Maxar Technologies Inc (TSX: MAXR) is an integrated space and geospatial intelligence company with a full range of space technology solutions for commercial and government customers including satellites, Earth imagery, geospatial data and analytics.

Key highlights

• Improved Performance from the Space Infrastructure Segment: The company's Space Infrastructure sector performed better than expected, with sales of USD 541 million in 9MFY21 compared to USD 497 million in pcp. Furthermore, the aforesaid segment generated USD 29 million in adjusted EBITDA in Q3FY21, compared to a negative adjusted EBITDA of USD 16 million in Q3FY20.
  

• Rising orders backlog: As of September 30, 2021, the company has a total order backlog of USD 2.1 billion, up from USD 1.9 billion as of December 31, 2020. Increases in both the Earth Intelligence and Space Infrastructure categories contributed to the increase in backlog.

• 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 13.5%, 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, which is a key positive. At the end of Q3FY21, its net debt stood at USD 2,140 million, the lowest in the last five quarters. A lower net debt indicates higher financial flexibility.

Source: Company Presentation

Financial overview of Q3 2021 (In millions of USD)

Source: Company Filing

• 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.

Risks associated with investment

The company’s business with various government entities is exposed to the risk associated with policies, priorities, regulations, mandate and funding levels. Furthermore, it requires innovative technologies to meet the needs of existing or potential new customers. It also faces competition that may cause either to reduce prices for imagery, related products and services or to lose market share. 

Valuation Methodology (Illustrative): EV to EBITDA

Stock recommendation

This quarter, the firm made significant progress on its strategic expansion ambitions, with strong bookings in both Earth Intelligence and Space Infrastructure yielding a book-to-bill ratio of more than two times. In addition, the company generated strong cash flow in the quarter, as well as strong revenue and Adjusted EBITDA year over year. Importantly, the firm has revised its full-year guidance for both Adjusted EBITDA and cash flow to a range of USD 405 million to USD 35 million for Adjusted EBITDA and USD 260 million to USD 290 million for cash flow. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the current market price of CAD 34.78 at 10:08 am Toronto time as on December 20, 2021. We have considered Hexcel Corp, AAR Corp, Vectrus Inc. etc. as the peer group for the comparison.

*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 December 20, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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