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:

• Ample Liquidity with declining Net debt: At the end of March 31, 2021, the company reported liquidity of USD 472 million, including available credit facilities and cash balance, which seems sufficient to cater to the current working capital needs. Moreover, net debt reduced by USD 323 million to USD 2,189 million from FY20, which is a key positive. This indicates higher financial flexibility and is a key positive. The company do not have any debt maturity before December 2023, which is favorable from the liquidity standpoint.

Source: Company Presentation 

• Impressive FY21 Outlook: For FY21, the company expects its total revenue within the range of USD 1,760 million to USD 1,840 million, higher than the FY20 revenue of USD 1,723 million. Adjusted EBITDA is expected in between USD 420 million to USD 470 million in FY21, higher than USD 422 million in FY20. The company expects its operating cash flows in between USD 260 million to USD 290 million, while capital expenditure is expected in between USD 235 million to USD 260 million, including USD 30 million of capitalized interest.

Source: Company Presentation

• Acquisition of Vricon: In the recent past, the company purchased the remaining 50% stake of Vricon, a global leader in 3D data for defense, intelligence, and commercial markets. The above is expected to expand the company’s competitive diversity, expands its addressable markets, and support its product offerings. Moreover, Vricon’s products and technology are in sync with the company’s expansion strategy.

Q1FY21 Financial Highlights:

• MAXR announced its quarterly result, wherein the company posted total revenue of USD 392 million, slightly higher compared to USD 381 million in the previous corresponding period (pcp).
• Adjusted EBITDA stood at USD 67 million, lower than USD 77 million in pcp. The quarter was marked by higher SG&A expense (USD 84 million v/s USD 68 million in pcp), while depreciation and amortization stood lower at USD 74 million from USD 90 million in pcp.
• Net loss widened to USD 84 million, from a net loss of USD 48 million in pcp. The group reported a higher interest expense of USD 78 million, as compared to USD 49 million in pcp.

Source: Company Report

Risks: The company reported a decline in an order backlog of USD 1.8 billion in Q1FY21, as compared to USD 1.9 billion in FY20. Backlog is the revenue visibility for the coming period, and a slide in backlog is not a healthy sign. Continuation of the above trend would likely to dampen the company’s overall performance.

Valuation Methodology (Illustrative): Price to CF based

Note: All forecasted figures and peers have been taken from Thomson Reuters

Stock Recommendation:

The group’s operating loss widened in the first quarter and the stock corrected ~29% following the result. We believe that was a panic sell off by the investors as the result was not that bad. The revenue was higher despite the charge related to the Sirius-XM7 satellite program, Operating cash flow turned positive and book to bill ratio stood at 1.1x on a TTM basis. The stock also recovered ~12% in the past couple of trading session. The company operates in a unique segment and caters to the government entities like Geospatial-Intelligence Agency, U.S. Army, U.S. Air Force, U.S. Space Force etc. Hence, the operation is resilient in nature and is not impacted by the general economic conditions. The company has a robust pipeline Across Earth Intel and Space Infrastructure amounting to USD 25 billion, which looks encouraging. We have valued the stock using the Price to CF based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Lockheed Martin Corp, General Dynamics Corp etc. Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock at the last closing price of CAD 38.32 on May 07, 2021.

One-Year Price Chart (as on May 07, 2021). Source: Refinitiv (Thomson Reuters)

Real Matters Inc.

Real Matters Inc. (TSX: REAL) is a Canadian network management services provider for the mortgage lending and insurance industries. The company's platform combines proprietary technology and network management capabilities with tens of thousands of independent qualified field agents.

Key Highlights:

• Improved Macros: Over the years, the U.S. mortgage origination spends for purchase and refinance transactions has remained elevated, supported by the persisting low-interest rates. Moreover, the company provides mortgage origination services and has top lenders as clientele, which further support the company with the outsized allocation of transaction volumes as compared to the peers.

Source: Company Presentation

• Growing Momentum from the US Title segment: The company entered the U.S. Title business in FY16 with the acquisition of Linear Title & Closing Ltd. This segment has contributed strongly to the overall growth of the group, driven by prudent investments across the field professional panels. Notably, the US Title segment made a higher contribution of ~31% to the company’s total income in Q2FY21, v/s ~28% in Q2FY20.

Source: Company Report

Q2FY21 Financial Highlights:

• REAL announced its quarterly result, wherein the company posted revenues of USD 128.828 million, higher than USD 109.643 million in the previous corresponding period (pcp). This was driven by a strong growth from the U.S. Title segment (USD 40.050 million v/s USD 30.808 million in pcp.) coupled with decent growth from its core segment, i.e. U.S. Appraisal segment.

Source: Company Report

• Adjusted EBITDA stood at USD 19.013 million, as compared to USD 14.607 million in pcp. The growth was driven by higher volumes and margin expansion from the company’s U.S. Title segment.
• The quarter was marked by higher operating expense (USD 28.206 million v/s USD 21.977 million in pcp) and a surge in transaction costs (USD 82.170 million v/s USD 73.703 million in pcp).
• Net income was recorded at USD 11.674 million, as compared to USD 18.652 million in pcp. The decline was primarily attributable to a net foreign exchange loss of USD 1.515 million v/s, a gain of USD 12.419 million in pcp.       

Q2FY21 Income Statement Highlights (Source: Company Report)

Risks: The operation of the company is correlated with the mortgage market, which is impacted by several factors, such as broader economic conditions, changes to interest rates, changing regulations etc.

Valuation Methodology (Illustrative): Price to Earnings based

(Note: All forecasted figures and peers have been taken from Thomson Reuters).

Stock Recommendation:

On a long-term perspective, REAL’s U.S. Appraisal activity targets to capture 7-9% of the total addressable market (TAM) for purchase mortgage origination activity and 17-19% of the TAM for refinance mortgage origination activity. Within the US Title segment, the company focused on securing 6-8% of the total market (TM) for refinance mortgage origination activity. Altogether, by the end of FY25, the company targets net revenue margins within the range of 19-20% while Adjusted EBITDA margins are expected to be in the range of 65-70%, which looks encouraging. We have valued the stock using the P/E-based relative valuation method and have arrived at a double-digit upwnside (in percentage terms). For the said purposes, we have considered peers like Re/Max Holdings Inc, Evertz Technologies Ltd etc. Considering the aforesaid facts, we suggest a ‘Buy’ recommendation on the stock at the last closing price of CAD 16.52 on May 07, 2021.

One-Year Price Chart (as on May 07, 2021). Source: Refinitiv (Thomson Reuters)

Disclaimer

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