Urthecast Corp T.UR

Canaccord Genuity comments on UrtheCast Corporation

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According to Canaccord Genuity:

https://is.gd/69YEcE

UrtheCast Corporation

RATING: SPECULATIVE BUY

PRICE TARGET: C$4.50

Launching 16 new birds

Investment recommendation

UrtheCast today announced a transformational deal, with the company moving from providing sensors on the International Space Station to launching a constellation of 16 satellites (8 SARs, 8 Optical) flying in two orbital paths. The satellites will deliver dual mode optical (video and pushbroom) and dual mode synthetic aperture radar (SAR) with L-band and X-band, which is the same band as the company is planning to deploy on the US side of the ISS.

Investment highlights

• Transformational announcement. UrtheCast appears to be transitioning from a niche player serving the market from a single platform to a potentially significant satellite operator with a constellation of 16 satellites offering SAR and optical capabilities. In our view, this is a meaningful opportunity that appears to be a significant transformation for the company.

• Constellation expected in 2019 and 2020. The company expects to launch the satellites in the next 5 years. The company did not release funding requirements, though we note that if the satellites cost $50 million to $100 million each the company will require $0.8 to $1.6 billion in capex. This is a high level estimate which is likely to change and it is not clear how much could be funded by MOUs or public financings.

• Significant MOUs signed. The company announced that it has signed MOUs with multiple customers and partners including US$195 million of funding from a confidential customer. Additionally, "these customers will provide further support and funding for the constellation." We view this as an investment positive for the stock.

• Near-term B2G contracts remain important. The company recently hosted an event to deploy "first light" images from the HRC. We continue to view the near-term opportunity from government customers as important, though in light of today's announcement this may be diminishing in importance relative to the size of the MOUs signed for this deal.

Valuation

We rate the company a SPECULATIVE BUY with a C$4.50 target price based on DCF (WACC 9.6%, beta 1.20, terminal growth rate 3.0%) as first light images further derisk the stock. While we acknowledge that the company has secured two significant contracts, we are looking for evidence that the HRC images are of a quality that meets the standards of government customers. We view today's announcement as transformational and expect further disclosure from the company in the very near term.