MDA is one to watch, this portfolio manager says

The stock is down over the past year, but with tailwinds aplenty in the space tech industry, betting on Canadian name MDA Ltd (MDA Ltd Stock Quote, Charts, News, Analysts, Financials TSX:MDA) is a pretty good call, according to portfolio manager John Zechner. 

“I still like it and we still own it,” said Zechner, chairman of J. Zechner Associates, who spoke on a BNN Bloomberg segment on Thursday. “Obviously, [the stock] has been disappointing, but they haven’t missed their numbers and they’re still looking at probably 25 per cent cash flow growth over the next three to four years on their growing programs for low Earth orbit satellites.”

The company behind the Canadarm robotic space arm, Brampton-based MDA is a satellite systems, geointelligence and robotics business which was originally MacDonald, Dettwiler and Associates. That company was bought by US company DigitalGlobe in 2017, who then became Maxar Technologies, which then sold MDA back to Canadian investment firm Northern Private Capital in 2020.

MDA then completed an IPO in April, 2021, issuing 28.6 million shares at $14.00. The stock stayed around $16 for much of 2021 but then started sinking with the rest of the tech space in November of that year, falling all the way to $6 before it was all said and done this past December. MDA has picked it up a bit this year and has been in the mid-$7 range for the past while. 

The company made headlines last year when the Canadian government gave MDA permission to use its satellites in Ukraine’s war effort against Russia’s invasion and it also won a $269 million contract from the Canadian Space Agency to work on the Canadarm3.

MDA’s revenue was up 55 per cent year-over-year in its latest reported quarter, the company’s Q3 2022, delivered in November, where revenue was $172.0 million and adjusted EBITDA was up 22 per cent to $38.8 million.

Zechner said there may be an apt comparison with Maxar, which got bought by private equity in December at a 129 per cent premium to its share price at the time.

“These are effectively the arms dealers of the space race. We had Maxar as well as MDA, and so, Maxar got recently bought out at about 12x operating cash flow and it was more than double the price,” Zechner said. “It’s becoming clear how important the information they’re getting from satellites is.”

“I think MDA sticks out as something similar to me. I don’t know that it’ll be taken out immediately or anything like that, but these things are worth more than they’re trading for out in the markets. I’ll stick with it even though last year was a disappointment,” he said.