Maxar Technologies Inc.

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

Key Updates

• Industry Beating Margins: The company commands a higher margin than the industry, indicating improved operational efficiencies. Notably, the group posted gross margin and EBITDA margin of 45.8% and 25.2%, respectively, in Q3FY21, higher than the industry median of 29.4% and 12.7%, respectively. Moreover, the company’s operating margin was 8.5% in Q3FY21, compared to the industry median of 7.6%.

• Reduction in Net Debt: The company reported a constant decrease in its net debt, a key positive. At the end of Q3FY21, net debt stood at USD 2,140 million, the lowest in the last five quarters. A lower net debt indicates higher financial flexibility.

Net Debt Profile (Source: Q3FY21 Earnings Call)

• Improved Performance from the Space Infrastructure Segment: The company reported an improved performance from the Space Infrastructure segment and posted a higher revenue of USD 541 million in 9MFY21, compared to USD 497 million in pcp. Moreover, the above segment posted an adjusted EBITDA of USD 29 million in Q3FY21, compared to a negative adjusted EBITDA of USD 16 million in Q3FY20.

Q3FY21 Financial Highlights

• In Q3FY21, MAXR posted total revenue of USD 437 million, almost at par with USD 436 million generated in pcp. The performance of both Earth Intelligence and Space Infrastructure segments remained at par with the previous corresponding period.
• Adjusted EBITDA came at USD 113 million, at par with USD 112 million in pcp. The marginal increase was primarily driven by higher EBITDA from the Space Infrastructure segment and lower corporate and other expenses, partially offset by lower earnings from the Earth Intelligence segment.
• The quarter was marked by lower input costs, which resulted in operating income uplift to USD 37 million, compared to USD 7 million in pcp.
• The company reported its net income of USD 14 million compared to USD 85 million in pcp. The decline was due to the inclusion in other income of USD 91 million in pcp.

Q3FY21 Income Statement Highlights (Source: Company Report)

Risks

MAXR’s products and services require constant upgradation and might lead to higher R&D costs to stay competitive within the industry. Moreover, the entry of new players with the same offerings at a lower product pricing would dampen the company’s market share.

Valuation Methodology (Illustrative): Price to Earnings based

Stock Recommendation:

For FY21, the company expects its revenue to range between USD 1.74 and 1.78 million, while adjusted EBITDA is expected to range from USD 405 to 435 million. Operating cash flow for the entire year is expected in between USD 260 to 290 million. 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 Magellan Aerospace Corp, CAE Inc, etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of MAXR at the last traded price of CAD 37.86 on November 22, 2021.

One-Year Technical Price Chart (as on November 22, 2021). Source: REFINITIV, Analysis by Kalkine Group 

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

Disclaimer

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