Iridium is a supplier of satellite-based voice and data communications which uses L-band spectrum from its 66 satellites. It has had a very troubled history following its Motorola financing and debut in 1998. It went Chapter 11 bankrupt – and the largest-ever at the time – in 1999.
But a new generation of satellites, Iridium-NEXT, means a resurgence of interest in the company and its services, and now a positive “BUY” note from equity analysts at Deutsche Bank reminds investors that Iridium is the largest satellite constellation in space, has rising Free Cashflow, falling debt leverage and fast-expanding market possibilities.
Iridium’s core expectations are that today’s $1.46 billion of annual revenues will grow to almost $2 billion by 2026, and the bank’s note says it expects Iridium’s current market share of its recent 23% to “leapfrog” that of its main rival Inmarsat over the next few years.
The bank says: “Assuming fairly stable costs, margins should expand with management guiding to 2019 OEBITDA margins of ~60% and increasing closer to industry peers of 70-80% over time. The biggest benefit to Free cashflow will be the upcoming CapEx holiday which takes CapEx from roughly $500 million in 2018 (including ~ $60m of capitalized interest) to ~$35 million annually (ex. capitalized interest) for the next decade. With improving EBITDA and drastically declining CapEx, we estimate 2018 Levered FCF burn to be $283 million before inverting and generating positive FCF of $173 million, $241 million, and $284 million in 2019, 2020, and 2021.”
“Iridium-NEXT is almost fully operational having completed the seventh of its planned eight launches in July 2018 resulting in 65 of the planned 75 satellites in-orbit – 66 will be operational with 9 in-orbit spares,” says the bank’s note. “Although not yet announced, we anticipate the 8th and final launch will occur within the next couple months and certainly before year-end 2018. The $3 billion network (designed, developed and deployed from 2010-2018) is replacing the company’s current constellation, which was originally put into service in the late 90s with the inaugural commercial call coming from then Vice President Al Gore in 1998.”
The bank says that like its predecessor, NEXT is designed to reliably deliver connectivity anywhere on Earth, but with substantial increases in speeds ranging up to 704 kbps and eventually up to 1.4 Mbps compared to first generation speeds of up to 128 kbps. Those speeds compare to Iridium’s largest competitor in the L-band market, Inmarsat, who highlighted speeds of up to 432 kbps. The enhanced bandwidth is expected to help the company better compete in existing markets as well as position Iridium to capture future growth from developing applications.