Coverage initiated with TP... Scotia Capital’s Mark Neville initiated coverage of MDA Ltd. with a “sector perform” rating and $10 target. The average target on the Street is $10.60.
“The space economy is large and growing, and MDA operates across most segments of the space ecosystem,” he said. “MDA is seeing robust top-line growth and is highly profitable. However, the company is currently going through a heavy capital expenditure period to support its growth initiatives, which should continue through 2024. As a result, we do not expect MDA to generate positive free cash flow (FCF) until 2025.
Importantly, we do not believe the company will need equity to help finance this growth as, in our opinion, it should be able to rely on its operating cash flow (CFO), its balance sheet, and other potential sources of nondilutive funding. On an EV/EBITDA basis, the shares look compelling, but, in our opinion, the lack of near-term FCF justifies a discounted multiple relative to the company’s larger, more diversified peers.
We believe a positive resolution regarding Telesat Lightspeed funding represents the most meaningful potential positive catalyst for the shares in the near term.”