Description

GSAT is a simple valuation short. In the age of GME valuation shorts sound like selling credit protection in 2006.

Please read specialk992’s GSAT write up, and for simplicity of this thesis, just assume everything in it pertaining to the quality of GSAT’s spectrum is wrong. It makes for much simpler analysis to assume GSAT’s spectrum is valuable given it has been approved by 3GPPP and is now in QCOM X65 chip.

GSAT has 11.5 MHz of spectrum that works out to 3806 MHz/pop assuming a US population of 331mm and 431 MHz/pop from Canada assuming a Canadian population of 37.5 mil.

Assume all the debt is worth the melting ice cube of a satellite communication business.

GSAT’s current market cap of $4,600mm, equates to $1.10 MHz/pop using a fully diluted share count of 1,800 mil shares.

The US Government dumped 15x the amount of the GSAT spectrum amount in the CBRS auction that cleared at $.217 MHZ/pop, less than 8 months ago.

Essentially, GSAT is being valued at 5x a market clearing auction that was 15x its size.

Now we can list all the benefits that CBRS spectrum has over GSAT, such as:
Not tied to a dying satellite business,
Not tied to 15-year-old satellites,
Not tied to Elon Musk and Jeff Bezos coming for the satellite business,
Not spectrum that has had no monetizations in 4+ years since FCC approval,
The list goes on but adds little to a world of Twitter, Reddit, Facebook and “diamond hands.”

There is little valuation support for GSAT; at best it is worth ~$.70/share and that requires some generous assumptions.


Catalyst

Valuation reality sets in.

No sell side support - it’s near impossible to justify valuation on comp or any other metric. Morgan Stanley has a $0.55 target price.

There is minimal institutional ownership. Anyone with a model and any valuation on GSAT has probably already sold. 13F on Feb 15th will give an idea what the ownership looks like, and by May 15th I assume it to be radically different.

Short interest at only 5.5 percent.

A cunning, smart controlling shareholder. Chairman Jay Monroe, a 60% equity holder. He has a purely self-dealing and has a destructive/exploitative sense of fiduciary duty (think of him as a American version of George Economou). Jayknows the stock is way overvalued and will dilute. I expect either an ATM equity issuance or some other form of dilution. Look at GSAT’s share count over last decade, and one can see how he has exploited shareholders and destroyed shareholder value for everyone but himself as he participates in the last dilution.
There is zero institutional demand for the equity. Jay Monroe burned numerous hedge funds in 2017 on his capital raise. Whatever dilution he does will be aimed at retail.
The subordinated debt instrument is owned by Jay Monroe and Dish CEO Charlie Ergin. I don’t expect Monroe to ever retire or delever GSAT. Owning the fulcrum security is key to him. In litigation with his largest shareholder Mudrick Capital, Monroe was forced into a settlement to extinguish his prior fulcrum security. Monroe, through control of the board, using Charlie Ergin and undercutting hedge funds, successfully managed to put in another debt instrument that gave him control, along with Charlie Ergin, of the fulcrum. Even if the market cap is $3 bil. Monroe will never retire the fulcrum security. And Charlie Ergin did not invest in GSAT for a 15 percent PIK and warrants (that is his downside) - he invested to participate with Jay Monroe in a final dilutive control event.

Risk
Short the retail horde. I doubt most of the Reddit, Facebook, Twitter, diamond hands crowd looks at spectrum valuation, share count, PIK debt on balance sheet etc. They are completely focused on extrapolating any data points into imaginative outcomes.

GSAT cannot go on the road and pitch an institutional story. They pumped the story to hedge funds in 2014 and everyone got burned. They will promote via press releases of satellite product lines that are irrelevant to the financials.

GSAT can try and promote a C-Band story but there is real risk to promoting a very complex regulatory process to pump the retail horde.

GSAT can promote small spectrum use deals but these will be immaterial to financials. 15x amount of similar spectrum was recently auctioned to potential and current spectrum users. The deals GSAT has done for its spectrum have been financially immaterial and nothing financial has been disclosed. Near term I expect the same: more stories and press release but not real spectrum cash flows.

There is no other chapter to the GSAT story in that someone will come near term and light up the spectrum and pay a high lease price. There is just way too much spectrum out there with the CBRS auctions.

Jay Monroe did not have the slightest clue that the retail horde was going to take his stock to $2. He was hunkering down for the long slog. Equity funding dilution to pay down French banks and even suspending earning conference calls. The world will mean revert and Monroe will use this irrationality to dilute a clueless retail horde. Most of the hedge funds buried in the name have probably already exited. The short interest is low, and when the diamond hands decide to move onto other brighter story stocks there will be few buyers for GSAT.

Short term retail and market irrationality has no bounds.

Catalyst

See Above. Equity Offerings. Reality. Competition from AMZN and GOOG. Massive CapX upgrade cycle.