Key Takeaway: MDA represents a pure-play space company that is a leadership position in core growth markets, including digital satellites, robotics and LEO communications. Outperform-rated MDA Ltd.’s (MDA) CFO Vito Culmone and VP of Strategy, Pat Nihill, presented at RBC’s 2023 Global Industrials Conference. Much of the discussion was on the recently announced Telesat contract, worth up to $2.2B. The company has agreed to produce ~200 satellites using its digital satellite technology, which should offer substantially increased capabilities over legacy analog satellites. While management was reluctant to call out other opportunities, it continues to see strong 2H23 bookings (even with the expected 3Q23 Telesat bookings) and said its backlog should approach $3B exiting 3Q23. It sounds like the company's digital satellite capabilities are gaining greater market awareness and acceptance.
MDA has benefited from increased investor interest in space and its bookings recovery (up 84% YTD). We continue to believe there is a scarcity around space assets (at least those with strong EBITDA), and believe MDA is well positioned in attractive growth markets. The stock is underowned and underappreciated by US investors in our view. Management is also bullish on its robotics business, where it is providing the Canadarm3 as part of the Artemis program. The company also called out emerging opportunities in privately funded space activities, such as with Axiom Space, and for lunar activities.
The company continues to guide to peak capex in 2024. The investment spending in 2024 should be similar to 2023, and it should start to moderate as the capital is put in place to support current contracts. Investors are focused on any incremental investment requirements to support the Telesat program, for example, but the company continues to view these as incremental, and not a substantial step-up. The peak revenue years for the Telesat program are expected to be 2025-2027, and Telesat has recently announced initial 2026 launch contracts with SpaceX.
The company remains optimistic on potential margin upside relative to guidance. The company reiterated that mix will be a headwind for 2H23 margins, but that over time it could be in a position to exceed its 18%-20% guidance, which it views as the baseline. The Chorus program remains on track (2 satellite programs designed to provide earth observation services), which we believe has strong customer support and is also delivering substantially improved capabilities relative to the legacy RadarSat program.