Don't despair Mr. A! Be thankful that there are willing buyers out there at higher prices.(I must admit I too had orders in at the same level!) I posted this over on AOL but it is worth repeating. Let's look at the big picture. Loral drops from roughly 24 to 22 before being halted on speculation of a layoff and loss of Asian business. That is 8.3%. If Loral is unable to do a thing with these birds and takes a $400 million hit, they will relinquish $30 million in EBITDA. The multiple on that, by the way, would be far below 10. Thus, as was mentioned by Shades1500, take off 1 to 2 points for the loss of this business. Any more than that,
and Mr. Market is offering up a perfect pitch. If Loral was worth 24 a couple of days ago, and we know the absolute worst case for the loss in value, we can safely say that anything below 21 1/2 or 22 is a gift. The street does not take into account the fact that SS/L EBITDA margins are 7.7%. Skynet will have 1998 margins of 68% plus. So, to lose $400 million in revenues at SS/L is not that serious. It hurts, don't get me wrong, but it is far
from lethal. Skynet can generate those same EBITDA numbers on an increase in revenues of $46 million. That is a 25% increase in what is projected for Skynet, without adding in any gains in Orion or SatMex. Remember, Skynet/Orion/SatMex have the possibility of doubling and in some cases tripling revenue per transponder. Loral estimates for SatMex assume 62% utilization, as does Orion's estimates. There is a lot of room for making up this shortfall
using very high margin businesses. I am assuming the worst case when they take the hit--I fully believe that they will NOT take that hit unless they get completely pimped around by the Laotian government for an extended period. |
