I for one am very happy to hear from all the new "lurkers" on this thread. Welcome everyone to the wonderful stock they call ORBI. I agree that emotion and pride are both very difficult beasts to overcome so lets all help each other out and share new ideas. Since my last rantings about the smallsat committee and how small/micro vehicles are the future of space I have been concerned that the price of the stock has been getting slightly ahead of itself. Well, now things have probably changed. Why probably? Well because we still need to find out about the details of this very limited news bulletin.
Here is my take on the impact. As I have stated before, I am new to fundamental analysis so give me some latitude in my very broad generalizations. I will try to convey some thoughts as to the pros/cons of my assumptions and then end up with a dollar value.
- Lets start off with the assumption that contracts mean nothing until they become firm, and even then they can be lost. I find it extremely difficult to work with total backlog numbers but that is all we have. Lets take the news at face value and say that ORBI will get the full $1.117B.
- I also see their space and ground infrastructure segment as the most profitable (today) so I will conservatively state that they will have a 7% profit margin on this contract. This should account for any "profit cutting" which may have occurred to cement the deal.
- There is no way to determine when this money will hit the books. Most space contracts start with a large up-front payment to get the ball rolling. Then payments are made periodically to cover the contractual obligation or as milestones are met. Finally, usually there are bonuses if the program exceeds engineering or cost parameters. So how do we simplify all this? Save the flames, but I will ratably spread it evenly over the life of the contract.
- Lets assume that there are 35,000,000 shares outstanding and I came up with the above converting into an additional $0.11 per quarter. Take a conservative multiple of 30 and we can figure that this contract is worth (very roughly) $3.35 in share price on Monday. Will it go up that much? Maybe, maybe not - it depends (forgive my cynicism) on how many people knew to "buy the rumor."
Now lets take a look at the emotion. According to the 4Q earnings press release "The company finished 1997 with a $2.9B in total order backlog, a 38% increase compared to year-end 1996 backlog." This $1.117B contract alone (assuming they eventually get all the cash) meets their 38% increase in total backlog from 97 to 98. What is that worth? This tells me that the managements targets for revenue growth are already met, and this is only Feb. Also, what is this worth in exposure? How about solidifying their reputation as a company that can deliver after some tremendous growing pains in the last 5+ years?
Some have brought up the very valid question of wether or not ORBI can properly allocate time and resources to fulfill all the contractual obligations they have made. I would venture to guess that they can. This company has been very conservative in the fact that they try to keep it simple, gain cash flow, then follow-on with more aggressive technologies. Except for some small quirks, they should be able to digest their recent expansions and be able to fulfill their backlog.
Finally, statements to the effect that they have no direct competition are simply not correct. Lets not fool ourselves into thinking that ORBI has the space world by the horns.
Enough? I think so also. No time to proof so forgive the typos.
As always, looking for similar or opposing views.
Thanks.
Boda |
