Maxar Technologies Inc.

Maxar Technologies Inc. (TSX: MAXR) is an innovator in Earth Intelligence and Space Infrastructure, which delivers disruptive value to government and commercial customers to help them to monitor, understand and navigate the changing planet; deliver global broadband communications, and explore and advance the use of space.

Key Highlights:

• New Order win: Recently, the company reported that it has received an order to build another geostationary communications satellite for longtime customer SiriusXM, following the SXM-9 satellite earlier in August 2021. MAXR will use its 1300-class platform for the above order and would be manufacture in Palo Alto, California.
• Better than industry margins: The company reported strong profitability margins as compared to its peers, which is a key positive. EBITDA margin and operating margin stood at 27.3% and 11.8% respectively in Q2FY21, which was higher than the industry median of 13.7% and 8.5%. Moreover, net margin stood higher at 9.5% in Q2FY21, as compared to the industry median of 6.3%.
• Technological upgradation to drive client satisfaction: The group is using advanced technologies like Artificial intelligence & machine learning, reliable cloud-based products etc., in order to reduce the time of end results for its clients. This is likely to create value-added products and unlocking insights through its offerings. Hence, these services are expected to improved client’s operations and subsequently lead to value addition for the company.

Q2FY21 Financial Highlights:

• MAXR announced its quarterly result, wherein the company posted its total revenue of USD 473 million, climbed from USD 439 million in the previous corresponding period (pcp). The growth was driven by higher income from the space infrastructure segment (USD 206 million v/s USD 184 million in pcp).
• Adjusted EBITDA stood at USD 132 million, lower than USD 138 million in pcp. The marginal decline was primarily due to lower Adjusted EBITDA from the Earth Intelligence segment on account of a USD 30 million   decrease in the recognition of deferred revenue related to the EnhancedView Contract
• The quarter was marked by higher SG&A expense (USD 88 million v/s USD 79 million in pcp), while depreciation and amortization stood lower at USD 73 million, from USD 89 million in pcp.
• Income from continuing operations stood at USD 45 million, from nil in pcp. The corporation reported a lower net interest expense of USD 24 million, as compared to USD 48 million in pcp.

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The products and services require constant upgradation and subsequently leads to higher R&D costs in order to stay competitive. Moreover, entry of new players with lower product prices would likely hamper the company’s market share. The above might also lead to price competition, which might hit the company’s margins and cash flows.

Valuation Methodology (Illustrative): Price to Earnings  

Stock Recommendation: The company has strong client-relationship and is recording repetitive order from them. This also suggest revenue stability, which is a key positive for the company. Cash flow from operating activities stood higher at USD 50 million in H1FY21, as compared to USD 36 million in pcp. We have valued the stock using the Price to Earnings-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like General Dynamics Corp, Equifax Inc etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of MAXR at the last traded price of CAD 37.72 on September 15, 2021.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

Technical Analysis Summary

One-Year Technical Price Chart (as on September 15, 2021). Source: REFINITIV, Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV

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