Shares in satellite operator SpeedCast plunged yesterday, losing more than 30% of their value after directors revealed it would spend $US135 million buying Globecomm and provided weaker than guidance for the 2018 financial year ending December 31.
UBS believe the stock is benefiting from potential earnings upgrades in FY19 from a rebound in energy verticals, as well as a multiple re-rating if investors obtain confidence that strong organic growth has returned.
2017 results were in line with expectations. Management commentary has suggested there is upside risk to earnings in outer years should a prolonged oil & gas recovery continue. Morgans reduces FY18 and FY19 forecasts for earnings per share by -2%.
UBS notes the upside it previously forecast has now crystallised, with the company securing a 10-year contract with NBN Co to deliver enterprise grade satellite services. While the base contract is $107m, the broker notes there is upside to $184m, depending on the uptake.
The company has completed the acquisition of UltiSat ahead of expectations and indicated the energy sector has experienced its third quarter of stable revenue and the pipeline is growing. Harris CapRock is almost fully integrated and Morgans suggests the downside is dwindling.
Following a change of analyst, Credit Suisse resumes coverage of the stock with an Outperform rating and $4.10 target. The broker considers the deal with CapRock is transformative at an attractive price.