Fleet Financing

Globalstar: Asset tracking industry could drive stock prices higher (NYSE: GSAT)

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With Globalstar (NYSE: GSAT) identifying many opportunities in the growing asset tracking industry, I believe the stock may soon gain momentum. Keep in mind that the asset tracking industry is growing at over 33% CAGR. GSAT already has over $660 million in goods and equipment ready to service industries interested in commercial Internet of Things services. If management fails to service other industries, or if their satellites fail, I think the stock price could drop to near $0.15 per share. However, I believe an increase in the share price is likely.

Globalstar

Globalstar provides mobile satellite services over a proprietary network of orbiting satellites and active ground stations. In my opinion, Globalstar’s most interesting services are the Internet of Things business data transmissions and enterprise asset tracking capabilities.

In the latest quarterly report, Globalstar’s Commercial IoT reported an impressive increase in subscribers. I believe that the upward trend will most likely continue in the future.

Globalstar Announces First Quarter 2022 Results - Globalstar, Inc.

Globalstar Announces First Quarter 2022 Results – Globalstar, Inc.

In my opinion, if management continues to find opportunities and sign deals with partners in the terrestrial spectrum, net sales will be trending north. In the last report, in this regard, the management was rather optimistic:

Terrestrial spectrum opportunities continue to mature. We signed a term sheet with a major global customer to begin rolling out Band 53 in the US and beyond. This is a significant opportunity that will take time, but there are signs pointing to success; we will share more information when authorized. We are also active in several international opportunities in the mining, transport and logistics sectors, each of which would be significant if concluded. Source: Globalstar Announces First Quarter 2022 Results – Globalstar, Inc.

Balance sheet

The company’s most valuable balance sheet is its property, plant and equipment, worth $680 million. With an asset/liability ratio around 2x, the company’s financial situation seems rather healthy to me. I think the bankers will offer financing if the company decides to invest more heavily in growing market segments like the Internet of Things.

Globalstar Announces First Quarter 2022 Results - Globalstar, Inc.

Globalstar Announces First Quarter 2022 Results – Globalstar, Inc.

Also note that Globalstar reports $115 million in deferred revenue, which means the company receives money up front from customers. In essence, customers pay the business up front, so debt financing may not be so necessary.

Globalstar Announces First Quarter 2022 Results - Globalstar, Inc.

Globalstar Announces First Quarter 2022 Results – Globalstar, Inc.

Extremely conservative valuation with some satellite failures and risks imply a fair price of $0.1-0.2

In my most conservative scenario, I assumed that Globalstar would not invest significantly in any of its growing business segments. As a result, net revenues are likely to increase at a rate close to the growth of the mobile satellite services market. I also expect that Globalstar satellites may have issues such as component failures, solar panel failures, or loss of power or fuel. If so, management will not be able to repair satellites in space. As a result, I think accountants may need to reduce business properties, which can lead to lower free cash flow expectations:

There are remote tools that we use to fix certain types of problems affecting the performance of our satellites, but physically repairing satellites in space is not feasible. We do not insure our satellites against in-orbit failures after an initial period of six months, whether the failures are caused by internal or external factors. In-orbit failure can result from a variety of causes, including component failure, solar panel failures, telemetry transmitter failures, loss of power or fuel, inability to control satellite positioning, solar or astronomical events, including solar radiation and solar flares, and collision. with space junk or other satellites. Source: 10-k

Also, I think Globalstar may not be able to operate its second generation satellites for the expected 15 years. Thus, the sum of the expected future cash flows would be lower than forecast, and the valuation of the company should fall:

Although we have designed our second generation satellites to provide commercial service over a 15 year life, we cannot guarantee that any or all of them will continue to operate for their full rated life. 15 years old. Source: 10-k

In this DCF model, I used sales growth close to 7.52% y/y from 2025 to 2030, which is close to the estimated growth of the mobile satellite market:

The Mobile Satellite Services Market is estimated to achieve healthy market growth at a healthy CAGR of 7.52% during the base period of 2022 to 2028. Source: Mobile Satellite Services Market Size 2022 with a 7.52% CAGR

I also assumed a long-term EBITDA margin close to 33%, which is among the figures reported by other competitors. Also, with a CFO/Sales around 27% to 49%, I think I’m pretty careful with my assumptions.

Y-Charts

Y-Charts

If we assume that Globalstar, Inc. continues to invest approximately 33% to 21% of its net sales in capital expenditures, free cash flow could reach $51 million in 2030. Finally, with competitors that are trading at around 6x to 8x forward EBITDA, I think we could use a 7x exit multiple.

Y-Charts

Y-Charts

With the above assumptions and a weighted average cost of capital of 6.8%, the discounted future free cash flow from 2022 to 2030 would be $239 million. The present terminal value at 6.8% should remain close to $270 million, and the implied fair price would not exceed $0.1 to $0.2.

Author's DCF model

Author’s DCF model

Finally, note that I do not believe that my figures are far from the reality displayed by other competitors. Most peers report an FCF/Sales ratio of 8% to 42%. My model includes a ratio of about 22%.

Author's DCF model

Author’s DCF model

Y-Charts

Y-Charts

Assuming investments in Globalstar’s fleet vehicle tracking devices, the company could hit a fair price of $2.5

In my opinion, if Globalstar continues to sign agreements with new partners, not only in the communications industry but also elsewhere, revenues will increase. In this regard, I greatly celebrated the satellite purchase agreements reported in the last quarterly report:

The first months of 2022 have been very active. As previously announced, we entered into a satellite supply agreement with Macdonald, Dettwiler and Associates Corporation in February. Source: Globalstar Announces First Quarter 2022 Results – Globalstar, Inc.

In the previous case scenario, I did not consider SmartOne Solar, the solar-powered asset tracker designed by Globalstar. In my opinion, if Globalstar, Inc. continues to invest heavily in the growing asset tracking industry, future sales growth will likely be higher than in the previous scenario.

One of the most feature-rich satellite devices for fleet asset tracking, this small, easy-to-mount and configurable device is powered by sunlight and provides years of use with little to no maintenance. Built-in sensors automatically detect when it’s attached, report if it detaches from the vehicle, and monitor battery level. It works as a standalone asset tracker and can also relay data from other devices via satellite to Globalstar. Source: Globalstar USA

According to a recent report, Globalstar’s asset tracking devices could benefit from a target market growing at a CAGR of 20%. I included this impressive sales growth in my new discounted cash flow model.

Asset Tracking Industry Outlook Report, 2020-2025 – Real Time Location Systems (RTLS) will grow at around 20% CAGR through 2025. Source: ResearchAndMarkets.com

I also factored in that new innovations are increasing Globalstar’s operating cash flow from around $10 million to over $134 million. In this case, I assumed that the CFO/Sales ratio and the EBITDA margin will probably increase.

Y-Charts

Y-Charts

In this case, with 20% sales growth through 2030, I think Globalstar could be close to $650 million in 2030. Also, with an EBITDA margin of around 45%, a CFO/ Sales of 55% and more investments than in the previous case scenarios, FCF 2030 could remain around $305 million. Finally, with a 5.5% discount, the sum of future free cash flows would be $950 million.

Author's DCF model

Author’s DCF model

With sales growth close to 20% and an EBITDA margin around 45%, in my opinion, we could use an exit multiple close to 20x. In this case, the results turn out to be almost $4.5 billion in equity and a capital per share of $2.5.

Author's DCF model

Author’s DCF model

Carry

In my view, Globalstar is currently close to an inflection point. If management successfully positions itself in the asset tracking industry, revenue growth will likely be substantial over the next decade. In my opinion, Globalstar is well positioned with satellites and know-how to successfully target opportunities in the asset tracking industry. If Globalstar fails to invest in growth sectors, if some of its satellites suffer damage or do not last as expected, I think the stock price could decline. With that, given the recent upbeat comments noted in the latest quarterly report, I remain bullish on the stock. Yes, I think it’s not for everyone, but the likelihood of seeing higher prices seems high.