Most of us have seen or heard of the “Canadarm”, the giant robot arm in use in the International Space Station and that served onboard the US space shuttles for over 25 years. Very few however, know of the Canadian spacecraft manufacturer behind the Canadarm. Maxar Technologies (Trading Symbol: MAXR) is an iconic Canadian space technology company that has been around for six decades. It is currently in final stages of completing its shift from being a Canada-centric satellite maker to a US-centric satellite, systems and digital imagery provider. The stock now trades on both the Toronto and New York stock exchanges under the same symbol.
Among the key drivers of investment value for Maxar are the long duration programs for which it supplies satellites (controls one-third of the world market), systems and services and its digital imagery business that means that contracted cash flows occurs for years in the future. The Maxar stock has suffered in recent months in-line with the sharp fall in global demand for large geostationary satellites (the kind that cost $350-500 million each and orbit 50 km above sea level). In addition it is also in the middle of a large investment phase, where it is building its own network of low earth orbit (LEO) satellites. Offsetting the decline in what was once its core and most profitable offering is a surge in global demand for LEO satellites and the digital imagery business (following its recent acquisition of DigitalGlobe), both of which are being driven by long term contracts from global telecom companies seeking to put large constellations of satellites in orbit and government agencies like the National Geospatial Agency and other consumers of this high resolution imagery.
The focus for the company now is growth through increased business with various US government agencies especially NASA, continued deep ties with the Canadian government’s defence and space programs and new business with other countries. It enjoys the best EBITDA (earnings before interest depreciation and amortization) margins of 32.0% in the entire industry, which includes US and European aerospace giants such as Lockheed Martin and Thales SA.
Vulcan’s methodology for selecting securities for investments is called discount to intrinsic value. We develop a model that calculates the intrinsic value of the shares we want to invest in and then try to buy them at a market price lower than their intrinsic value. We calculate Maxar’s intrinsic value between $90-$100 / share. Against this calculated intrinsic value of $90-100 / share the market price is around $59.00 (as of April 2 2018), thus offering a significant discount to intrinsic value.