MDA Space Ltd MDALF

David Fawcett- Epic Capital - ends with comment on index add

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

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MDA's LEO Satellite Production Surge: Overlooked by the Street, Highlighted by SpaceNews
 
MDA has unveiled ambitious plans to escalate its satellite production capabilities dramatically. With the expansion of its Montreal facility, MDA is on track to achieve an impressive capacity of producing 400 satellites annually by 2026. Considering the pricing range of $10 to $20 million per satellite, this expansion has the potential to generate revenues between $4 to $8 billion annually. Such a potential sharply contrasts with the satellite division’s revenue of $362 million from the previous year and the overall corporate revenue of $808 million, underscoring a significant opportunity for growth.

Surprisingly, this monumental opportunity for transformational growth has not garnered the attention it merits within the investment community, in our view. Whether during our visit with institutional investors to MDA's Montreal facility, during the recent 4Q23 earnings call, or in published sell-side research, the discussion on this significant production growth is completely absent. We’ve been hammering on MDA’s growth opportunity and lack of street awareness in a couple of our recent posts and finally, we found literature doing justice to this exciting build out from a recent article in SpaceNews, "Constellation primetime is MDA’s time to prime." This article covers MDA's ambitious production scale-up, as highlighted by CEO Mike Greenley, who envisions the capability of manufacturing 2,000 satellites over a five-year period. The SpaceNews’ piece goes on to discuss MDA's evolution from a supplier of intricate satellite components to becoming a prime satellite manufacturer. It also sheds light on the drivers of demand for MDA’s $10 billion satellite pipeline, which comes from customers need for high-speed data services, Internet of Things (IoT) connectivity, and direct-to-device communications.

Despite clear indicators of MDA's promising growth trajectory, the market’s valuation of the company remains overly conservative, with the stock trading at modest multiples of 9.0X and 6.0X EV/EBITDA based on this year's and next year's analyst estimates, respectively. We recognize there is execution risks with such an extensive scale-up, and that MDA needs win more orders to fill the expanded capacity, however we counter that most research coverage has failed to even discuss the potential at all, ascribing zero value to a massive potential ramp up that’s less than two years away. We hope the insightful coverage by SpaceNews can illuminate this growth opportunity and prompt the investment community to assign a more fitting valuation to the considerable potential MDA presents.

Adding to the investment narrative, MDA was added into the S&P/TSX Composite Index Friday. This inclusion is anticipated to trigger market buying of 3.7 mln shares of MDA, this compares to the average daily trading volume of about 185k shares.