed on private entities like Planet Labs focused on these
markets. Currently we don’t ascribe any value for UrtheDaily in our C$2.25 target given
uncertain timing/terms but some back-of-the envelope math suggests this too could
also be a several-dollars-per-share opportunity if successful.

Valuation
Based on our 2017 estimates, the stock trades at 12x EV/ EBITDA. Our target price of
C$2.25 reflects 8x EV/EBITDA on our forward estimates, one year out, plus the $0.50
DCF-based value for the OptiSAR constellation potential. Every announcement moving
the OptiSAR and UrtheDaily constellations closer to reality is likely to decrease the
discount applied to the very high valuation of these opportunities.