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Maxar Results Shows Signs of Optimism Despite GEO Struggles

By | May 10, 2018

Maxar Technologies, one of the flag bearers of the NewSpace era, has released its latest set of results which are broadly in line with analyst’s outlooks. The company enjoyed revenues of just under $558 million for the three months to the end of March, which was slightly ahead of expectations. This set of results includes revenues from DigitalGlobe’s imagery and services businesses as a result of the acquisition that closed in October last year. However, Maxar did see a fall in revenues when looking at GEO satellite business indicating that last year had been tough for the company in this regard. Revenues from space systems for the quarter was $293 million, a near 15 percent drop compared to the same stage last year. Imagery was a strong performer in this set of results, with revenues up almost 10 percent compared to the same stage last year. Its services business was also a strong performer reaching $70 million in the quarter, up significantly from the same stage last year.

Analyst Verdict

So, what did analysts’ make of Maxar’s results, given the fluctuations in their satellite manufacturing business and imagery, for example? Thanos Moschopoulos, a technology equity analyst at BMO Equity Markets, put out a comprehensive research note on Maxar’s results.

“Space systems revenue was -14 percent year-on-year, driven by a 30 percent year-on-year decline in GEO and Radarsat Constellation Mission (RCM) revenue. This wasn’t unexpected, but nonetheless remains an ongoing drag on overall corporate growth. On the positive side, the mix of revenue within space systems is improving. MDA revenue, ex RCM, was +7 percent year-on-year, while SSL’s LEO and U.S. government revenue was +92 percent year-on-year on a combined basis,” he wrote.

Moschopoulos talked about the fact that SSL booked two GEO satellites during the quarter, with B-Sat, a Japanese operator, and with Spacecom, an Israeli operator. Maxar gave a fairly bullish forecast in terms of the circumstances for GEO orders. “Management continues to believe that there will be eight to 12 industry-wide GEO awards this year, with three or four of these going to SSL,” wrote Moschopoulos.

There were other plus points in the results which just about beat analyst forecasts. According to Moschopoulos, there was good growth in imagery and services. “Imagery revenues were +9 percent year-on-year, helped by ongoing growth from the Direct Access Program, U.S. government demand (i.e., the portion of U.S. government business that doesn’t fall under the EnhancedView contract), and a sizeable commercial contract (with HERE, a provider of mapping technology for autonomous vehicles). Services revenues were +21 percent year-on-year, bouncing back from a year-on-year decline last quarter,” he said.

Deepak Kaushal, a technology equity analyst at GMP Securities, added in a research note that investors will require patience when looking at the overall Maxar story. “We are encouraged with solid Q1 results and growth outside of GEOSat and RCM headwinds. Furthermore, the demand environment appears to be improving with an increase in U.S. government spending, a growing commercial imagery business, and a potential bottom in the GEOSat market. That said, we remain focused on cash flow performance, which we expect to remain weak over the next two years due to heavy investments in World View Legion, continued R&D/working capital investment, and restructuring. We continue to like what Maxar is building, but investors require patience,” Kaushal wrote.

Doug Taylor, a technology equity analyst at Canaccord Genuity, said in a research note that the results were positive and could lead to an even better 2018. “Maxar reported Q1 results which were ahead of consensus on most key metrics. The company raised its EPS guidance for the year, while other outlook items remain unchanged. Maxar demonstrated improved bookings momentum toward the end of the quarter. We expect this to begin translating to improving financial performance over the course of 2018,” he wrote.

Taylor said he continues to have a “Buy” rating on the stock. “We believe that the discount to U.S. peers (MAXR 7.5x vs. peers 12x) should narrow as the company delivers on a couple of fronts: 1) showing evidence that the space systems business is forming a bottom in 2018; 2) improving visibility to cash flow after heavier near-term capex related to the WorldView Legion build; 3) demonstrating that the U.S. access plan is translating into revenue growth. We maintain a BUY rating with a $70 target,” he wrote.

Moschopoulos has an “Outperform” rating on the stock. “Q1/18 results provided incremental comfort that FY2018 is on track, with healthy organic growth in imaging and services, and ongoing progress in diversifying the revenue mix in space systems. We remain Outperform on Maxar following Q1/18 results, as we see ongoing room for multiple expansion, despite the strong move that the stock has had post the quarter,” he added.