Well, with one undervalued company(QCOM) having corrected the market's misguided view, it is time to move on to Loral. What ails us now, and what can we do about it?
1) The most recent topic here is China. The political whackos will not let this one rest. The Cox report will come out in a number of months, in some form or another, and we will have a climactic LOR bashing at that time. So be it. As much as I would like to launch a Long March directly up Rush Limbaugh's distended mega-colon, he and his ilk have the right to free speech. I don't fault Schwartz for what he has done. It's a free country, and politics are politics. Fundamentals eventually win out over extreme political views. Loral is clean--this too shall pass.
2) The Iridium cloud. This is a big problem. As someone just mentioned, there are doubters on the viability of MSS, as there were for cellular when it started, or CDMA when QCOM introduced it. Having doubters is not a problem, but it forces one to reassess the market for MSS services. Is there a market? Many studies say yes. Well, it is time to do our own research. If there is a market, the service providers will know. If they believe there is a substantial demand, they will be ramping up accordingly. They will treat G* as a cellualr extension, not a niche service. It will become just an extension of every service plan. How do we find this out? There are gateways available at startup for the following countries--US, China, France, Italy, Korea, Argentina. Those areas are served by Airtouch(US), France Telecom/Alcatel, also known as TESAM(France, Argentina), Alenia/ElsagBailey(Italy), Hyundai(S.Korea), and China. I won't do anything about China at this time. I can call Airtouch Monday morning--they should also be familiar with Vodafone's plans in South Africa, which fires up early on too. I can call France Telecom/Alcatel and Alenia if I can track down the correct person. I'll leave Hyundai out at this time too. So, we can find out exactly what these service providers are thinking when it comes to marketing, target users, the mechanics of using the service, etc. Will Airtouch ask QCOM to put both 800 Mhz and 1900Mhz terrestrial cell chips in the phones(that gets you the ability to use that phone in many more places than the currently planned 800Mhz only--throws in Sprint and Primeco subs)? Will the other operators in the US be able to offer G* service, and if so, how? If not, why not? Plenty of other questions, but you get my drift.
3) Loral accounting. We will see if they now report in a consistent manner. Having several quarters in a row with numbers one can compare will be helpful. Rest assured that management has been made aware of the unacceptable methods used to report earnings. They say they will correct it. We'll see.
4) Launches. Not a problem per se, but something to keep in the back of one's mind. We are coming up on two GEO launches that use new rockets, the Delta III and the Atlas III. We have a 0/1 and 0/0 record respectively. These companies will be on pumped to do it right. Delta went BOOM last time, and I can almost guarantee they won't let that happen again. Atlas is trying to break into the commercial biz in a bigger way--they too know how much rides on this launch. They should go fine.
5) Pricing/Fill rates--transponder prices have seen a rise lately, even in Asia. The US is very tight, especially at Ku. No better situation exists for Loral with Telstar 6 newly launched, and Telstar 7 launching with a >50% pre-booked rate. Even Orion 3 is looking good with a number of ISP's prebooked. That is a good business, with a very high $$$/transponder number. Orion 1 is looking excellent too. Orion needs to find a home and a market, but I don't think we need worry until October there. There is quite a long time to figure out the plan for Orion 2. With the Brazil slot win, and possible deals with European sat operators, Orion 2 may be busier than I think. Telstar 4 and 5 are booked. By the way, C* is using more capacity than I thought. Is there a surprise coming there? Not sure, since we don't know if the pilot projects have been converted to real contracts yet. Better find that out.
6) Cash/Acquisitions/G*--With G* financing looming over Loral like a high yielding axe, the acquisition machine known as Bernard Schwartz has been shackled. That concerns me. I hate to see $$$ wasting away in money markets. The juicy deals that might have been made with Asia and Latin America in shambles get further away as those areas improve. On the other hand, that China devaluation talk is getting louder each day, so we may get our chance yet. Anyway, we have seen that acquisitions are key to Loral's growth. Skynet, SatMex, and Orion are now the cash flow generators in the lineup after a rocky start. I bet the next acquisitions are much smoother. They are out there, but we need some clarification on G* financing before Schwartz can "do the deal." Time is of the essence here. I don't care if you dilute me, get the financing squared away and get on with the plan.
7) There is talk of selling by Fidelity and arbitrage from the recent convertible issue keeping the stock depressed. If that is true, it can't go on forever. That pressure will eventually subside.
8) The Lockheed shares still need to be addressed. They threaten to beat us down if they are sprung on the market suddenly. They can be sold as some sort of convertible preferred or sold of in bulk to our eventual acquirer, but this issue needs to be addressed and the cloud cleared.
9) Finally, is Schwartz himself an impediment to Loral's stock price? His credibility has been lost in many eyes. His age bothers some. His politics bother some. The amazing numbers spouted off in the November 97 analyst meeting have never been met. Can he recover what he has lost? I think so. He has cleaned up the mistakes at SatMex and Orion. They are now strong contributors under Terry Hart's able stewardship. He has gotten G* back on track, lining up redundant launches in a very tight market. He has raised money in a difficult market. He is clawing back, and I am sure he thinks the launch of G* service will be one of his career's crowning achievements. That tells me he will do his best. He will work for shareholder value as he has for 30 years. If he can't accomplish an increase in shareholder value, I would hope he would do what's right for the long suffering shareholder.
I am confident that many of these issues that plague Loral now will clear over time. From out of that cloud should come a valuable asset. In the meantime, what can we dream about that might give us an immediate boost in value?
--JV with a fiber company like GLBX to make all the world accessible to high speed data.
--A high profile acquisition
--Large military contract at SS/L
--A HUGE name coming in to run G*--I am counting on Schwartz to do this right--hire a name, regardless of cost. Slather them up with options, give them part of your 50% pay raise--do whatever it takes to get a big telecom name
--The longer Loral and G* share prices stay in the dumper, the more likely they get bought. Not like you haven't heard me say this before, but I continue to repeat it as we continue to be in the dumper. How can Loral and G* stay at these ridiculous levels? If 3 more GEOs and 32 more LEOs go up and our stock prices continue to languish, the company should be sold. That is my opinion. I am not willing to wait for earnings to boost the price. That would take one hell of a stock run to make it worthwhile holding a stock with no return over 5 years. I can't keep listening to the "stock price will follow performance" chant. I beleive that the price will inevitably follow the fundamentals, but my return on investment calculations have the nasty habit of using time as one of the denominators. |
