Readware on just about everything under the sun (in other words this is a long post) -- transponder pricing, EBITDA, options, and the meteor shower...
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Subject: Revenues/transponder
Date: Fri, Mar 13, 1998 19:34 EST
From: Readware
Message-id: <19980314003401.TAA26930@ladder01.news.aol.com>
In answer to the email: average revenues/transponder now look to be about $2.26 million/year, up from $1.87 million/year. This, however, will increase as the year goes on.
In the case of Orion, the revenue/transponder calculation is somewhat stronger. Over and above fixed stations serviced by Orion transponders are also VSATs which they service. The VSATs serviced by the Orion transponders add to those transponder revenues (they increase, that is, the revenues per transponder). The more VSATs on one transponder, the higher the revenues per transponder. So, you can actually say that in the case of the Orion
transponders the revenues per transponder can conceivably be almost double those of Skynet's and SatMex's. That is correct. It is not the case, as you ask, that transponder efficiencies (circuitry design, etc.) have increased-- it is that more units are on the transponder without adding to the cost of the transponder.
These units (the VSATs), then, are what add at the same time to the transponder revenues. The one Orion transponder can serve both them and the fixed station. As more VSATs are added to the Orion service side, those revenues per Orion transponder increase.
We will have to see in the qtr coming how those VSATs added to the revenues/transponder calculation for Orion. Orion's transponders should be able to be calculated at providing $2.97 to $3.2 million/transponder. That is substantially better than Skynet's and SatMex's.
Subject: Re: LEAPS Price
Date: Fri, Mar 13, 1998 22:05 EST
From: Readware
Message-id: <19980314030501.WAA22671@ladder01.news.aol.com>
Trying to play against time, i.e., trading options, to maximize income in the case of Loral, joining the bet against developments in the sure hope of making added income, is very precarious near-term for Loral shareholders.
One never knows if developments may occur near-term where "covered calls written against the stock" (proceeds, income, to you) may involve the stock being "called away" from you, which because of those developments, you had wished you owned, you had wished you never wrote calls against. The call writer never knows when the buyer of calls will be glad he owned them. Sometimes the buyer of calls has bought them for reasons the call writer did not know.
We shall see.
Subject: Re: LEAPS Price
Date: Sat, Mar 14, 1998 09:48 EST
From: Readware
Message-id: <19980314144800.JAA29896@ladder01.news.aol.com>
The $36/share year-end 1998 price I posted is for a general guidance direction from a standard pricing model. There is no claim at all to absolute certitude regarding that price. E.g., the model did not assume earnings for LOR till the 4th qtr 1998; however, LOR has already posted a net earnings qtr.
What I wrote about options is that given LOR management's ability to "surprize on the upside"-- they bought Orion, they won SatMex, and then posted real earnings for their past 4th qtr-- writing calls may be a hazardous bet against any positive near-term future development. Sometimes positive developments substantially move a company's share price above near-term "strike prices". When that happens the covered call writer wishes he had never written
the calls.
Subject: Price Again
Date: Sat, Mar 14, 1998 10:53 EST
From: Readware
Message-id: <19980314155301.KAA09193@ladder01.news.aol.com>
To put the recent price movement of LOR in perspective (the GEO EBITDA numbers below are my estimates, but I think fairly close to actual numbers-- we will have to see the company's own EBITDA guidance at the next conference for possible corrections):
At the end of 1997, LOR had 116 GEO transponders generating an EBITDA/qtr going forward of $34.8 million.
At the beginning of 1998 LOR has 180 GEO transponders generating an EBITDA/qtr going forward of $52.26million-- a 50% increase in transponder EBITDA/qtr
At the beginning of 1999 LOR will have 292 GEO transponders generating an EBITDA/qtr going forward of $79.36 million-- a 51% increase in transponder EBITDA/qtr year over year from 1st qtr 1998
The transponder numbers for 1st qtr 1998 do not include Orion (since Orion closes on 20 March of 1998); for 1st qtr 1999 do not include the Orion 2 to be launched in 1st qtr '99, nor the Telstar 8 to be launched that qtr [Telstar 9 is to be launched in late Spring 1999].
Additionally, none of these numbers has any G* revenues or EBITDA. Nor is there any C* in these numbers (C* will be EBITDA positive 1st qtr 1999, it looks).
As the GEO fleet fills out, there is a lower discount used for "event" risk, and this tends (though not necessarily immediately) to raise the price of the common to a new equilibrium level.
Turning to G*: as the fleet there fills out, the discount for event risk in LOR common will sharply drop. That should translate into a price increase for LOR common, as I have suggested in the past. With the 3rd launch (Zenit-2), G* will have 20 satcoms in orbit, almost half the constellation. While the equity price of a company is a discounting mechanism, it is difficult, obviously, to indicate if the third launch for G* is discounted already by the
current LOR price. I tend to think not. With the fleet entirely in-orbit by 1st qtr 1999, the event risk discount will be totally absent from the LOR price obviously.
Subject: Re: covered call tip
Date: Sat, Mar 14, 1998 20:34 EST
From: Readware
Message-id: <19980315013400.UAA10962@ladder01.news.aol.com>
You are on the right track: one caveat, however: sometimes the case occurs where you cannot buy the stock back. It is permanently gone.
Trading options in a company whose management is so well-known for its savy and expertise in deal making, as well as in its technology and marketing expertise, can be serious business if the options trader (covered call writer) is ever "in the dark" about possible corporate developments. Sometimes --"shot from the pistol"-- positive developments occur causing sudden price appreciation of the underlying common. And what looked like an easy "quick
buck", selling "calls" even though you owned the underlying common, turns out to be a "quick buck" that should have been avoided. Because owning the common without writing calls against it meant that you still owned the common in the case of sudden news that caused the common's price to appreciate faster than had been anticipated. When you write covered calls, and possible unexpected positive corporate developments take place, your stock is gone and
all you are left with is the income from the sale of the covered calls. Had you to do it all over, you would never have written the calls.
We shall see if this is a profit-making observation, or just one that was interesting.
Subject: Transponder EBITDA continued
Date: Sun, Mar 15, 1998 10:05 EST
From: Readware
Message-id: <19980315150501.KAA04488@ladder01.news.aol.com>
You are correct, the transponder numbers before did not include Telstar 7 in the 1st qtr 1999 tabulation because it will not be operational for a full qtr till the 2nd qtr 1999.
Beginning with 2nd qtr 1999, Loral will have T*7, T*8, and Morelos 3 in full-orbit, adding 128 GEO transponders (Morelos 3 has 32 more than the Morelos 2 it is replacing) to the total of 292 that it will have at the beginning of 1999.
Assuming this is correct, that the GEOs (T* 7, 8, and Morelos 3) are in full-orbit, LOR will have, beginning 2nd qtr 1999, 420 GEO transponders generating an EBITDA/qtr (estimate is mine) going forward of $123.7 million/qtr-- a 135% increase year-over-year increase from the same time in 1998.
At the beginning of the 3rd qtr, after T* 9 is launched, Loral will have 468 GEO transponders generating an EBITDA/qtr going forward (estimate is mine) of $153.2 million/qtr. That is a 3rd qtr 1998 to 3rd qtr 1999 year-over-year transponder EBITDA/qtr increase of 194%.
As 1998 progresses, the pricing mechanism will start discounting this increase. Apparently it has already begun to do so. It is a large increase, and none of these numbers have included the G* constellation.
Subject: Misc. emails
Date: Sun, Mar 15, 1998 10:20 EST
From: Readware
Message-id: <19980315152001.KAA05756@ladder03.news.aol.com>
I am very familiar with SatCon, and the Roland Tibbets award its fly-wheel power supply system received. But I have absolutely no informed comment about the company's prospects whatsoever. I did not even know it was a public company in the market exchange.
I have no informed comment whatsoever on CD Radio, none whatseover.
I have absolutely no idea whatsoever what CDMA for Iridium 2 will do for Qualcomm. I know next to nothing about Qualcomm's financials.
Subject: "Event risk"
Date: Sun, Mar 15, 1998 10:48 EST
From: Readware
Message-id: <19980315154800.KAA10365@ladder01.news.aol.com>
"Event risk", to answer the email, is the possibility that a satellite launch will either be delayed an unacceptable length of time or fails. It is an investment "pricing mechanism" whereby the satellite to be launched earnings are not factored into the price of the common shares of the satellite company until the satellite is actually in full orbit. Prior to the launch the discount is high, depressing for good reason, the price of the common until
such time that the market is satisfied about the satellite's revenues/earnings potential. The discount virtually disappears as the satellite performs its earnings task over time.
Every satellite launch involves risk. The investor looks at the management of the company involved in launching the satellite as to that management's experience, know-how, and expertise, and depending on his/her evaluation of that management, makes a decision as to the acceptability of investing in the common of that company given the "event risk" every launch entails.
Subject: Re: Sat Conf
Date: Sun, Mar 15, 1998 11:51 EST
From: Readware
Message-id: <19980315165101.LAA20011@ladder01.news.aol.com>
There was a meteorite shower alert last June-- forget the name of it now-- for August of 1997. Nothing happened.
The slightest electromagnetic change, the slightest gravitational oscillation effect, the slightest change in solar storms, has a compounding effect on the magnitude of a natural satellite's projectory (read "meteor") in our solar system, and these changes or effects are almost impossible to quantify-- because of their unpredictability.
As with Asteroid 1997FX11, now calculated to come only within 600,000 miles, instead of the original 30,000 miles, of the earth in 2028, the effect of postulated meteorite showers are continually recalculated. How they will affect manmade satellites is a bet one can make probably only within hours of their actual occurrence. Even then, it's a bet that will at that time carry high odds, that's how unpredictable meteorite showers are.
Subject: Re: Meteor Shower
Date: Sun, Mar 15, 1998 13:28 EST
From: Readware
Message-id: <19980315182800.NAA05577@ladder01.news.aol.com>
You cannot identify impact effect of future meteor showers from past impacts, however similar they might appear now, because of the varying solar changes from decade to decade. The asteroid implosion on Jupiter, e.g., last year, has completely changed, the graviational oscillation/pull of Jupiter on other orbits. That asteroid implosion, non-existent in the 60's, or even in 1996, has now an impact on various orbits, an impact that did not exist
till last year, and an impact that compounds the greater the ellipses and the smaller the orbiting bodies in those ellipses (read-- meteors). What trajectory various meteors will now traverse cannot be extrapolated from what their past trajectories turned out to be.
Attempting to assess impacts of future meteors on satellites is an interesting exercize, but unlike the Old Testament prophets, predictions from astrophysicists here seem only to make for good journal reading and possible insurance indemnification rewrites. This is not to say that damage will not occur. It is simply to say no one knows, and cannot know.
Astropysical calculations when it comes to moving bodies of meteoric size all too often are cogent only in the abstract. Calculating what pull new solar gravitational effects will have on orbits of small compounds requires we know what effect previously non-occuring solar events (read-- Jupier asteroid implosion) will now have. And that we cannot do because we don't know how to calculate with certainty the Jupiter effect on such bodies. Certainly
there will be opinions, but opinions do not rise to the level of mathematical certitude.
Subject: Re: Transponder EBITDA continued
Date: Sun, Mar 15, 1998 14:06 EST
From: Readware
Message-id: <19980315190600.OAA11663@ladder01.news.aol.com>
To get these transponder EBITDA numbers, you take the company's published plan of GEO satcom launches, look at the number of transponders, assume somewhere between 73-80% utilization, assume about $1.9 to $2 million in revenues per Skynet transponder, $2.4 million or so for Orion's, and somewhere abround $1.1 million for each Morelos transponder. Then you assume somewhere between 62-63% margin for each GEO, and that gets you to the EBITDA. All
numbers assume timely launches in the LOR business plan.
These are indications of the growth rate only of LOR's GEO transponder business, and once the company has another conference it will guide individuals to actual usage rates and transponder revenues, and whether corrections are in order.
The numbers I have posted are fairly within estimates/proximity of the company's November Essex House conference publication and anyone can look at them to make up their own mind as to the feasibility of the revenue/EBITDA projections. The only difference is I have done them on a qrtr to qrtr forward growth basis since this is how Wall Street looks at the grwoth rate of a satellite services provider. |
