MDA Space Ltd T.MDA

David Fawcett- Epic Capital

[Possibleidiot01]

Cormark been mentioning this massive prowth potential as well.

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

2w •

 

 

 

MDA: Seemingly Free Call Option on the Vast Value Creation Potential within their Expanding LEO Satellite Operations

During our recent tour of MDA's Montreal satellite facility, we discussed with management their plans to scale up to 400 LEO satellites per year by 2026. CEO Mike Greenley clarified the scale of this growth in a recent conference call, noting that producing two satellites daily leads to 400 yearly, or 2,000 over five years. If MDA's satellites are priced between $10 to $20 million each, the revenue for their satellite division could soar from last year's $364 million to $4 to $8 billion annually. This is an enormous delta! The ebitda potential, using their current 20% ebitda margins, is nearing their current market cap, quite striking!

What we find fascinating is that the street appears to be mostly ignoring this massive value creating opportunity. A recent banking report estimates only $813 million in revenue by 2026, see below. Investors appear to be undervaluing this 'growth call option.' Currently, MDA's shares are valued at just 8.4X EV/EBITDA based on 2024 projections, a notable discount compared to the average of 12X for defense industry peers.

The pivotal issue for investors is the feasibility of MDA's LEO satellite production targets. While acknowledging the inherent risks in such an aggressive expansion, we maintain that MDA is reasonably likely to utilize a considerable segment of their projected capacity, a stance reinforced by numerous critical factors:

MDA's technological prowess offers a distinct competitive advantage. With phased array antennas, optical inter-satellite links, and advanced chipsets, MDA stands out as an innovator. Telesat, a key customer, praises MDA's tech advancements in a recent post entitled “Tech innovations establish profitable path for LEO satellite constellations.”

MDA's reputation for innovation and value has earned them significant customer validation, notably being chosen by Globalstar for Apple's satellite projects as well as Telesat’s recent $3 bln order. Telesat called MDA’s technology “game changing” and confirmed it led to a substantial CAPEX reduction, from $5 billion to $3 billion.

The LEO market is set for a steep growth trajectory with industry estimates of a double-digit CAGR, driven by an increased demand for global broadband, cheaper launch costs, 5G expansion, and IoT advancements.

MDA's satellite division boasts a substantial pipeline, with prospects for over $10 billion in revenue and an annual revenue potential of $2 billion.

In sum, we argue that the market is undervaluing MDA's growth potential. The stock's valuation suggests that investors are not fully accounting for the growth option. If MDA can utilize its production capacity effectively, the upside for shareholders could be substantial.

hashtag#investing hashtag#smallcaps hashtag#hedgefunds hashtag#technolo