The space tech sector may be well known, what with the Elon Musks and Jeff Bezoses of the world mooning over civilian rocket trips, but for a potentially potent Canadian play in space tech investors might want to try the newly public but not-so-new company MDA Ltd (MDA Stock Quote, Charts, News, Analysts, Financials TSX:MDA), which portfolio manager John Zechner says has been flying under the radar up until now.
“I like it. For this stock we’re talking about 8x operating cash flow and it looks like they’ve got forward earnings growth at a 20 to 25 per cent rate which is almost built in for the next five years [considering] the contracts they have in place,” said Zechner, chairman and founder of J. Zechner Associates, speaking about MDA on BNN Bloomberg on Monday.
“This is the old MacDonald Dettwiler. They were taken private — they were part of Maxar Technologies and then they got spun out earlier this year as a private company after Maxar sold it,” he said.
Mid-cap stock MDA debuted on the TSX in April, completing an IPO of about 28.6 million shares at $14.00 per for proceeds of about $400 million. It’s been a circuitous journey for the space mission, robotics, satellite and geointelligence company now over about a half-century old and with a storied history involving the Canadarm, which did yeoman’s work on umpteen space shuttle missions, along with telescope and satellites servicing and aiding in the construction of the International Space Station.
Last year, US company Maxar shed MDA in favour of its DigitalGlobe satellite business that was acquired just a few years earlier. The musical chairs ended up with a Canadian group of investors repatriating MDA for $1 billion before the IPO in April.
“Today marks the beginning of an important chapter for MDA,” said CEO Mike Greenley in an April 7 news release marking the event. “With the rapid expansion of the global space economy over the next ten years, our world-leading expertise and capabilities are well-aligned with the projected high-growth sectors such as space exploration, on-orbit servicing, space-based communications and Earth observation.”
“We have the agility of a new space company coupled with an impressive track record that makes us a partner of choice in the emerging commercial space market,” Greenley wrote.
Zechner would seem to agree with Greenley’s sentiments, saying that MDA looks to be in the right place at the right time, with the future coming down to execution.
“I’d say the valuation looks good. I just think a lot of these high-growth industry stocks — and this is a high growth industry some of the money has migrated away from the sector,” Zechner said. “These guys are a bit of a ‘show me’ story right now.”
After starting out at $14.00, MDA quickly shot up to $18.00 in the matter of a few trading days, but the stock has fallen back and has mostly been trading around $16.00.
Operationally, MDA has a lot to talk about. There are the new contracts won, including one for a Laser Rangefinder altimeter as part of JAXA’s (Japan Aerospace Exploration Agency’s) Martian moons exploration mission announced in September and a contract in support of the US-led moon mission, announced in August, where MDA will supply Lunar landing sensors for the first soft landing US mission to the moon in 50 years.
But there’s also MDA’s new broad area satellite system currently in development phase which the company hopes will usher in its Information-as-a-Service subscription model for customer looking for SAR (Synthetic Aperture Radar) mid-inclination orbit satellite data for use by government, commercial and industrial clients for a variety of uses like surveillance, environmental monitoring, forestry management and agriculture.
MDA says the new program will “provide the broadest area coverage on the market, changing how, when and what can be seen.”
“The fully taskable system will operate in a unique mid-inclination orbit, targeting areas of greatest customer interest. With 75 per cent faster tasking, increasing revisit and reducing delivery time, the system will also offer Near Real Time service with best in class download times direct to commercial customers in 15 minutes in targeted areas,” MDA’s press release on September 27 read.
Zechner says MDA might be occupying a little-known corner of the market right now.
“That first reporting quarter as a public company they did exceptionally well. The contracts are all in place, the backlog looks strong, margins are improving, so I think it looks like a great long-term play. It’s pretty undiscovered and it trades very thinly. We own it and I continue to like it,” he said.
MDA delivered second quarter 2021 results in August, coming in with revenue up 15.5 per cent to $126.7 million and a net loss of $0.1 million.
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