Telesat Corporation 

This is a very risky investment.

 

Telesat (TSAT) listed on the Nasdaq and TSX on November 19th, 2021 following a transaction which combined the ownership stakes of Telesat’s 2 owners, Loral Space and Communications Inc. and the Public Service Pension Plan of Canada. There are initially 49.5 million shares outstanding (including all Class A, B, and C shares) and November 19th’s closing price of US $39.50 derives a market cap of $1.96bn or using the prevailing fx rate of 1.2639 on the same day, a $C market cap of $2.47bn which is useful when interpreting Telesat’s results which are reported in Canadian dollars. Telesat’s valuation metrics at listing were as follows: P/S=3.2X, P/EBT=14.1X, EV/EBITDA=7.6X. I think these metrics are attractive given the potentially multi-billion dollar opportunity presented with their planned Lightspeed Constellation although the company has yet to finalize financing and then they have to execute on construction and launch which will not be for at least a couple of years. Thankfully this is not a blue-sky valuation given the reasonable valuation metrics on current operations. The stock was picking up steam as the listing approached but it quickly gave up its gains and then the listing didn’t build investor enthusiasm so it’s likely short-term focused investors exited the stock, creating further downward pressure. While I see significant opportunity in the stock, it will depend on current business improvement as their customers recover from the pandemic and execution on delivering the Lightspeed Constellation which will require time and patience.

My initial thesis, which isn’t too different from the current thesis other than time and the listing of Telesat is now behind us, follows:

Loral (LORL) is a holding company that owns a 62.7% economic stake (32.6% voting power) in Telesat, a Canadian-based provider of satellite communication services both inside and outside of Canada.  The remainder of Telesat is owned by Canada’s Public Sector Pension Investment Board (PSP).  Telesat’s revenues exceed $800m and they are solidly profitable; they have a solid cash position just shy of $1.2bn while having debt of $3.8bn.  Telesat is planning to launch a large-scale LEO (Low-Earth-Orbit) satellite constellation to deliver high-capacity and affordable global broadband connectivity with ultra-low latency and speeds that are comparable to fiber.  Recently OneWeb was purchased out of bankruptcy for $1 billion to give an indication of potential values on future revenue streams let alone Telesat’s existing business.  While there is an increasing number of players intending to launch LEO constellations, Telesat’s plan is considered to be superior.  

 

Essentially my investment in LORL can be summed up that Loral’s market cap is under $700m which I believe is substantially below the intrinsic value of its ownership in Telesat due to a significant holding company discount.  I believe this discrepancy is because of the significant uncertainties about LORL monetizing its investment in Telesat and the funding of the LEO constellation which is yet to be announced.  Furthermore LORL is 28% owned by MHR Fund Management and Mark Rachesky, MHR’s founder and CIO (~40% of the voting class)..  In November 2020, Loral and PSP agreed to consolidate their stakes and conduct an IPO for Telesat although much uncertainty remains about the path to monetization and the LEO constellation.  Furthermore Canada has announced intentions to invest in rural satellite-based broadband. A successful launch of an LEO constellation could significantly expand Telesat’s business opportunity, dramatically increasing its value above what is implied by the value of LORL.  

 

Back of the envelope math, using an 11X EV/EBITDA multiple for Telesat would value their existing business at $7.8bn, subtracting 2.7bn of net debt leaves 5.1bn of which 3.2bn would would be attributed to LORL which would derive a stock price of ~$100 per share.  Given I don’t typically rely on EV/EBITDA multiples, a similar stock price would be derived with a 22X multiple on EBT.  This also ascribes no additional value for the LEO constellation. Again there’s much uncertainty and many hurdles to get there and it’s very possible something gets derailed but if that plays out and LEO gets on track, the potential is significant (and so are the risks).  There are also various new entrants such as SpaceX but many potential competitors are focused on Direct-to-Consumer services while Telesat provides backhaul services to communications providers in addition to serving Enterprise customers.

Estimates $C   4Q24   1Q25   FY24    FY25

Revs                122m   121m   565m   445m

EBITDA            56m     60m     366m   228m

EBIT                 18m     19m     212m   49m

  

P=US $20.59 C $29.02, f/x=1.4268, Gross Cash 552m, Net Debt 2.5bn, but cash also required to build Lightspeed, Net Debt/EBITDA=6.6X, Gross D/EBITDA=8X, P/E=27X

Debt outstanding 387m Secured Dec 2026, $224m secured June 2027, 221m unsecured Oct 2027, US $1.3bm Term Loan.

 

4Q24 (.10) vs .48, FY24 EPS 1.06 vs 2.14

  • Mar 27, 2025, P=US $20.59, C $29.02, TTM EPS=1.06, P/E=27X

  • Revs -22.8% to 128m (est 122m), EBITDA 73m vs 123.3m (est 56m), EBIT 42.7m vs 77.6m (est 18m), EBTDA (interest paid) 24.5m vs 76m

  • CapEx ramping as expected, spent 543m in 4Q and 1bn in FY24.

  • First 190m tranche request from Govt on Dec 13th, received in Jan. Requested 150m in March.

  • 2025 Outlook: Revs -30% to -25% to 405-425m (est 455m), EBITDA -55% to -50% to 170-190m  (est 228), net interest in FY24 was about 178m although the company repurchased 262m of debt in the year. Interest accruals (PIK) will increase as Lightspeed buildout advances

  • For guidance, ½ decline comes from DTH business and rate reductions, termination of Shaw, and end of AnikF3 with DISH, other ½ from Enterprise, maritime and aero due to competition from Starlink, some loss in Indonesia to an Indonesian satellite,

  • GEO Backlog 1.1bn, Recent Lightspeed announcements are “smaller” contributors to backlog, will start disclosing Lightspeed backlog in 1Q, expect more this year, “could very likely eclipse” current GEO backlog by end of year, Commercial aspect of Lightspeed more bullish than ever, expect more announcements this year to contribute to substantial expected backlog. Sovereign national security requirements becoming even more evident,

 

Mid Quarter Updates

  • March 11, 2025 announced it signed a term sheet with Space Norway to provide capacity from Lightspeed and a long-term partnership with Orange to provide Lightspeed capacity. 

  • On March 25, 2025 announced partnership with AND Telecom in Bagladesh and South Asia.

3Q24 .30 vs .49

  • Nov 14, 2024, P=US $12.62, TTM EPS=1.64, P/E=11X

  • Revs -20.9% to 138.4m, adj EBITDA 96.2m vs 132.8m (82m est), OCF (2.2m) vs 53.7m due to invoice timing for Lightspeed payments

  • GEO -20% to 137.3m, EBITDA 110.5m v 146.3m, LEO 1.1m v 3.3m, EBITDA (12.6m) v (12.96m)

  • FY24 Outlook: Revs toward upper end of guided range 545-565m, adj EBITDA at or above upper end of guided range 340-360m

  • Renewed Nimiq 5, Dish to ramp down to half, cash a little less than 1/3 of prior payments, expanded license in Canada for Nimiq 5 for non-broadcast services to expand its flexibility

  • Subsequent to 3Q repurchased C$16.8m of Term B loan for $8m or US$12.5m for 5.9m

  • Not commenting on any particular discussion, did affirm Viasat’s comments on their call,

  • Quality of conversations with potential customers has improved since funding, going to start disclosing LEO backlog next year.

 

Mid-Quarter Update LEO Funding Finalized – Sept 13, 2024

  • Subsequent filing of loan agreement, GoC gets 346,551 warrants (for LEO subco) exercisable at US$ 982.2713 while QC gets 64,805 warrants, same exercise price.

2Q24 .41 vs .64

  • Aug 14, 2024, P=US $8.33, TTM EPS 1.83, P/E=6X

  • Revs -15% to 152.4m, adj EBITDA 103 vs 138.7 (est 93m), OCF (9.2m) vs 39.7m as activity on Lightspeed ramps (payables +110m q/q) *fixed OCF type

  • GEO -18.5% to 143.9m, EBITDA 112.6m vs 148.5m, LEO 8.5m vs 3.2m, EBITDA (9.1m) vs (8.9m)

  • Backlog 1.1bn

  • Subsequent to 2Q, repurchased 42.5m FV of debt for 20.9m incl 0.7m accrued interest, 51% of FV, Cumulative repurchase $849m for $458.9m

  • Expect financing agreements to be completed in the next couple of weeks, sounds like more government timing rather than specific negotiating points.

1Q24 .45 vs .61 ex (1.53) fx loss and stock comp

  • May 9, 2024, P= US $7.61, TTM adj EPS=2.02, P/E=5X

  • Revs -17% to 152.2m (est 145m), adj EBITDA 110.7m vs 138.9m (est 96m), OCF 75.6m vs 62.6m

  • GEO -18.7% to 148.1m, EBITDA 122.9m vs 150.1m, LEO 4m vs 1.1m, EBITDA -11.3m vs -11.3m

  • Canada -20% to 71m, US -5.8% to 55.6m, LAC -37% to 9.1m, AA -30% to 8.5m, EMEA -11% to 8.1m

  • Backlog 1.2bn not incl 740m Rev commitments for Lightspeed

  • “all financing understanding” in place?

  • Repurchased 219.5m FV of debt for 98.9m incl $5m accrued interest, 43% of FV, Cumulative repurchase $806.5m FV for $438.3m

4Q23 .48 vs .58, FY23 EPS 2.14 vs 2.84

  • Mar 28, 2024, P=US$9.31, TTM EPS=$C2.14, f/x 1.35, P/E=5.9

  • Revs -19.7% to 165.9m, adj EBITDA -11.3% to 123.3m

  • FY24 Outlook: Revs 545-565m (-21% at midpoint) 1 est at 627m, adj EBITDA 340-360m (-34% at midpoint), 1 est at 305m, includes 40m OpEx increase for Lightspeed, biggest contributor in declining revs from customers serving cruise industry as cruise companies shift to Starlink. Outlook implies EPS goes negative to approx (.79), but EBTDA (EBITDA less interest) would still be just under 150m or $2.90/sh

  • Mgmt doesn’t see magnitude of expected decline in FY24 to repeat.

  • Had 500 employees with 35% on Lightspeed, Expect 740 employees with 2/3 working on Lightspeed and rightsize GEO OpEx for declining business.

  • Financing expected “soon”, lowered cost of borrowing by additional 750m over life of program by cutting out more expensive export credit agencies.

  • LEO CapEx Approx US $3.5bn +400m contingencies includes 2.7bn satellites, 800m OpEx.

  • LEO Funding 1.6bn Telesat (including funds already spent), 2bn Govt (CAD 2.8), 300m Vendor

  • GoC Funding subsequent to market close, filing indicates C$2.14bn from GoC at 4.75% above Canadian Overnight Repo Rate Average (currently 5%), PIK during construction phase, and warrants for 10% of LEO based on LEO valuation US $3bn. Leaves about 700m govt to be announce, on the call they said Quebec still expected to participate.

3Q23 .53 vs .65 ex fx loss.

  • Nov 6, 2023, P=US $11.90, TTM EPS=2.36, P/E=7X

  • Revs -2.8% to 175.1m, Adj EBITDA -3% to 133,

  • Repurchased additional 195.3m FV of debt for 137.4m (some term debt, some notes), cumulative 587m for 332.7m (43% discount). net debt 1.5bn vs 2.25bn last year.

  • Backlog 1.5bn vs 1.9bn

  • FY23 Outlook unchanged  

2Q23 .64 vs .84

  • P=8.45, TTM EPS=2.49, P/E=4.5X

  • Revs -3.7% to 179.8m, adj EBITDA 138.65m vs 146.38m, Backlog 1.6bn

  • Revs impactd by termination of a SA customer, reduced revenue from a NA DTH customer, partly offset by NASA work on LEO sat-sat communications.

  • Repurchased $US296m FV notes for $156.9m, recognized $C350m of C-band proceeds, receipt by Dec.

  • Fully funded the LEO program (156 sats), hired MDA as prime contractor for 198 sats (additional 42 funded by future cash flows), achieved significant savings and efficiencies (sats about 75% of size of initial design), mgmt is adamant no compromises for the savings.  

  • Total program cost ~3.5bn, saving approx. $2bn. expect IRR ~30%

  • Reaffirmed outlook, with Lightspeed green light, now expect FY23 cash used in investing of $175-225m

1Q23 .61 vs .77

  • P=$6.50, f/x=1.3626, TTM EPS=2.69, P/E=4X

  • Revs -1.3% to 183.4m, adj EBITDA -4.6% to 138.9m, backlog 1.7bn

  • Subsequent to 1Q end repurchased debt 103m FV for 56m

  • “making progress” with lenders but no specifics to report, but still not there.

4Q22               .58 vs .73, FY23 EPS 2.84 vs 3.41

  • Mar 29, 2023, P=6.50, f/x=1.3626, TTM EPS 2.84, P/E=3X

  • Revs +10% to 206.7m, adj EBITDA -4.4% to 139m, adj EBT -21%, OCF 67.8m vs 46.3m

  • Backlog 1.8bn, utilization 89%

  • Still no improved clarity on funding delays or resolution, management still optimistic, board authorized up to USD 200m debt repurchase

  • FY23 Outlook: Revs 690-710m (-9% to -6.5%), adj EBITDA 500-515m (-12% to -9.3%)

 

3Q22 .65 vs .90 ex fx loss and other items

  • Nov 8, 2022, P=$8.09, f/x=1.3493, TTM EPS=2.99, P/E=3.7X

  • Revs -6.4% to 180m (-8% ex fx), adj EBITDA -12.5% to 137m, OCF 91.8m vs 96.3m

  • Backlog 1.9bn, util 87%

  • “Progressed discussions with our supplies and financing sources on Telesat Lightspeed”, expect better clarity by year-end.

  • Developed a range of Anik F2 options to retain >90% of revenue.

2Q22   .84 vs .82

  • Aug 5, 2022, P=$11.44, f/x=1.2854, TTM $C EPS=3.24, P/E=4.5X

  • Revs -1% to 187m (-3% ex fx), adj EBITDA -1% to 146.4m,

  • 1H Results “positions us to exceed revenue and adj EBITDA guidance”

  • Repurchased additional 160m FV of notes for $US$77m, expect greater clarity on financing toward the end of the year, previously expected before now.

  • Backlog 1.9bn, utilization 86%

  • FY22 Outlook: raised Revs 740-750m (prev 720-740), raised adj EBITDA 545-560 (prev 525-545)

  • Anik F2 one of the thrusters failed, likely maintain operation until December 2022 after which to be transitioned to inclined-orbit, will impact revs in FY23 (~8% of Revs, >$50m CAD), could lose 1/3 of those revs next year (~2.7% of Consolidated Revs), looking for solutions for continuity of service and preserve revenue, will incur expense

  • Received Thales final proposal (source of delay?), shared with lenders.

1Q22   .77 vs .96 -20%

  • May 6, 2022, P=U.S.12.63, TTM EPS=C$ 3.22, P/E=5X

  • Revs -2.5% to 185.8m, adj EBITDA -4% to 145.6m, EPS down more due to interest expense.

  • Signed partial renewal for DISH, entered an agreement with cruise industry to use all the capacity DISH didn’t renew.

  • Purchased $60m FV notes for 29.8m, authorized to purchase up to additional 100m FV

  • Demand for services higher than this time last year but some regions have available capacity as demand is not uniform.

  • Lighstpeed scaled back 1/3 to 188 satellites +10 in-orbit spares to keep in same CapEx budget, still >10 terabits of capacity (more than all GEO capacity today)

  • see better financing visibility by end of June

 

4Q21  .73 vs 1.03 -29%, FY21 EPS 3.41 vs 3.79

  • Mar 18, 2022, P=$US21.51, TTM EPS C$ 3.41, P/E=8X

  • Revs -7% to 187m, adj EBITDA -9.4% to 145.4m

  • Revs impacted by lower equipment sales, lower services in Enterprise, reduced services for one North American DTH customer.

  • Backlog 2.1bn, cash 1.49bn, debt 3.79bn

  • FY22 Outlook: Revs 720-740m (-2 to-5%), adj EBITDA 525-545m (-10% to -13%) vs 603.3m, CapEx 100-120m but will be updated when they have better visibility on Lightspeed, CapEx will ultimately go up significantly when the program ramps (sooner is better than later).

  • Outlook reflects DISH Anik contract ending next month and range of potential outcomes.  Also some 0 margin equipment to DARPA but could position US gov’t as a Lightspeed customer.

  • Recognized US$ 84.8m C-band proceeds in FY21, US$ 259.6m in Phase 2.

  • Re supply chain delays and cost inflation, they could either raise more money or reduce the number of satellites.  Currently looking to be 1 year behind schedule (2025 launch, 2026 commercial service)

  • Discussed possibility buying current debt outstanding at steep discount (50 cents on the dollar), management had a “chill” message for bond holders, has been facing questions if the debt gets stranded with a segregated GEO business, management said not happening.

3Q21

  • Nov 5, 2021

  • Revs -4.8% to 192.3m, adj EBT 38.3m vs 50.7m

  • Backlog 2.3bn vs 2.8bn

  • TTM EBT 175.2m, EBITDA 618.4m, OCF 322.9m

2Q21

  • Aug 12, 2021

  • Revs -9.6% to 187.9m, adj EBT 29.4m vs 52.3m

  • Backlog 2.4bn vs 2.9bn

1Q21

  • May 14, 2021

  • Revs -8.7% to 190m , -6% ex fx, decline mostly due to covid impact on airline and cruise industries, adj EBITDA 152.4m vs 166.2m but EBT 55.5m vs 52.5m due to lower interest expense

  • Backlog 2.5bn vs 3.2bn

4Q20

  • Mar 4, 2021

  • Revs -8% to 202m, adj EBITDA -8.4% to 160.5m, margin 79.5% vs 79.6%, adj EBT 54m vs 48.9m

  • Rev decline in the bag from short-term services that were provided in 2019 that didn’t repeat.

  • Backlog 2.7bn, net debt 2.369bn vs 2.545 at 3Q and 2.686bn at 4Q19

  • Still Expect IPO of Telesat in 2Q or 3Q21.  

  • US C-band proceeds could be as much as US$344.4m, mgmt. thinks they meet all the requirements. 

  • CDN C-band still murky, mgmt. submitted proposal to GoC, expects decision in 2021. 

  • LEO TAM targeted at 365bn, 600m 10yr contract with GoC expected to be matched equally by customers

  

Mid Quarter Update Feb 9 2021

  • Announced Thales Alenia Space to manufacture LEO constellation called Telesat Lightspeed

  • 298 satellites

  • EIS 2023

  • Financing still being finalized, full construction subject to completing financing

  • Signed MOU with Quebec for 400m investment in Lightspeed, 200m preferred equity, 200m loan.  

Mid Quarter Update Nov 24, 2020

  • Meeting Record Date Nov 30, 2020, possibly later depending on issuance of proxy materials

  • Agreement to combine LORL and Telesat into a NEW public company (LORL shares would convert into newco shares), proportional ownership to be similar to existing.

  • Expected to close in 2Q or 3Q 2021, numerous regulatory approvals required, don’t appear a major threat, just time and work

  • Canadian c-band announcement expected in less than 6 months

  • Mgmt pleased with the terms, expect substantial value to LORL shareholders.

  • Pay LORL special divvy 1.50 on Dec 17th 2020, record date Dec 4th.

3Q20

Telesat Revs -15% to 202m, -2.8% q/q, adj EBT 50.7m vs 72m, EBITDA 162.4m vs 203.1m, CFO 152.5m vs 104.1m, net debt 2.5bn down from 2.8bn at 1Q20

Backlog 2.8bn vs 2.9bn last quarter and 3.4bn last year.

Results largely stable over past 3 quarters, y/y weakness largely due to short-term services provided last year (largely lapped), lower service to a NA DTH customer (non-renewal late last year), completed term for prepaid services to a customer, and some restructured contracts related to pandemic impacts.  The majority of these items have been known for the past few quarters.  Majority of revenues not impacted.