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:

• Win of New orders: Recently, the company reported a new collaboration with the U.S. National Geospatial-Intelligence Agency (NGA), wherein the former would provide engineering, software development and geospatial tradecraft in support related to the Geospatial Intelligence Open Mapping Enclave. The above is a USD 26.4 million contract, and the tenure is for five years. The above service would enable U.S. government users to create and update geospatial features in a crowdsourced “living map.” Earlier, the company announced the addition of two new customers, who signed multi-million-dollar contracts to subscribe to the company’s Rapid Access Program (RAP).
  

• Use of upgraded technologies for better results: The company is using updated technologies like Artificial intelligence & machine learning, reliable cloud-based products etc., in order to reduce the time of end results, which has been key benefits for the company’s clients. Hence, these services are expected to add value to its end products and would eventually lead to value addition for the company, which is a key positive.
  

• Management Updates: On August 24, 2021, the company reported its appointment of Colleen Campbell for the post of Chief Marketing Officer (CMO).
  

Q2FY21 Financial Highlights:

• MAXR announced its quarterly result, wherein the company posted 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 Enhanced View 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.

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, the 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:

In the recent past, the company reported multi-year renewal agreements with international government customers that includes Legion capacity. In early 2021, the group also recorded bookings from four clients for Legion-ready ground infrastructure upgrades. The above indicates strong order flow and client relationships, which is encouraging. 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 Open Text Corp, General Dynamics Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the closing price of CAD 36.92 on August 23, 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 August 23, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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