Wait and see on exactEarth, says Paradigm Capital

A quarter of mixed results characterizes how Paradigm Capital analyst Daniel Kim feels about exactEarth (exactEarth Stock Quote, Chart, News: TSX:XCT).

Yesterday, exactEarth posted its Q2, 2016 results. The company lost $29.51-million on revenue of $5.2-million, down 11.8 per cent per cent from the $5.9-million topline the company posted int he same period last year.

“In Q2, we made progress on our strategies to develop high-value analytics products, expand into the broader maritime market and address the emerging opportunity to track small vessels,” said CEO Peter Mabson. “We also moved closer toward launch dates for the final two satellites in our first-generation constellation with the M3M satellite scheduled to launch later this month, as well as the launch scheduled for later this summer of the inaugural satellites in our second-generation constellation hosted on Iridium Next. These launches will enhance our service level as the various satellites become operational and will mark the beginning of our move towards a continuous real-time global-vessel-tracking-service capability in 2017. Financially, we are on solid footing with more than $21-million in cash. Our strong balance sheet will enable us to pursue our growth plan, and we are confident that the investment we are making today will drive long-term growth rates for the business.”

Kim says exactEarth’s second quarter revenue was in-line with his expectations, but its profitability was lower than expected. He says the real question that has yet to be answered is how the market values S-AIS.

“The two recent high profile-low value deals have thrown much ambiguity into exactEarth’s value proposition,” says the analyst. “We understand there are three key metrics that determine the value of a contract: 1) size of area to be monitored; 2) the number of ships to be tracked; and 3) quality of data. In the Telespazio case, while a full data feed is being provided for a substantial coverage area (11M km²), it is going to only a handful of users. In contrast with the GoC renewal, the service was provided to 200−300 users at an extremely limited data scope (intermingled coastal data from other sources).”

In a research update to clients today, Kim maintained his “Hold” rating and one-year price target of $1.50 on exactEarth, implying a return of 2.0 per cent at the time of publication.