MDA Space Ltd T.MDA

David Fawcett - Linkedin - Banging the Drum

[Possibleidiot01]

David Fawcett, MA, CFADavid Fawcett, MA, CFA • 2nd • 2nd Founder of Epic Capital ManagementFounder of Epic Capital Management 17h • Edited •

17 hours ago

 

 

 

25% revenue growth annually for the next 5 years is certainly not reflected in the current stock price!

Sean Bouwers, CFA, MFinSean Bouwers, CFA, MFin • 3rd+ • 3rd+ Associate Portfolio ManagerAssociate Portfolio Manager 18h •

18 hours ago

 

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Since our last post we were able to listen in on a US sell side presentation with MDA's CEO Mike Greenley, where he articulated for the first time a 5-year outlook that would triple revenues. Below we share some details.

MDA: A Growth Compounder
After compounding revenues at a 25%+ CAGR since 2020, Mike gave a strong growth outlook of a further 25-30% annually for the next 5 years, driven by a doubling of the robotics & satellite divisions every couple of years. He went on to describe the segment growth drivers separately.

In satellites, there are 3 themes driving constellations: global internet demand beyond broadband capabilities, direct-to-device satellite connectivity, and IoT connectivity needs. Each individual constellation has multiple phases of growth: the initial contract, a network expansion phase, and a replacement cycle.

Initial constellations contracts won so far include 198 satellites for Telesat, a minimum of 37 for an unnamed customer, and a minimum of 17 for Apple. MDA is confident they will win additional constellations beyond these contracts.

Each of these contracts can also expand beyond the minimum orders. For example, with Apple's satellite contract, MDA is building 17 satellites, even though Apple has 3,000 licensed spots. For Telesat, MDA has a 198-satellite order compared to 1,300 registered spots. This network expansion depends on capacity demand and global coverage requirements.

Satellites also have a limited useful life ranging from 5-10 years depending on customers needs. For satellites with a 5-year life, MDA would start working on replacements by the third year, or by year 7 for the 10-year satellites, supporting a sustainable growth cycle.

In robotics, growth is being driven by multiple space programs that include rovers, space stations, robotic arms, and exploration programs. To meet this demand, MDA has commercialized decades of robotic expertise through a newly formed "MDA SKYMAKER" suite of products. MDA has also transitioned to include an operating offering, which generates stable recurring revenues by operating the robotics in space.

For example, MDA recently announce a $1bln contract to proceed with the final design and construction of the Canadarm3. The build out phase is expected to run until 2030 but has further revenue upside through operating the arm over its useful life in space, which could last well beyond a decade.

This $1bln contract compares to the total robotic revenues of $248mln in 2023. We expect to see continued robotic wins as multiple space programs ramp up and customers look to use MDA's expertise in bringing space technology to market cheaper and faster through their new productization offering.

With Q2, we expect a strong 2H outlook and a contracted backlog approaching $4bln compared to the guidance of $1bln in '24 revenues, further providing support for MDA's strong multiyear growth outlook.