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

To: ccryder who wrote (1647)	1/2/1998 8:46:00 AM
From: ccryder	Read Replies (1) \| Respond to of 10852

Timely news from Readware. I don't know if Geoff is around today so I thought I would take over the readware duties just once. Subject: Loral's "EBITDA Multiple" Date: Thu, Jan 1, 1998 23:03 EST From: Readware Message-id: <19980102040300.XAA11360@ladder02.news.aol.com> For three emails to me: what is the multiple one puts on Loral's EBITDA? That is, what multiple does one put on Loral's earnings before income taxes, depreciation, and amortization. A multiple is the price you are willing to pay for a company's net earnings or its EBITDA. A satellite company historically trades between 7 and 11 times its EBITDA. In the case of Loral, it is not really just a satellite company. It is also a telecommunications company (with G) and in 1999 too will be a full service Internet provider. A satellite multiple would be probably distinctly inappropriate for it then, to answer the question. A stock normally trades on forward earnings. If our earnings (EBITDA) forecast for Loral in 1998 are right (and I am very confident they are), Loral will earn $256.2 million. Based on 230 million shares outstanding, Loral is trading at roughly 21 times its forward (1998) EBITDA. (This has no G revenues at all in it). Assuming all the launches for G* in 1998 are successful, Loral in 1999 should earn $826 million (this number is lower than Loral's published pro forma estimates). On 280 million shares outstanding at the end of 1998, that would be an EBITDA of $2.95/share. Do you give that a 21 multiple-- the mutliple it currently has? We do not. At the end of 1998 for a variety of backtesting reasons we believe Loral will be $36/share. However, if at the end of 1998 you give it the 21 multiple (it currently has) on forward EBITDA (1999's), Loral becomes a $62 dollar stock at the end of 1998. For shareholders of Loral, it would be wonderful, of course. And I do not want to mislead anyone, but that is how its current multiple works on 1999 EBITDA. The math is rather straightforward. I do think, the point is, that a 7-11 multiple on Loral in the questions is too low given that Loral is not really just a satellite company after 1998, and it is to after 1998 that the market is looking. In 1999, in fact, its satellite manufacturing division will only account for just under 13% of its EBITDA. This is one of the problems in coming to an appropriate price of Loral as it goes forward. There is some substantial educated guesswork involved in deciphering tax loss carry forwards from acquisitions, amortization and depreciation schedules and how they increase margins on transponders, and on and on. Quite frankly, it is easier to calculate a forward price for G. But anyway the investor may see somewhat of the difficulty in pricing Loral. We did assume for a variety of backtesting reasons a 21 forward EBITDA multiple in stating that LOR would trade at $24 in 1997. It did trade slightly above there, though it closed at $21 7/16 for the year (because of the launch delay). We did say G would close the year at $48, though it traded up to $60. It did close the year at $49 and a fraction. I think our $36 price is more realistic than the price a 21 multiple on 1999's EBITDA in 1998 would yield. We have a year to see.