Urthecast has 264% upside, Clarus Securities says

A new financing for Urthecast (Urthecast Stock Quote, Chart, News: TSX:UR) has given Clarus Securities analyst Noel Atkinson increased confidence in the ability of the company to execute on its business plan.

On December 29, Urthecast announced it had secured a financing for (U.S.) $175-million to fund the development of its UrtheDaily Constellation. The company said it expects the financing will be complete in January.

Atkinson says he has complete confidence that management will complete its task.

“We continue to have virtually 100% certainty that the UrtheDaily constellation will be realized, which is further supported by the progress made to date with the financing facility (regardless of the small timing slippage),” the analyst says.

Atkinson broke down the reasons for his bullish take on Urthecast.

“We value UrtheCast using a discounted cash flow model,” he notes. “We assume the following key inputs:

• The existing content business (including Deimos, PanGeo and Space View) can scale to $80MM per year by 2023;

• Two SAR accelerator satellites are ordered by mid-2018 for $100MM each, which drives engineering revenues through 2021, and then engineering revenues revert to a steady-state of about $20MM per year from customer contracts;

• UrtheDaily data sales start in 2020 at $40MM and scale to $100MM by 2023; and

• Net revenue share from the two SAR satellites starts at $20MM in 2021 and scales to $60MM by 2024;

• US$175MM of UrtheDaily-related debt financing with 11% interest rate (was 8% previously), interest only for 3 years and then fully amortizing over a 7-year period.”

In a research update to clients today, Atkinson maintained his “Buy” rating and one-year price target of $4.00 on UrtheCast, implying a return of 264 per cent at the time of publication.

Atkinson thinks Urthecast will generate EBITDA of negative $6.9-million in EBITDA on revenue of $40.7-million in fiscal 2017. He expects those numbers will improve to EBITDA of $1.1-million on revenue of $65.5-million in fiscal 2018.