Friday, August 10, 2018

Maxar Technologies Might be Getting Paranoid

          By Chuck Black

It's worth noting that Canadian Prime Minister Justin Trudeau didn't offer up any new funding for the Canadian space industry during his Thursday trip through the Ste-Anne-de-Bellevue PQ based facility owned by Westminster CO based Maxar Technologies and operated by its Brampton ON based MDA subsidiary.

He wears a white hat so he must be here to rescue us! PM Trudeau (right) with MDA scientists at the Radarsat Constellation Mission (RCM) manufacturing facility in Ste-Anne-de-Bellevue PQ on Thursday, August 9th, 2018. As outlined in his twitter post, "The satellites being built at @MDA_maxar in QC will help us measure the effects of climate change, monitor the oceans, and provide valuable information when natural disasters strike. It was great to learn about the Canadian tech & workers behind them before they head into space." Photo c/o @JustinTrudeau.

After all, just the day before, as per the August 8th, 2018 CBC News post, "Government, private sector invest $1B in information technology in Montreal," Trudeau announced that the "federal and provincial governments along with Canadian tech company CAE" will be teaming up "to invest about a billion dollars over five years into training and simulation technology."

Earlier the same day, as described in the August 8th, 2018 Montreal Gazette post, "Quebec, Ottawa to give CAE nearly $200 million for aviation training," we learned where most of the money being contributed by Montreal PQ based CAE for the training and simulation technology was going to come from.

But local MDA employees were far more concerned over recent reports indicating that Maxar HQ was "under attack" by a "short seller" encouraging Maxar stock to drop in price on major exchanges.

The "attack" on Maxar/MDA evidently began with the August 7th, 2018 Spruce Point Capital press release, "Spruce Point Capital Management Releases a Strong Sell Forensic Research Opinion on Maxar Technologies Ltd. (NYSE / TSX: MAXR)," which warned, among other things, that Maxar’s dividend was at risk.

As outlined in the August 7th, 2018 Financial Post article, "Maxar stock plunges after short-seller says space company's dividend is at risk," the Spruce Point press release also set an intermediate price target for Maxar stock in the range of $20 US ($26 CDN) to $25 US ($33 CDN) per share, which was about half of Maxar’s previous 52-week low of $42.11 US ($54.94 CDN) on the New York Stock Exchange (NYSE).

During the day, Spruce Point also tweeted out a series of unflattering assessments of Maxar prospects, including this Auguest 7th, 2018 @sprucepointcap tweet, which referenced "Maxar's dire financial situation and aggressive accounting."

Maxar shares traded at $49.49 CDN at mid-afternoon Tuesday (August 6th) at the Toronto Stock Exchange (TSE), down $8.24 from Friday’s close prior to a holiday weekend.

Who's the most important person in this picture? Maxar/MDA executives, including MDA director of public affairs Leslie Swartman (center) and MDA group president Mike Greenley (far right) with CSA astronaut Jeremy Hansen (3rd from left), PM Trudeau (3rd from right) and others at the Ste-Anne-de-Bellevue PQ based MDA facility on August 8th, 2018. Photo c/o @mda_maxar.

By the end of the day, the dip in stock prices encouraged Maxar to formally respond to Spruce Point allegations. The April 7th, 2018 Maxar press release, "Maxar Technologies Responds to Misleading Short Sell Report," went so far as to state that "Maxar believes it is a direct attempt by a short-seller to profit, at the expense of Maxar shareholders, by manipulating Maxar’s stock price."

Of course, Maxar may have a point. According to its website, New York NY based Spruce Point Capital Management, "focuses on short-selling, value, and special situation investment opportunities" and "conducts in depth fundamental research and takes an activist approach to investing."

Which is a polite way of saying that the firm would benefit from a decline in Maxar stock prices, and would not be opposed to "activist" measures, such as the release of an unfavorable assessment, which would encourage those sorts of declines to occur.

Dropping stock prices benefit "short sellers" like Spruce Point, which make money buying up bargain basement stock shares and reselling them after the stock price recovers.

As if on cue and by the close of business on Thursday August 9th, Maxar shares had risen to $51.11 CDN on the TSE as the markets began to discount the Spruce Point recommendations..

However, it's worth noting that these sorts of situations are normally dealt with at a much lower level, well before the need for public pronouncements.

Maxar's very public response to the Spruce Point allegations suggests internal fear over the state of the financials which might also indicate the need for a cautious "wait and see" investor approach before any long-term Maxar stock is added to a portfolio. 

According to the November 5th, 2012 Space News post, "Canadian Radarsat Constellation Mission Delayed, Cost Rises by $400M," the RCM program has increased in cost and had its development cost substancially stretched out since first being announced over a decade ago. As outlined in the January 12th, 2013 post,  "A $706Mln Fixed Price Contract and Hard Launch Date for RADARSAT Constellation," RCM was finally placed on a fixed price contract with a required hard launch date in January 2013. Screenshot c/o Space News.

Of course, that doesn't mean that Maxar shouldn't be getting paranoid. The market did dip on the initial Spruce Point pronouncements, just like Spruce Point knew that it would.

As outlined in the August 9th, 2018 Cantech Letter post, "Maxar Technologies can’t just ignore short report, Christine Poole says," some think Maxar should even respond in greater public detail to the Share Point allegations in order to prevent Maxar stock prices from dropping further.

According to that article, Maxar’s stock had previously plunged 20% in late February in response to its fiscal fourth quarter and full-year 2017 earnings report, which featured higher revenues related to its DigitalGlobe business unit (which focuses on the growing Earth imaging market) but lower revenues from its SSL business unit, which depends on the sale of large geostationary communication satellites in a shrinking international market.

The fourth quarter report also estimated a revenue decline of between 2% and 4% for the upcoming fiscal year, a bad sign given the normal investor preference for year over year growth and a lot of downside for the market to digest.

As for PM Trudeau, although he seems more than willing to pose for photo-ops, he hasn't offered up any big new fiscal bones to Maxar either, although there have been recent small contracts awarded.

As outlined in the second volume of the 2012 David Emerson led Aerospace Review under the title, "Reaching Higher: Canada's Interests and Future in Space," there is a broad consensus on both sides of the Federal House of Commons that budgetary problems and ballooning costs on the Radarsat Constellation Mission (RCM), soured the reputations of both the CSA and prime contractor MacDonald Dettwiler (a firm which has now morphed into the foreign owned Maxar subsidiary MDA) in the early 2010s.

That's what has led led to the current lack of support for new funding for Canada's space agency, which is another reason why Maxar might be getting paranoid. 

Just because you're paranoid, that doesn't mean that everyone isn't out to get you.
Chuck Black.

Chuck Black is the editor of the Commercial Space blog.

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