Morgan Stanley Dean Witter came out with an outperform rating this am and price targets of 25 end of 99 and 30 in 2000. The report is 10 pages long and covers the business plan very well and is well worth the read. It doesn't necessarily cover any new ground but it certainly puts everything in focus. Here are some high points:
“After meeting with Bernard Schwartz,…we continue to believe that the company will be the winner in the mobile satellite service (MSS) sector.”
“In our view, the relatively unimpressive performance of Iridium's service rollout has unfairly punished Globalstar's shares….Globalstar has always had the right business plan, in our view.”
“Assuming G* executes its business strategy on time and the demand for the product is better than our current estimates, we think that our price targets could prove to be extremely conservative.”
“In our view, Iridium's service and handset problems should benefit Globalstar…. Since Iridium's handset and service costs are significantly higher than G*'s, the $140 million Iridium marketing campaign was free advertising for G*'s future success. Unlike Iridium, which had limited handsets available and only one handset manufacturer before launching its service in November 1998, [I thought they had 2, Mot and Kyocera. Oh well] G* has three…on board to produce a healthy supply of phones…In addition, service will not be launched in a market until handsets are available in those stated territories.”
It mentions the benefits of being aligned with “the right service providers such as AirTouch, Vodaphone, China Telecom, TESAM, and ELSAOM. These operators provide service to over 60 million wireline and wireless users and know how to market a telecommunications product. We think this strategy is extremely important for G*, particularly since the new product complements, not replaces, terrestrial wireless service.”
They cover the need for $600 million additional funding and the fact that management has yet to decide how to finance. Debt seemed to be the primary option along with vendor financing. It wasn't viewed as a problem.
They estimate 975,000 subscribers by 2000 [management est is 1.3 million] and 2.6 million by 2002.
They expect $382 million of revenue in 2000, 2.5 billion in 2002, EBITDA pos in 2000 at 73.8 million, and EBIT pos in 2001 at 303 million, and EPS positive in 2002.
“Globalstar is not likely to repeat Iridium's mistakes.”
“Iridium's service is often seen as a competitor to cellular service. G*, however, has positioned itself a provider of a communications solution in parts of the world where the build-out of terrestrial systems cannot be economically justified.”
“There will be 3 billion people without phone service in the year 2000, a huge potential market.”
“G* has chosen a simple design.”
“G* is the lowest cost global communications solution thus far, a manifestation of it's conservative technology.”
“G* will be second to market, a good place to be.”
“Management has a great track record of returning value to shareholders.”
“We think our assumptions for the MSS subscriber universe are conservative, and believe if the MSS market exceeds our initial expectations, the potential for G* investors could be extraordinary.”
I happen to agree! |
