Why the Speedcast (ASX: SDA) share price plummeted 38% (Financial Update)

This article was originally published at MF & Co. Asset Management.

Why the Speedcast share price plummeted 38% (Financial Update)

SpeedCast International Limited (ASX SDA) updated its expectations for H1 2019 and full year 2019 underlying EBITDA today. The SDA share price crashed by more than 38% off the back of the news.

SpeedCast International reported that it expects the H1 2019 underlying EBITDA to be approximately $60 million to $64 million and the full year 2019 underlying EBITDA to be between $140 million and $150 million.

About SpeedCast International Limited

SpeedCast International Limited (ASX SDA) is a leading provider of communications satellite technology in Australia. It is a critical communications company with the goal of providing intelligent solutions to varied industries including commercial maritime, energy, telecommunications, mining, broadcast media, cruise, and ferries, etc.

The global network of SpeedCast International allows businesses to operate from even the most remote regions across the world. The services offered by SpeedCast International include network management, connectivity, professional services, and customer experience management.

Updated Expectations for 1H 2019 and Full Year 2019 Underlying EBITDA

SpeedCast Interntional announced today that it has updated expectations for underlying EBITDA for both first half and full year 2019. For 1H 2019, the company expects its underlying EBITDA to be between $60 million to $64 million, which is less than the 2019 outlook announced in May 2019.

The reduced expectations from underlying EBITDA in 1H 2019 are mainly due to weaker market conditions and slow application of backlog, technical difficulties causing a delay in the Carnival contract, and lower than expected revenues in the Energy segment.

Additionally, SpeedCast International is also experiencing delays in revenues and lower profitability under Phase 2 of its NBN project, and an increase in churn from another commercial maritime contract. Moreover, the contribution of Globecomm to EBITDA for H1 2019 is also expected to be $8 million to $10 million, which is lower than the earlier guidance of $12 million.

SpeedCast International also updated the EBITDA expectations for the full year 2019. The guidance has been reduced from $160 million to $171 million announced previously to approximately $140 million to $150 million.

As a result of the change in the expected EBITDA, the net leverage has also been revised to be higher than the previously announced target of 3 times to 3.2 times.

Financial Position of SpeedCast International Limited

For the past three years, SpeedCast International has reported a steady increase in its total revenue, gross profit, and operating income.

SpeedCast International (ASX SDA)-revenue

The company has also generated a decent return for its shareholders in the form of regular dividends, with an average dividend yield of about 2%.

SpeedCast International (ASX SDA)-dividend

Our Takeaway

The SDA share price has been affected mainly by the underlying EBITDA guidance downgrade announced today. The Energy segment of SpeedCast has not been able to perform according to the expectations; however, the other segments have shown strong growth.

Moreover, the company has also been delivering steady income to its shareholders through dividends. Therefore, despite the sudden drop in the SDA share price today off the back of revised EBITDA guidance, the future of SpeedCast looks optimistic.

Henry Fung is a Partner Managing Director and co-founder of MF & Co. Asset Management. He is a highly experienced equities, derivatives and financial markets professional with over 12 years of experience. Henry specialises in building trading algorithms & systems, quantitative & qualitative analytics across macroeconomic, fundamental and technical disciplines and currently runs the MFAM VPAC AU/US models portfolios. The management Partners and Adviser team have decades of experience between them, with experience from major Investment Banks and Brokers. Their Advisers are highly experienced, having dealt with some of the wealthiest clients in Australia.

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