Back from vacation -- and better than ever, Readware returns! Some of Readware's latest observations on LOR and GSTRF------------
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Subject: Loral
Date: Sun, Feb 1, 1998 21:13 EST
From: Readware
Message-id: <19980202021300.VAA22881@ladder03.news.aol.com>
The rumor I heard while in Costa Rica was that SSL was to layoff some 700 people, and take a $400 million to earnings in 1998. That is why I termed the SSL rumors a joke when I came back for a day before leaving again. The layoff was 300 and there was no charge to earnings.
I had discussed with one contributor to this board some time ago the precarious financial position of ABCN/ L-Star, and Loral's probable acquisition (in my opinion) of the L-Star slots. ABCN turns out to have been insolvent indeed. The suspension on building those contracts I find suprizing since AsiaSat's last GEO did not make final orbit, and they certainly could have purchased L-Star 1. Indeed, I had been thinking they might even buy both L-Stars
and partner with Loral and Singapore Telecom in taking over the defaulted ABCN. That they did not bespeaks a possibly deeper insolvency that Loral will probably exploit sometime down the road. These GEOs are valuable, and a smart buyer would certainly buy those L-Star slots for constellation expansion.
I am puzzled by the sell-off. SSL accounts for $2.78/share of Loral's equity capitalization with a razor thin margin business. Loral bought SSL last year at 15 times trailing earnings, while SSL was growing at the time at 30%. Its EBITDA multiple, failing a successful sale of these three delayed GEOs, reduces to close to 6X. However, that is a 12% reduction from its normalized EBITDA multiple, and for a division which accounts for less than 10% of a
company's equity capitlization given these two quantitative facts the rancorous sell-off to $22 is peculiar. But then again I do not understand the Wall Street mentality anyway. By now that should be obvious to all. I only value satellite assets the way the industry, not Wall Street, does. Although, at the margin, Wall Street will come to value satcom assets the way a satellite firm would. That will be when the satcoms start generating the revenues
for which they were built.
All in all, this in no wise changes the year-end estimated possible $36 target for LOR. There will be no earnings impact (allright-- $.02/share net over two years, if you want to be precise) to LOR from this SSL issue. The number I read here somewhere of a possible $.10/share impact is an EBITDA/share number-- not a net number. Of course, the decline in the stock price makes one wonder whether investors believe LOR is going to be saddled with
these three GEOs. That is not going to happen.
The projected $36 year-end target assumes timely and successful G* launches this year. I still believe Loral will make additional acqusitions this year. I am surprized that it hasn't already this year. There are consolidations that do make financial sense, and one should expect such consolidations as the year progresses. But the year-end estimated target stays because of the almost non-existent impact to Loral's EBITDA. I see the company made a
statement that EBITDA is negligibly changed by the SSL matter.
I read here some comment about Hughes getting the GOES contract and that as a possible reason for the LOR drop also. Loral I do not believe bid for that contract.
The Globalstar launch is set and ready for 5 February. There are no problems whatsoever at all with the G* launch--- none. It has been very rainy here and Iridium had to postpone I see. I have listened to the tape of their conference call-- to which I had alluded some three weeks ago would be on 29 January-- and its vice-chairman, Dr. Edward Satiano, has indicated Motorola has set 250,000 handsets by year end for Iridium World customers. This
confirms satcom telephony demand, and I see that in addition Iridium World is expecting 100,000 pager customers by year-end.
As for the possible Asia impact on G*: I had indicated 8% of the G* customer base would be eliminated if Korea, Thailand, and Indonesia completely fell off the earth. I don't see that happening-- I can say that with a bit more certitude than I can about SSL past layoffs.
Finally, I do see that Orbital Sciences is moving in price. It is my opinion that while everyone should be pleased for Orbital investors that their investment is profitable, if Orbital can reach the mid-30s with its somewhat lower margins Loral investors should be encouraged since Loral's businesses are margins are far more robust. Incidentally, SSL margins are not impacted by this $400 million matter since the layoffs, which no one likes, have been
very quickly offset by payroll costs. This of course assumes the satcoms will find another buyer, which one has every reason to believe is extraordinarily likely.
Subject: Re: Globalstar timeline
Date: Sun, Feb 1, 1998 22:16 EST
From: Readware
Message-id: <19980202031601.WAA03551@ladder03.news.aol.com>
It take some 27 days to reach final orbit. Performance tests will occur immediately thereon. Performance tests become an issue when a number of planes have been filled-- not in the early stages of constellation formation. Performance tests for the first four and the next four LEOs should be uneventful. The most crucial performance tests will not be voice or paging, but processing of calls through the software. That is what will determine how timely
G* meets its servicing debut. The same issue of processing software holds also for Iridium World. Altho I do understand that Iridium World is ahead of schedule now on all its needed milestones.
Subject: Re: Loral
Date: Mon, Feb 2, 1998 09:15 EST
From: Readware
Message-id: <19980202141501.JAA26564@ladder03.news.aol.com>
You are exactly correct on M2 C-band transponders.
A rumor that SSL is laying off 400 more employees is unfounded. SSL is reducing over three months 240 staffers, as it announced last week. Business conditions do not warrant further reductions.
Getting one rumor "right" is no reason for more rumors to spawn.
Thanks for the update on the weather at the Cape. It continues to rain here for Iriidium to launch-- has been rescheduled again.
As for AsiaSat and buying L-Star: the L-Star payload could have been reconfigured, at a 10% cost, for a replacement GEO for AsiaSat. That it was not indicates that the DTH iitiative of Singapore Tel, UCOM, Loral may indeed go forward after the dust settles.
Subject: Re: Loral
Date: Mon, Feb 2, 1998 10:37 EST
From: Readware
Message-id: <19980202153701.KAA03873@ladder03.news.aol.com>
On your question: Satellite manufacturing is a ruthlessly cyclical business, because satellites are considered to be commodities. In many respects they are. There was a satellite manufacturing upturn that began in 1993 which gave buoancy to the 4th generation's profitability. Because of its commodity like nature satellite pricing is very elastic-- therefore, so is labor that goes into satcom manufacturing. Profitmaking requires identifying the
correct equilibrium bewteen labor and demand. The equilibrium must involve a return to the satcom manufacturer.
There are a number of new satellite models under consideration: "mightysats", "pixel says", and "nano sats". Actual construction of these may make the industry's manufacturing sector less commodity-like, and therefore the employment level less volatile. The 5th generation sats begin construction sometime in the year 2000. |
