Valueman excellent valuation analysis of LOR (via LOR thread)
[Reposted here because it is so damned good. G* buyout anyone?]
Talk : Communications : Loral Space & Communications
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To: Rocket Scientist (5507 )
From: Valueman
Thursday, Mar 18 1999 11:16PM ET
Reply # of 5509
What is Loral worth without G*? Right now, the market says it is worth about 12.75.
That is roughly $3.7 billion--less than any piece of crap internet company on a bad day.
EBITDA will be growing 100%. Is that a reasonable valuation? Let's see--it is common
to value SS/L at 1X sales. Why? Probably because all the analysts have done it that
way. Is that reasonable? I think not. Let someone try and whip up a world class sat
manufacturing business. I dare them to try. The possibility of hiring that many skilled
engineers is slim(Ok--money might convince them). Then there's equipment, experience,
trust, a track record, etc. that would have to be whipped up as well. Margins are not
that great, but that previously-mentioned piece of crap internet company sells at some
phenomenal multiple of sales and will never have any profits. Somewhere in between is
reality. It is virtually impossible to duplicate SS/L in today's world. It alone is worth the
$3.7 billion. What about the FSS services? They should be producing $850 million in
EBITDA in 2002. What multiple would you place on that? Ten times? That is common.
That gives us $8.5 billion in value in 2002, closing in on $30/share. But wait--why use
10X EBITDA? Because analysts always have. Hold on--10% of the FSS revenues
come from internet transmission at this point. QWST is trading at 12X revenues. Should
that be our guide? LVLT is at 40X sales. They are merely a conduit for data. Can we
use 40X sales then for our internet transmission business? What about Abovenet,
mentioned as a possible partner for Orion, and trading at 100X sales. Valuation by
association is obviously not a new paradigm principle. MAybe GBLX is more our style,
providing transoceanic fiber transmission, similar to Orion 3 providing OzMail a
connection to the US backbone. A mere 50X sales there. So, with a data business
slated to do $80 million this year, Orion should thus be worth $4 billion. That is
excluding its run-of-the-mill FSS business. There we go! Are we over 12.75/share yet?
Should our cash flow be any different than cable company cash flows? Why are they
worth a 20X+ multiple?
How about that last-mile connection valuation. We own roughly 20% of Skybridge
here. They want to do one thing--hook up the last mile to the nearest fiber. That's it. Just
like @Home, RoadRunner, etc. At Home trades at 300X 98 revenues, or a company
value of $15 billion. They have a handful of subscribers in the US, and will be in Canada
soon. What does that mean for Skybridge? Skybridge will connect anyone, worldwide
at speeds that are 20X cable modems. Is 20% of that worth a few dollars? One would
think so. When operational, should Skybridge command a value sufficient enough to
make Loral's stake worth more than our current $3.7 billion benchmark? One would
think so.
Throw in a lottery ticket on CD Radio, a lottery ticket on G*, and you've got some
potential. Wall Street just doesn't get it. Believe me, I have spoken with many
"professionals" and they do not have a clue. Some do, most don't. I guarantee there are
other companies doing exactly the same kind of "big picture" analysis as you see here(of
course, they would likely be a bit more exact, but hey, I'm winging this). The longer
Loral's stock stays depressed, the more likely we get bought out. It is a simple fact.
There are very few suitors, as we have discussed before--AT&T, ALA, GE, Boeing,
LMT. There may be another list for G*, which could easily be sold separately. It does
not take too much imagination to see telephone companies interested in all of G*.
Vodafone comes to mind. Frankly, if an offer for LOR appeared tomorrow, and it was
reasonable, my clients would tell me to take it. I can't blame them. It has been 2 to 3
years with little or no return. You can hear the "be a patient long term investor" mantra
for only so long. I see the value growing within the company, but it is not making its way
to the shareholders. If that value continues to fail to rear its beautiful head, we will be
taken out sooner than later, and I will be all for it. |
