This morning, Mike Greenley, CEO, and Vito Culmone, CFO, presented during day three of RBC's Canadian Automotive, Industrials & Transportation Conference. MDA is a leading merchant supplier of systems and services for the global space market.
The focus for the stock remains the near-term Telesat Lightspeed contract timing, the opportunities in the robotics market, and the broader new business opportunities across the business segments. MDA has outlined an ambitious revenue growth model. And while we think the stock remains a “show me” story, in our view it is well positioned in both legacy and emerging space markets with a strong competitive advantage.
The near-term focus for investors remains the Telesat Lightspeed program and the timing of the next contract award. After recent restructuring on the program, the company remains optimistic on a 1H22 contract award, which is consistent with the guidance coming out of 1Q22. The company continues to see similar economics on the program due to renegotiated cost assumptions and contract terms. The company has a natural hedge on its contracts costs and inflation due to the short duration of contracts on the larger programs, such as Telesat Lightspeed.
The company has growth opportunities across its portfolio. The company’s robotics business is slated for growth as the Canadarm3 program ramps, and it is able to increase its presence on commercial space station opportunities, such as the recent Axiom contract. Near-term, much of the revenue growth outside of the flagship programs is in the satellite systems business, similar to the recent Globalstar contract.
The key driver for 2022-2023 capex remains the Chorus program. The company continues to view maintenance capex in the ~$25M range. Chorus should benefit from both the growth in the broader earth observation market, but also the satellite is designed to operate in the C-band, while many of the competitive synthetic aperture radar (SAR) systems will operate in the X-band. The C-band is designed for a broader surveillance area, which is better suited to Canada. Moreover, the company will have a trailing satellite, to be manufactured by Iceye, that will provide more granular observation capabilities. The company also highlighted two opportunities with the Canadian government that it should be well positioned to pursue.
MDA remains a “show me” stock, in our view, but we continue to believe it is well positioned in the emerging space ecosystem. The company faces limited balance sheet risk, and is well positioned to self-fund much of its growth investments. The company has been around for decades, but is not well known among investors, which creates an opportunity. Moreover, investor sentiment on the broader space sector has waned as many newer space companies have not met initial expectations. In our view, MDA provides an attractive way for investors to get exposure to broader space markets, with relatively good visibility on the revenue growth, which we believe will remain the most important factor for sentiment on the stock.