|Shares Out. (in M):||47||P/E||0.0x||0.0x|
|Market Cap (in $M):||160||P/FCF||0.0x||0.0x|
|Net Debt (in $M):||-74||EBIT||11||22|
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Recommendation: Long ORBC
Timing: 24 months
Orbcomm operates in 100+ countries, offering machine-to-machine (M2M) global asset monitoring and messaging services through its constellation of 27 low-earth orbit satellites and related ground/control infrastructure, and through reselling terrestrial wireless services. M2M is a two way telematics service which can track, monitor, and control mobile and fixed assets. www.orbcomm.com
We think that over the next 24-36 months, Orbcomm will experience an accelerating growth rate in revenues and even faster growth in EBITDA and cash flow. Once the second generation (OG2) satellites are in the sky there will be ample opportunity to grow within existing markets, reinstate the AIS revenue stream, and also penetrate new markets. The company has no debt, $80mm of cash, and can easily fund the deployment of the satellites with cash on hand, cash flows, and some minimal vendor financing. The operating leverage in the business is substantial with incremental revenues dropping 75% to the EBITDA line. The management team owns 20%+ of the stock and have proven they know how to operate a niche satellite business. This is becoming an execution story as they have already proven a market exists for their services. If the management team properly executes its stated strategy of launching OG2, adding new functions and features to its network, it will grow the subscriber base in new and existing market, and become a much larger and significantly profitable company in 3-4 years.
We think that in 24-36 months, ORBC could generate $100-110mm in revenues, 55% EBITDA margins, and trade at 9x EBITDA. Additionally, what is missed by analysts is the capital structure opportunity at maturity whereby the company could add 3-4 turns of leverage to the business and pay out a special dividend. In total, we think the stock is worth $8-10 within 24 months.
It is an execution story with growing revenues, increasing operating leverage, and the potential for a higher multiple.
Management Team & Insiders
Competition – How else can you get the job done?
Terrestrial (cellular) vs. Satellite?
Financials & Bull Case
Maintenance Capx – virtually nil
Public Peers EV/EBITDA multiples & Growth Rates
- Like most satellite companies, there is HUGE upfront investment. Companies often borrow heavily to fund the capital expenditures of getting the satellites in the air and building the ground infrastructure. If the revenues don’t follow through, the debt burden becomes overwhelming. This is the rough description of the early days of Orbcomm. The company spent hundreds of millions of dollars building out the initial satellite constellation and ground/control infrastructure in the late 1990s.
- Thankfully, we are long past that stage. Orbcomm has proven the markets exist, generates revenues and positive cash flow, and has a pristine balance sheet today.
- Here’s a link to the S1: http://www.sec.gov/Archives/edgar/data/1361983/000095012306006330/y19769sv1.htm
Links & useful sites
Ways to track satellites:
Articles about the SpaceX Launch:
Forum about SpaceX
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