Growth Focus: SpeedCast International Ltd (SDA)

by Patrick Taylor




Date of Data Capture: 25/2/2017

Name: SPEEDCAST INTERNATIONAL LTD (SDA)

Classification: Satellite Telecommunications

Current Price: $3.89

Market Capitalisation: $929M

Forecast EPS Growth: 87.13%

Gross Yield: 2.08%

Consensus Price Target: $4.87

# Covering Analysts: 6

Discount at Current Price: 25.19%

Price Target Trend: Increasing Flat

Signal Time Frame: Monthly-Weekly-Daily

Trend Bias: Up Flat ; Long-Short

Indicators:
Short-term: Positive Neutral
Medium-term: Positive
Long-term: Positive

Recommendation: Buy

Focus: Capital Growth

Set up Notes:
• After an initial aggressive growth phase saw gains of 125%+ from 2014-2015 SCA then consolidated down 30%+ over most of 2016, there are signs that this longer-term downtrend is now easing and is beginning to reverse.
• Strong fundamental performance and forecasts back up the positive technical view with good discounts to consensus targets and further earnings growth expected.
• Technical signalling is turning positive across multiple timeframes and while some overhead resistance remains at $4.00 – linear resistance broke recently and in-line with shorter-term indicators, support lies $3.50-$3.80.


Growth Focus: SpeedCast International Ltd (SDA)

Our primary focus here is capital gain, we will select our stocks from the ASX top 500 All Ordinaries Index.

Normally the last thing you want to hear about a satellite company is that it has fallen, but indeed that is why we are buying SpeedCast International Ltd (SDA). After a stellar first year - where this global communications company rose by 150% to reach a zenith of $4.75 by late 2015 - things soon fell back to earth and prices cratered by 30% to hit a low of $3.02 only a year later. With strong performance and forecasts, backed by robust organic and acquisitive growth, we believe their star may be on the rise again.

SDA provides satellite communications and internet services to remote or unique clients unable to connect to more standard service models, including mining outposts, oil rigs and cruise ships. Their recent buyouts of other players in the field like WINS Ltd and Harris Caprock Ltd have been mixed blessings as capital raisings and share issues have taken their toll on the share price in the short-term. What we haven’t seen yet is the true extent of the benefit of these purchases in expanding overall market share and diversity - these should be significant but might yet prove to be meteoric.

SpeedCast does pay a small dividend but it is their prospects for future growth that brings this stock into our orbit, coming off a launching pad of increasing sales, earnings margins and profits that is forecast to continue to rise and fuel future growth. Feeling this same gravitational pull of positive forecasting the six analysts covering SDA have aligned for a consensus price target of $4.87 carrying only positive outlooks for the company. These predictions carry them above their previous highs and represent a current discount of 25% to today’s pricing, leaving them plenty of space to fill.

On the technical view we see a strong rally lift them over twelve months, after an initial stumble on entry to the market, before entering into a year-long consolidation they are only emerging from now. The longer-term signal carries good correlation and turned positive just as linear resistance broke around $3.80, which decent signal carriage from smaller timeframes adding to momentum and potential under resistance at $4.00. That ceiling didn’t pose a strong barrier the first time it broken and with clear signs that strength is returning to SDA and we might just be seeing their uptrend attempting a re-entry here.

With excellent fundamental performance behind them, coupled with global potential and an exciting technical outlook, SpeedCast might be ready to once again eclipse market expectations.

** Edit: 28-2-2017 H1 FY17 Results were released before the publication of this article **
SDA has reported strong EBITDA growth of 42% and NPAT growth of 30% - this is slightly under expectations but still very strong. The stock has been discounted by 10% in the market today and we are using that as an opportunistic entry. We are happy with our analysis and accordingly this article has been published in original format.

Disclaimer

This report was produced by Taylor Securities Pty Ltd, which is a Corporate Authorised Representative (Number 414063) of RM Capital Pty Ltd (Licence no. 221938). Taylor Securities and Patrick Taylor (Representative number 414064) have made every effort to ensure that the information and material contained in this report is accurate and correct and has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of the information and material and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, Taylor Securities and Patrick Taylor does not accept any liability, including negligence, for any loss or damage arising from the use of, or reliance on, the material contained in this report. This report is for information purposes only and is not intended as an offer or solicitation with respect to the sale or purchase of any securities or financial products. The securities or financial products recommended by Taylor Securities and Patrick Taylor carry no guarantee with respect to return of capital or the market value of those securities or financial products. There are general risks associated with any investment in securities or financial products. Investors should be aware that these risks might result in loss of income and capital invested. Neither Taylor Securities and Patrick Taylor nor any of its associates guarantees the repayment of capital. WARNING: This report is intended to provide general financial product advice only. It has been prepared without having regarded to or taking into account any particular investor’s objectives, financial situation and/or needs. Accordingly, no recipients should rely on any recommendation (whether express or implied) contained in this document without obtaining specific advice from their advisers. All investors should therefore consider the appropriateness of the advice, in light of their own objectives, financial situation and/or needs, before acting on the advice. Where applicable, investors should obtain a copy of and consider the product disclosure statement for that product (if any) before making any decision.