MDA Space Ltd T.MDA

David Fawcett - believes in space growth

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David Fawcett, MA, CFADavid Fawcett, MA, CFA • 2nd • 2nd Founder of Epic Capital ManagementFounder of Epic Capital Management 1w •

1 week ago

 

 

 

MDA Space: Do You Believe in the Growth?

MDA Space is projected to achieve a 25% organic revenue growth this year, and a similar growth rate in the future. The company is right in the middle of the fairway of many tailwinds in the space sector, particularly the expected explosive growth of LEO satellites. Currently, MDA trades at 8.6X EV/EBITDA for this year and 6.6X for next year's estimates. We believe this valuation significantly undervalues a company exhibiting such robust growth. If the low share price reflects market doubts about the strong growth rates, we provide compelling data points below to demonstrate our confidence in the robust growth prospects moving forward.

Key Data Points Supporting Significant Growth
1.    Management's Forecast
Management has forecasted $1 billion in revenue for 2024, up from $808 million last year, indicating a 25% growth rate. This guidance was reiterated in the 1Q24 quarterly press release. The street is forecasting a similar growth rate in 2025.
2.    Sector Tailwinds
The latest report on the global LEO satellite market predicts a promising growth trajectory. The market, valued at $1.9 billion in 2023, is projected to reach $21 billion by 2030, with a CAGR of 41%.
3.    Announced Contracts
In 2023, MDA announced a $2.1 billion contract with Telesat for 198 LEO satellites. The street forecasts about $150 million in revenue for this deal for MDA this year. This leaves lots of revenue recognition for the next couple of years, as the satellites are scheduled to launch with SpaceX in 2026. Back in November, MDA announced an authorization to proceed with a contract valued at $180 million to start ordering long-lead items for a full constellation valued at $750 million for a minimum of 36 satellites. Analysts have not incorporated this full deal going forward, but given that $180 mln is already being spent, we expect a deal to be finalized this year.
4.    Pipeline
MDA maintains a $17 billion five-year cumulative pipeline, including $10 billion in total and $2 billion annually for the Satellite division. For context, the Satellite division generated $364 million in revenue in 2023, highlighting the significant growth potential.
5.    High Volume LEO Production
In 2026, MDA plans to scale up to high-volume satellite production, aiming to produce 2 satellites per day or 400 per year. If you do the math, with satellites priced between $10 to $20 million each the revenue potential is very material. This high-volume production strategy is expected to drive significant growth beyond 2025.
6.    Potential Apple Re-Order
Direct-to-device is one of the core growth drivers for LEO satellites as demonstrated by the recent deals ATS Mobile signed with both AT&T and Verizon. Apple, which ordered 17 satellites from MDA through Globalstar, has registered for 3,000 satellites. With Amazon and SpaceX rapidly expanding their LEO satellite constellations, Apple could potentially place a significantly larger order to keep pace.

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