MDA Space Ltd T.MDA

Sean Bouwers - also from Epic Capital 3 weeks ago

[Possibleidiot01]

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

1mo •

1mo •

 

 

 

Last week we were invited to tour MDA’s satellite facility in Montreal. The facility was impressive, one of only a handful of such facilities globally. During the walk through we were able to speak to department heads with decades of experience in space manufacturing.
 
We came away thinking the only thing more impressive than the facility is the gap between what MDA is ramping up for and what the market is currently pricing in. This new facility will be capable of building $4 to $8 billion worth of satellites, compared to the $364 million in 2023 revenues. To be clear, they are building a facility that will be able to handle upwards of 20x their current revenues by 2026, and yet the street has them barely doubling.
 
MDA does not project these revenues specifically, but they are building a facility to produce 400 satellites a year, and they are currently selling satellites between $10 to $20 million.
 
We sort of understand the investor hesitation. They have to win contracts. Maybe there’s a volume discount on the satellites. Maybe they only hit 80% capacity. Maybe a competitor builds another facility. Fixed price contracts are hard. These are all valid risks. We would counter the arguments though with a handful of points (call if you want to hear me to go on and on). MDA is one of a few companies in the world gearing up to manufacture satellites at scale, with a multi-year head start. MDA has industry leading digital satellites. Management steered the company profitably through arguably one the worst supply chain disruptions in history. Their previous generation satellites have vastly outlived expectations. The company has been building space technology for 5 decades. Check the back of your $5 bill – that’s MDA’s arm. This is a leading space manufacturing company.
 
Most importantly though, you’re not even paying for any of the new facility growth. Today you can buy MDA at 8.4x 2024’s EBITDA.
 
But, if you believe MDA is truly on to something, that satellite connectivity is the future and that MDA’s digital satellite is leading edge (see Telesat’s Q3 call for confidence – their CEO was not shy in singing MDA’s praises), then you’re buying it at less than 2x 2026 EBITDA.
 
As the company executes, we believe MDA will generate significant investor interest as the only pure-play space company on the TSX, and one of a few in the world. Our modeling suggests MDA could be a $50 stock a few years out.