Stock Talk 207
MDA
- Intro
MDA symbol MDA on the TSX is a leading provider of advanced technology and services to the rapidly expanding global space industry. The company primarily serves the US and Canadian Governments. The company has three segments; Geointellegence, Robotics & Space Operations, and Sattelite Systems.
The stock price has had an up and down year, but is still up roughly 5% year to date at a $6.65 and a market cap of $793 million.
2. Income Statement
The Company released its Q4 2023 earnings on March 23rd. The company had strong revenue growth of 34% to 641 million. The strong revenue growth can be attributed to strong growth in its two of its segments; Satellite systems and Robotics and Space Operations, which grew by 157% and 60%, respectively for the quarter year over year.
Robitics and Space Operations, primarily grew due to its work on the Canadarm3 program, while Satellite Systems growth was driven by the GlobalStar Program which it was awarded in Q1 2022.
Before I go through EBITDA and Earnings, I will preface it by saying that they are naturally lumpy due to the nature of the business, and one quarter increases OR decreases are not a sign of a trend.
Adjusted EBITDA grew to $39.9 million from $26.8 million, a 49% increase year over year. However, adjusted EBITDA margin did decrease from 23.2% in Q4 2021 to 21.4% in Q4 2022.
Diluted earnings per share increased to $0.07 from zero cents, just above break even.
Comparing the full years, Adjusted EBITDA i increased 15% to $157.9 million from $137.1 million.
2022 had an diluted earnings per share of $0.21 compared to $0.02, a significant increase on GAAP earnings.
The company has a strong backlog of $1.4 billion since it receive large contracts for its work on the Globalstar low earth orbit constellation and Phase B of the Canadaarm3 in the first half of 2022, since the initial jump at the start of 2022 the backlog has shrunk by about $150 million, sharp increases and then slow declines in backlogs is not unusual for contract based businesses like MDA’s.
3.Balance Sheet
Moving to the Balance Sheet, the company is unsurprisingly in a net debt position. MDA holds cash of 39.3 million and debt and leases of $251.9 million resulting in the net debt position of $212.6 million. The debt is floating at a rate of CDOR plus 45 to 175 basis points depending on the companies leverage. MDA has a net debt to adjusted EBITDA of 1.3 times, which is significantly higher than previously but not unmanageable.
As well , $150 million of debt is hedge with derivatives resulting in $95 million of unhedge debt. So, while higher interest rates will negatively affect MDA it is not a case of being overly sensitive to rate changes.
4. Growth & Valuation
Let’s move to some valuation metrics.
The company does provide guidance for 2023, however I will preface this as well, the companies guidance for 2022 was high expecting $750 to $800 million for revenue with actually being at $641, with adjusted EBITDA being on the high end of the guided range, so as always take guidance with a grain of salt.
Management guidance for 2023: Revenue is expected to be between $750 million to $800 million, with adjusted EBITDA of $145 to $155 million a 19% to 20% margin. If correct this would result in 21% revenue growth but slightly lower adjusted EBITDA for the year compared to 2022.
Trailing Price-to earnings is 32 times.
Trailing Enterprise value to adjusted EBITDA is 6.6 times.
Using the guidance midpoint, forward Enterprise value to adjusted EBITDA is 7 times.
The valuation on the company is high given the muted growth in 2023. That being said MDA in the long term does have prospects for high growth given the industry’s growth, but at this time I would not be willing to pay the premium price.
We will continue to monitor the company going forward.