Here’s what differentiates Telesat from Starlink: analyst

Desjardins Securities analyst Jerome Dubreuil initiated coverage of Telesat (Telesat Stock Quote, Chart, News, Analysts, Financials TSX:TSAT) with a “Buy” rating and $91.00 target, saying the Ottawa-based satellite operator’s transition to low-Earth orbit could create substantial shareholder value despite significant financing and execution risks.

On Nov. 5, Dubreuil said Telesat’s Lightspeed satellite network could capture a meaningful share of the growing market for government, defence and enterprise communications without competing directly with Starlink.

“We do not believe TSAT needs to compete head-on with Starlink, the dominant player in LEO, on scale or capacity,” Dubreuil said. “Indeed, Lightspeed (TSAT’s LEO constellation) is positioned toward government, defence and enterprise customers that place greater value on sovereignty, resiliency, network redundancy and contractual service level agreements.”

The analyst argued that governments and businesses increasingly need secure satellite communications that are not dependent on a single provider, creating opportunities for Telesat even as Starlink dominates the broader market.

“For example, we believe the recent media reports about Starlink throttling its network in Ukraine highlight the importance of redundancy and/or sovereignty for mission-critical services,” he said.

Dubreuil said Telesat’s US$1.9-billion Enhanced Satellite Communications Project–Polar agreement with the Canadian government, awarded in August, demonstrates demand for sovereign satellite infrastructure. The agreement will support military communications for the Canadian Armed Forces and provide an important source of future revenue as Lightspeed enters commercial service.

However, Dubreuil acknowledged that Telesat faces substantial financial uncertainty as it prepares to refinance debt associated with its legacy geostationary satellite business. “TSAT’s balance sheet situation is complex, and we believe the stock reflects significant refinancing risk,” he said.

He believes Telesat’s strategic importance to the Canadian government provides some protection, while the estimated value of its assets should be sufficient to cover debt obligations and Lightspeed investment requirements.

“We therefore expect a resolution of the near-term maturities that is satisfactory for all stakeholders, even if an equity issuance is probable,” Dubreuil said.

He cautioned that Telesat’s transition from its declining geostationary satellite operations to Lightspeed carries significant commercial and execution risks, particularly as the company works toward launching its global network. Nevertheless, he believes the potential upside outweighs those concerns.

“The magnitude of the potential upside more than compensates investors for these risks,” he said.

Dubreuil also believes Telesat’s shares could appreciate substantially even if Lightspeed falls short of management’s long-term financial targets.

“TSAT does not need to hit guidance — the stock still works with a more down-to-Earth forecast,” he said.

His discounted cash flow valuation assumes US$3.4-billion in LEO revenue in 2032, substantially below management’s more ambitious projections. “Our investment thesis does not require TSAT to achieve its ambitious US$4.9-billion 2032 revenue target,” Dubreuil said.

The analyst said incorporating management’s projections into his valuation model would produce an equity value several times higher than his $91 target. Dubreuil believes Lightspeed’s focus on higher-value government and enterprise customers, combined with Canadian government support, could allow Telesat to establish a profitable position in the LEO market despite its smaller scale.

However, he said resolving the company’s near-term debt maturities remains an important hurdle before investors can place greater confidence in its long-term prospects.

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