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Technology Stocks : Loral Space & Communications -- Ignore unavailable to you. Want to Upgrade?

To: Labrador who wrote (6896)	10/25/1999 9:21:00 AM
From: Valueman	Read Replies (1) \| Respond to of 10852

ING Barings earnings preview: Loral Space and Communications, Ltd. (NYSE: LOR-15 15/16) + 3Q99 Earnings Preview - ATTACHED October 25, 1999 STRONG BUY 52-Week Range: $23-12 EARNINGS PER SHARE Daily Vol(000s): 1200 1998 1999E 2000E 2001E Shares O/S(mil): 289.0 Mar (0.11) (0.17)A NA NA Market Cap(mil): $4,606 Jun (0.27) (0.17)A NA NA Avg. ROE 1999E: NA Sep (0.08) (0.21) NA NA EPS Growth: NA Dec (0.23) (0.52) NA NA Debt/Capital: 34.6% Year $(0.67) $(1.07) $(1.27) $0.28 Book Value/Share: $10.21 P/E NM NM NM 54.5 x Dividend/Yield: NA/NA Insider Holdings: NA Note: Numbers may not add because of rounding. S & P 500: 1301 * On Tuesday morning, Loral Space and Communications is expected to report its 3Q99 earnings and discuss the company's outlook. Most of the attention will likely be devoted to Loral's important subsidiary, Globalstar Telecommunications Ltd. +~ (OTC: GSTRF-24 7/8), which commenced a soft service introduction two weeks ago. * Revenues Should Improve by 32% Year-over-Year. * We expect the company to report revenues of approximately $382.0 million a 35% increase over 3Q98 revenues of $289.6 million. * While EBITDA Should be 180% Better than 3Q98. * We expect Loral to report EBITDA of $56.1 million, a 180% increase over the $19.9 million reported in 3Q98. * We are reiterating our Strong Buy rating on Loral. We maintain a year-end 2000 price target of $30, based on a sum-of-the-parts valuation. Discussion - We expect overall revenues to rise by 39% to $381.9 million from $275.3 million during 3Q98. Included in our revenue assumption is $45.5 million of inter- company elimination. Likewise, EBITDA should climb to $56.1 million, representing a 14.7% EBITDA margin, from $19.9 million during 3Q98. The loss per share for the quarter is now estimated at ($0.21). However, the loss could decline significantly if Loral decides to capitalize less interest than we expect. For the quarter, we believe the company will expense $14.0 million of net interest expense and $43.3 million of depreciation. Space Systems/Loral - Satellite Manufacturing Our models assume SS/L will deliver $353.6 million of revenue during the quarter and $27.2 million of EBITDA, both up from 3Q98's $282.9 million of revenue and $17.8 million of EBITDA. This equates to a conservative 7.7% EBITDA margin that is well below the 9.0+% EBITDA margin delivered during the past two quarters. We do not expect a significant shift from the $1.3 billion in backlog announced at the end of 2Q99 since no major orders were announced during the quarter. We hope to receive an update on the progress of the CD Radio~ (OTC: CDRD-26) program in light of the first of three scheduled launches on January 17th, 2000. SS/L successfully completed the following satellites since the end of the 2Q99 and is scheduled to deliver 2 more Globalstar missions, the GOES-L and Japan's MTSAT during the 4th quarter. The EchoStar VI satellite launch has slipped to 1Q00 since the last quarterly conference call and delivery of ChinaSat-8 remains indefinite for the time being. Globalstar (4) July 10th EchoStar V Sept. 23 Globalstar (4) July 25th Telstar 7 Sept. 25 Globalstar (4) Aug. 17th Globalstar (4) Oct. 18 Globalstar (4) Sept. 22 Orion 2 Oct. 19 The Loral Global Alliance - Fixed Satellite Services FSS revenues, excluding SatMex, should arrive at $53.8 million with Skynet contributing $46.0 million and Orion the rest. This is an increase of $5.0 million sequentially. We expect $37.5 million of EBITDA, a 70% margin, between Skynet and Orion. We believe Skynet utilization for the quarter hovered just north of 70%. SatMex should record $27.0 million of revenue. Highlights from the quarter include the launch of Telstar-7 for the U.S. market and Orion-2 for cross-Atlantic ocean traffic as well as the agreement to lease all of the transponders on Apstar IIR for the Asia/Pacific market. ING Estimate of Utilization for the Quarter Skynet Utilization % SatMex Utilization % Orion Utilization % Telstar 4 70.8% Solidaridad 1 35.0% Orion 1 44.1%# Telstar 5 88.4% Solidaridad 2 80.0% Telstar 6 53.8% Morelos II 10.0% SatMex 5 50.0% #-We have assumed 15/34 transponders are dedicated to FSS Data - CyberStar/Loral Orion Data revenues should increase sequentially to $20.0 million from the $17.8 million generated during 2Q99. Loral Orion should capture roughly $17.5 million of revenue while the remainder, $2.5 million, should originate from CyberStar. We estimate that Loral will invest $5.0 million in CyberStar development costs during the quarter though we do not expect an announcement regarding the production of CyberStar satellites. Globalstar - We Do Not Expect Revenues Until 1Q00 On October 11th, Globalstar formally began a soft roll-out of service with "friendly user' trials in the United States, Canada, Brazil, Argentina, China, Korea, South Africa and parts of Europe. We have not assumed any revenue during 3Q99 and 4Q99 in our models and modest revenue of less than $10 million in 1Q00 before 100+% sequential growth occurs. We expect the company to lose roughly $0.21 per share during 3Q99. Losses should escalate to ($0.52) during 4Q99 as the company starts depreciating its assets and ends the practice of capitalizing interest. Vendor Financing Pact Should have been Wrapped Up by End of Q399 Qualcomm management recently acknowledged that it intended to conclude vendor financing discussions by the end of the 3Q99. The Globalstar partner indicated that it expects to convert its $400 million in receivables into vendor financing. We are optimistic that talks have reached conclusion and the company is able to discuss details regarding the extension period, interest rate and warrants granted on its conference call. Sale of Qualcomm Handset Business Is Not a Concern to Globalstar Qualcomm's decision to sell its handset business will not affect the production of Globalstar terminals. Globalstar handsets are built in a separate location from Qualcomm's other models and would remain with the company when a sale of the terrestrial handset business is concluded. Management confirmed our statement in our 9/15/99 note that it would take 3-5 months to establish a second manufacturing line once Globalstar made the request. A Gateway Update Globalstar has allocated 30 of the 38 gateways it has ordered. All or the majority of the remaining 8 gateways are likely to be sold to the partnership that replaces Hyundai, which left Globalstar in May 1998 because of pressure to focus on its core businesses. Hyundai was expected to operate three gateways in India alone. Qualcomm management insisted that no additional gateway orders were likely until 2000 though some of the original gateways may request upgrades to capacity to existing gateways. We would find this very bullish since it would add greatly to capacity thus affecting our breakeven point of $0.14 per minute. (Note: This breakeven point excludes the expected increase in satellite life to 10 years from 7 1/2 years and greater capacity if other CDMA MSS applicants are not deployed. We believe the addition of these factors could move the B/E point to $0.10.) Valuation We believe owning Loral presents investors with an opportunity to double their money within the next year as can be seen through our sum-of-the-parts valuation methodology below: Loral Valuation 2000 SS/L 1x Revenue $5.00 Globalstar DCF 16% DCF 15.50 Skynet 11x EBITDA 6.00 Orion 9x EBITDA 3.00 SatMex 11x EBITDA 2.50 CyberStar Based on $40 1.50 Million Alcatel Investment Other Assets 1.75 Net Debt/ Share Forecasted (5.00) Balance Sheet Total $30.25