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shakerman640on Jun 24, 2015 8:51am
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GMP Securities: UrtheCast Corp. versus exactEarth Limited
GMP Securities: UrtheCast Corp. versus exactEarth LimitedAccording to GMP Securities:
https://personal.crocodoc.com/zwmly2e
FLASH: exactEarth to IPO
• No details on size or pricing of IPO yet: COM DEV announced June 23 that it would spin out exactEarth into a stand-alone company via an initial public offering. The company filed a preliminary prospectus but no offering size or pricing range was provided.
• More details on financials and addressable market: The prospectus offers a more detailed look at exactEarth’s history, full audited financial statements, and a detailed overview of the company’s target market and intended use of proceeds. Notably, exactEarth states it will target a broader connected devices market beyond maritime services (i.e. M2M).
• Some cost reclassification and related-party debt: From our perspective, we learned little that materially changes our view for exactEarth and our financial forecasts and valuation for this business. In particular, we observed differences in classification of non-cash costs between COGS and OPEX vs our expectations, and differences in debt for exactEarth. On the latter, exactEarth reported $34.8mm in related-party debt owed to equity owners COM DEV and Hisdesat. This was unclear to us in previous filings. Moreover, the prospectus states that $44mm of the proceeds of the IPO will be used to pay off these loans, while a secondary offering would only come out of the over-allotment on an up-sided deal. By our interpretation, this would provide an injection of capital for COM DEV’s core-business, without diluting its stake in exactEarth.
Impact: Positive. IPO to surface hidden value for exactEarth
• No change to our valuation scenario for exactEarth: In a recent report, we outlined a detailed 10-year forecast and valuation range for exactEarth and estimated the company could be worth $168-$250mm over the near-term, and $615- $780mm over a longer period. This implies a valuation of 6-9x F2018E EV/EBITDA and 7-9x F2024E EV/EBITDA. This also implies $1.57-$2.40 per share and $4.86-6.15 per share for COM DEV’s stake, respectively. We see no reason at this stage to revise our scenario analysis and valuation range.
• We carry exactEarth at $200mm or $2.00/sh for CDV shareholders: Our target price of $6.60 is based on a sum-of-the-parts analysis that values the core space business at $4.60/sh (9.5x F2016 EV/EBITDA) plus exactEarth at $2.00/sh or 14.8x F2016 EV/EBITDA and 6.1x EV/Sales. This implies an enterprise value for exactEarth of roughly $200mm, or just below the mid-point of our near-term valuation scenario.
• Recent comps suggest another $0.55 upside: Urthecast Corp. (UR-TSX), a peer of exactEarth in the Earth observation business, also announced it would raise $86.5mm in new equity. The proceeds will fund an acquisition and build-out of a 16-satellite constellation for radar and optical imagery. By our estimates, the current market cap for Urthecast of ~$330mm implies a valuation of 9x NTM revenue of $36mm. The same multiple on NTM revenue of $29mm for exactEarth would imply a valuation of $266mm or roughly ~$2.55/sh for COM DEV shareholders (i.e. a TP of $7.15/sh).
Figure 2. exactEarth vs Urthecast: Similar business models; different valuations
exactEarth vs Urthecast: Similar business models, very different valuations
