This is a very long message, its Readware's fault, but very informative as well. A few posts are pre-launch, while the rest address everything from LOR's equity interests in other companies to valuation models. Some of these may be repeats (but hey, its a three day weekend). Read on, and congrats to all the LOR and G* faithful.
Choo choo baby,
geoff
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Subject: Recent Stock Price Volatility
Date: Wed, Feb 11, 1998 7:56 PM
From: Readware
Message-id: <19980211195600.OAA01013@ladder02.news.aol.com>
I am told by a Wall St. trading desk that "the election of short-seller induced sell-stop orders has caused Loral to drop the way it has" (a direct quote) in the past number of days. "Sell-stop" orders are small orders entered below the market to sell a stock when it has hit that price, and when triggered, these orders have a tendency to depress a stock for a short period of time. Apparently the dealer on the floor of the exchange handling the daily
trading has to accept those orders unless forbidden by the Exchange management.
As for the email on my $71 year end price target of G*: we use a pricing model that tries to be as accurate as possible. I don't think it looks "foolish", to use your words, that the stock is now $60/share. I would rather be low in price targets than high. I doubt very much that the price target of $71/share will change, whatever the price reaches this year. I am not aware that there is a 4 million share short position in the stock of G*, and I do
not know what would happen if the short positions have to be covered. If there are, as you say, 4 million shares of this stock borrowed and the float is only 33 million shares, I would be interested in seeing myself what happens to the price of G* if those short sellers have the stock called, if they have to cover.
As for Valuer's comments on Orion: he seems indeed to be correct in his assessment on Orion's surprizing increase in business activity. The thinness of my numbers for Orion will have to be revisited, but it does appear that Orion's business activity is moving at a pace some $35-40 million higher than I had forecast for this year. I make that inference from the nature of their two recent contract announcements, especially for the asymmetric market.
That business deal came a lot more quickly than I had anticipated it would-- I did not expect any Worldcast developments till July. The details of the contracts have not been made public by Orion, so my comments would be only inferential in nature.
On the issue of Skynet's growth: it is right now very difficult to identify the percentage growth/transponder in Skynet, because of the different times of the leasing involved, as well as the fact that Telstar 5 came on in full operation in July. It does appear that Skynet's revenue growth is a bit higher than the company's forecast in November, but I cannot be accurate on that till the company makes announcements to all shareholders.
I hope everyone read General Lord's comments made at the Space Conference yesterday at Vandenberg about launch capabilities. He is from AirForce Space Command, and I quote him: "The time is fast approaching when space launches will be as reliable and comminplace as air travel".
He is right.
Subject: Cape Weekend Weather
Date: Thu, Feb 12, 1998 1:59 AM
From: Readware
Message-id: <19980212015901.UAA10107@ladder03.news.aol.com>
The AirForce weather office predicts a "picture perfect" launch weekend at the Cape-- with almost no weather at all on Saturday or Sunday. Temperatures expected in the high 70's, with wind gusts about 15-20mph, far below the launch rules' red balloons. As of right now Saturday looks like it will be absolutely cloudless. This forecast is an improvement on their comments Monday and yesterday morning.
I will check with them one more time on Friday afternoon.
Subject: Re: G* Launch
Date: Thu, Feb 12, 1998 6:28 PM
From: Readware
Message-id: <19980212182801.NAA28373@ladder02.news.aol.com>
No-- G* will be for launch irrespective of Iridium. I called the AirForce weather office this AM: at launch time on Saturday, upper winds look to be 10-15 mph, surface temperature 57 degrees, and a relatively cloudless sky. Daytime temperature looks to be above 70 degrees.
The AirForce weather office does not comment on the likelihood of launches-- it only gives the weather forecast. Sunday looks to be a bit less friendly, though upper winds are expected to be within launch rules. So far the trend for fair winds remains intact, though clouds are expected to form Sunday morning.
Subject: Re: G* Launch
Date: Thu, Feb 12, 1998 10:29 PM
From: Readware
Message-id: <19980212222901.RAA29179@ladder02.news.aol.com>
Delta 253 will either be Iridium World tomorrow or G* Saturday. If Iridium does not launch tomorrow (13 Feb 1997), the 253rd Delta launch will be Globalstar on Saturday. That is from where the number 253 in the launch description comes. The Globalstar launch on Saturday does not hinge on an Iridium launch tomorrow. If Iridium does launch tomorrow, the Saturday G* will become Delta 254.
I live out here, and from what I can tell Iridium is not going to launch tomorrow. Orbital's launch made it with minutes to spare Tuesday.
The AirForce weather office at the Cape still holds to its favorable-for-launch forecast for G* Saturday morning.
Subject: Re: G* Launch
Date: Thu, Feb 12, 1998 11:23 PM
From: Readware
Message-id: <19980212232301.SAA07237@ladder02.news.aol.com>
I meant 1998 for Iridium
Subject: Satellite Communications and FLAG
Date: Fri, Feb 13, 1998 5:39 PM
From: Readware
Message-id: <19980213173900.MAA10307@ladder03.news.aol.com>
On your question: FLAG (Fiber Optic Links Around the Globe) just started last month. It is 17,000 miles of maritime fiber-opitc routing. I think it provides data transmission up to 10 gigabits/second, and goes from the English channel through Africa all the way to Hong Kong. It needs 30% of its capacity to be sold out, and only 9% so far has been-- although it will probably have all its capacity sold out by the year 2000.
It is not going to be in competition with satellites-- in fact, two major satcom providers are negotiating with FLAG to gateway between FLAG and their own networks.
As for Project Oxygen? -- massively ambitious. 275,000 kilometers of maritime fiberoptic cable for telephony and data at the cost of $14 billion with maintenance nightmares (with a fleet of 60 cable-maintenance ships costing $100,000/day). One major problem besides financing is the powerful US opposition to it, its goal to replace Overnet, and another problem is the international Byzantine web of regulations for cable-optics and how that web shifts
and sags from sovereignty to sovereignty. It looks like the regulatory hurdles there alone would be a daunting, if not insurmountable task.
Good to see you are reading on these issues. FLAG looks like it wants to partner with satcom providers, and its extension, super-FLAG, looks a decade away-- because of the regulatory reasons. With satcom providers dominating a large portion of the data delivery traffic by then, super-Flag will probably not come about as currently conceived.
Subject: High Winds
Date: Fri, Feb 13, 1998 9:06 PM
From: Readware
Message-id: <19980213210601.QAA22843@ladder02.news.aol.com>
As of 4PM the CCAS AirForce weather office reports upper level winds at 160 knots, which is in excess of launch allowance. No prediction forthcoming for wind levels tomorrow. Sunday looks cloudy, with forecasted rain for Monday and Tuesday at the Cape.
Subject: Re: Please define
Date: Sat, Feb 14, 1998 2:01 AM
From: Readware
Message-id: <19980214020100.VAA06896@ladder02.news.aol.com>
No-- they are in-orbit spares. They are not meant to add to capacity. They will only be "activated" if one of the original constellation LEOs is incapacitated. I believe that G* only needs 32 LEOs to be operational, but that would not cover the phone usage demand. 32 would get them started.
Subject: Re: Finally
Date: Sat, Feb 14, 1998 4:35 PM
From: Readware
Message-id: <19980214163500.LAA00343@ladder02.news.aol.com>
The price relatrionship of the two depends on two models for pricing, and then certain assumptions (validated by backtesting).
Looking at the price of G* today, it appears (and this is just an opinion, and I think more than a guess) that the market is assuming a materially higher year 2002 equilibrium user rate for G* than our model projects, in which case LOR will have to start moving up in price to reflect that discounted expectation which is in the current price of G*. At $23 1/2 the price of LOR does not reflect what the $60 price of G* reflects (namely, a higher
equilibrium user rate for the year 2002), of which it owns 39.5%. So you are right as to the discontinuity in the pricing of LOR relative to G*.
Subject: ViaSat Once More
Date: Sun, Feb 15, 1998 1:50 AM
From: Readware
Message-id: <19980215015100.UAA18690@ladder02.news.aol.com>
ViaSat is a San Diego company which in the past 17 months perfected a bandwidth economization protcol dubbed "Starwire Aurora".
When a customer accesses a transponder, he must "reserve" transponder time. The value of ViaSat's Demand Assigned Multiple Access system is that it eliminates this reserve need, replacing it with a "when needed" system whereby it channels access to a user only when that user needs it. In so economizing on bandiwdth it is able to provide the satellite provider with more customers. It is a value therefore to the satcom provider.
As internet delivery becomes satellite based, a need for a system asymptotic to or identical with ViaSat DAMA will increase. An educated opinion would be that one would want the system identical to ViaSat's DAMA. There are other DAMA protocols-- for example, Scientific Atlanta has one, Orion has one, Gilat has one. But ViaSat's gives the satcom provider of internet data the most economical way of delivering them.
That is the long and short of ViaSat. A fine technology well-placed for the emerging internet business that for satcom providers will be some $38 billion/year by 2004. Should one buy shares in ViaSat? We do not follow the company on a fundamental basis. The company is rapidly converting itself from a low p/e defense technology supplier to a commercial supplier of important satcom technologies. Competition is always moving satellite related providers
to one-up others in their field. Technology is rapidly changing. But ViaSat's DAMA does appear to be a technology that will have use for the majors. In 1999 as internet delivery starts becoming increasingly satellite based, and VSATs take on an increasingly important posture in that delivery, one could reasonably conclude that somewhere in that road ViaSat's DAMA will be signpost that the majors will want to follow.
Subject: Re: Globalstar operation startup
Date: Sun, Feb 15, 1998 2:03 AM
From: Readware
Message-id: <19980215020301.VAA01589@ladder03.news.aol.com>
Iridium World has been testing its call processing software already, and it has been successful in simulations. A full testing will actually commence in April, when simulations will be replaced by actual in-orbit processing. Simulation and actual cases are fairly identical, so Iridium World does have confidence that Stanford's software is going to work in actual, vs. virtual, "heavy time" calling.
I do not think G* will beat Iridium to the service window. I would bet on a 23 September initiation for Iridium sevices, as they have promised. The people at Iridium are highly qualified, very business-oriented, and extremely competent. They are top-notch professionals.
Iridium is ahead of its planned subscriber sign-up, but their subscription base is actually significantly different than G*'s. What is continually overlooked, misunderstood, or perhaps ignored by individuals is that G* intends to be a global satcom provider for all sorts of telephony needs, and not just for the business traveller. It is for that reason that G* is the premier satcom telephony enterprise. Unlike Iridium World, it is not
restricted to just one customer profile base. Iridium will suceed, will make lots of money, but it never conceived itself or configured its system to be a global satcom provider in the way G* has. G* for that reason will have a substantially higher user base than Iridium, and as the years pass the customer base of G* will move further and further ahead of both Iridium World and ICO.
Comments that Iridium's financing was ill-conceived and for that reason will place the company continuously under the tyranny of debt-- don't believe them. Iridium World will do just fine for the customer market it has targeted. If insider buying is any indication of what a company's future looks like, Iridium's looks highly satisfactory.
Subject: Re: Loral equity interets
Date: Mon, Feb 16, 1998 2:02 PM
From: Readware
Message-id: <19980216140201.JAA27692@ladder03.news.aol.com>
Loral owns (1) 39.5% of Globalstar, (2) 15% of CD Radio, (3) 5% of DBS Asia, (4) 28 transponders on the N-Star Mabuhay constellation. It also own a majority interest in Bermuda's DTH, although I never see that booked anywhere.
Currently Loral has bid, in competition, for all-equity ownership of Brasil's government owned satellite constellation, which is to be privatized in 1998. Andrade Gutierez telecomm & Dasa have co-teamed their bid. Others who have submitted bids are Lockheed, GE Americom, Hutchinson, and Localsat.
It may be that with all the focus on G* and Orion lately shareholders may have overlooked the Brasil satellite privatiszation initiative. A decision on the wiiner is not expected till later in the year (bids may have to be updated), and I believe full equity in the constellation is not transferred till 2000.
Subject: Re: Valuation Models
Date: Mon, Feb 16, 1998 3:31 PM
From: Readware
Message-id: <19980216153100.KAA08128@ladder03.news.aol.com>
To answer your question on the disparity between LOR's price and G*'s:
It is very difficult to "model" Loral Space and Communications for price valuation objectives. For Loral is not simply a satellite company, and it is in an inchoate stage, although far less so than 16 months ago. Within nine months it will be well on its way to a fully operating enterprise.
Normally one values equity shares of a satellite company at a 7-11 multiple of forward EBITDA/share ("operating cash flow"/share). 7 if the company is lethargic in growth, 11 if vigorous. Lockheed Martin, as far as I am concerned, trades at a discount to its EBITDA/share, while PanAmSat looks like it is trading today at a very optimistic forward EBITDA multiple.
Said otherwise, one values a satellite company at a multiple of forward operating cash flow to adjusted enterprise value. (Adjusted enterprise value is the target equity capitilization plus debt, from which one subtracts total cash and long-term receivables). The 7-11 multiple rule applies.
Loral, though, is involved, unlike PanAmSat, in a rapidly growing telecommunications/cellular enterprise, and, unlike Lockheed Martin, in a rapidly growing VSAT service and networking business through its Orion subsidary. (Both Loral and Lockheed are going head-to-head in internet data delivery with C* for Loral and Astrolink for Lockheeed).
Because approximately 78% of its business going forward is in rapidly growing sectors, the 7-11 multiple rule does not apply. Nor do net earnings models. Some multiple to operating cash flow has to be divined. Telecommunication and internet companies are an operating cash flow value to investors: the net earnings are less of an interest.
If Loral in 1999 generates, as we expect, $820 million in operating cash flow, and our price objective at 1999 year-end is $51, the multiple we have chosen for the 1999 year on a current basis is 16.25.
Justified? 78% of Loral's revenue stream in 1999 will be growing at above a 40% growth rate, and on a forward looking multiple, the year-end objective in 1999 of $51 is a 10.78 multiple to year 2000 operating cash flow (EBITDA). The 16.25 multiple mentioned above does, then, appear justified.
As for valuing G*-- it is valued by a standard discount of future earnings to present model, and the price you reach depends on the discount rate you choose to discount back future earnings to present. As a telcom company, such valuation models are quite orthodox, and very easy for a computer to price.
It is Loral, for the reasons above, that is very hard to "model". That is because the multiple one claims it deserves can be a matter of dispute for a while until its satcom telephony and internet transponder revenues start coming in growth rates that make it manifest that the multiple can no longer be a matter of such wide dispute, as it is today. In a newly growing company, however, until the revenues stream in, the multiple will be a matter of
dispute. Sometime within the next six months I would imagine the multiple to EBITDA that Loral deserves will be far less a matter of dispute than it currently is. |
