Soft quarterly results are keeping National Bank Financial analyst Richard Tse on the sidelines for Maxar Technologies (Maxar Technologies Stock Quote, Chart, News TSX:MAXR). Tse reviewed the company’s third quarter numbers in an update to clients on Thursday, where he kept his “Sector Perform” rating while lowering his target price from $30.00 to $28.00.
US space tech company Maxar saw its share price drop after releasing third quarter fiscal 2020 earnings on Thursday. The company hit total revenue of $436 million comopared to $413 million a year earlier and adjusted EBITDA of $112 million for a margin of 25.7 per cent versus $109 million for Q3 2019.
The company said the results show progress on its multi-year turnaround plan, including an improvement on its leverage with Maxar ending the Q3 with over $500 million in liquidity.
“We generated solid year-over-year revenue growth this quarter as demand has remained resilient and our customers continue to rely on us for important national security and commercial missions. We also enjoyed significant backlog growth on a diversified set of awards with both government and commercial customers across our Earth Intelligence and Space Infrastructure segments,” said Dan Jablonsky, CEO, in a press release.
Maxar’s Earth Intelligence segment saw revenues drop year-over-year from $282 million to $274 million, while revenues from Space Infrastructure increased from $162 million to $181 million. Business highlights for the quarter included closing on the acquisition of 3D geospatial company Vricon for $140 million. Vricon was a joint venture Maxar had with DigitalGlobe, with Maxar now buying the remaining 50 per cent in aid of using Vricon’s revenue to lower its debt load. Maxar ended the third quarter with cash and equivalents of $60 million compared to $59 million a year earlier and long-term debt of $2.413 billion compared to debt of $2.915 billion a year earlier.
“While the existence of the COVID pandemic remains a risk to our operations and the operations of our customers, we have thus far been able to manage the crisis roughly in line with expectations. Given that, we are maintaining our outlook for 2020 consolidated revenue, Adjusted EBITDA, and Capex, and we are tightening the range of guidance for operating cash flow,” said CFO Biggs Porter in a press release.
Tse said the Q3 results were below expectations, with the $436-million in revenue coming in under his $470-million estimate and adjusted EBITDA of $112 million also lower than his $121-million estimate. The analyst noted that while Earth Intelligence’s revenue came in as expected, Space Infrastructure’s 12-per-cent rise in revenue to $181 million was nonetheless below his expected $220 million, with Tse pointing to COVID-related program costs.
“While we like the improved alignment of debt maturity to profitability and FCF – we continue to note there is execution risk related to the launch of the WorldView Legion program and the delay in that program is an example of that risk as the scaling of cash flow won’t likely occur until F2023 – that’s still quite a few years. We’re maintaining our ‘Sector Perform’ rating (unchanged) with a revised price target to $28 target (was $30) based on our revised estimates that implies a valuation of 9.2x EV/EBITDA on F21E (was 8.9x),” Tse wrote.
Tse also noted a delay in the launch of Maxar’s next-generation imaging satellites, WorldView Legion, with management saying COVID-affected scheduling conflicts at launch partner Space X were a factor. Maxar now says it’ll be late summer or fall 2021 before first launch and, thus, its targets set earlier this year for 2022-2023 will be pushed out to 2023.
Tse is forecasting full 2020 revenue and adjusted EBITDA of $1,713.7 million and $437.0 million, respectively, and 2021 revenue and adjusted EBITDA of $1,817.2 million and $451.7 million, respectively. His new $28 target represented at press time a projected one-year return of negative 1.9 per cent.
“Bottom line, we see a balanced risk-to-reward profile in MAXR,” said Tse.
After a huge drop in 2018 followed by gains in 2019, Maxar’s share price has so far picked up more ground in 2020, adding on 39 per cent since January 1. The stock ended Friday on a down note, however, dropping 24 per cent.
Maxar has had an eventful few years. The company once known as MacDonald Dettwiler and Associates merged with DigitalGlobe in 2017 and rebranded as Maxar Technologies but followed up in 2018 with a write-down in its satellite business. Add to that a short-seller attack and then the loss of one of its imaging satellites in early 2019, one which was expected to be a major revenue-generator for the company, Maxar then turned around and earlier this year sold its MDA space business back to Canadian private investment firm Northern Private Capital for $765 million.