MDA.TO - MacDonald Dettwiler & Associates

[Viking]

This is quite an interesting opportunity; would appreciate hearing from others if they are familiar with the company and its business.

 

Recently sold (and closed on) its UK/NA property related business for $850 million after tax = $20.50/share. Remaining business, aerospace/defense related, is the much more profitable of the two segments. Bottom line is they had two large businesses and they sold the dog and kept the queen. The remaining business has strong margins, reasonable growth prospects and a record backlog (contracts) which gives nice earnings visibility many years into the future. Not including the $850 million, the company has net debt of ($38 million) = $1/share more in cash (= no debt).

 

The key question is what will management do with the $850 million? They have a very good long term record. They have also stated they will look at opportunities to deploy the cash at high rates of return; if they are unable they will return it to shareholders via dividend or share repurchases.

 

Here is a simple way to look at it: $48 - $22 cash = $26; earnings = $2.40; PE = 11 (hold in RRSP)

Given the track record and growth profile of the remaining business looks to be a pretty cheap.

For context, the business trades at 7 x 2011EBITDA (net of cash); in 2008 a US company tried to purchase this part of MDA's business at 12 x EBITDA (CAN gov't turned purchase down).

 

Stock Current Price = CAN $48.03

RBC Est 2011 Earnings = $2.40/share

RBC Est 2012 Earnings = $2.75/share

 

http://www.mdacorporation.com/corporate/news/index.cfm?year=2010

 

Interesting opportunity: lots of cash; great business; great track record; great prospects... difficult to value...

[beerbaron]

Will revisit again. Again Viking, you keep bringing me back to my Pass list with an interesting story I did not catch with the 10 minutes analysis.

 

Thanks

BeerBaron

[no_free_lunch]

MDA is currently trading around 15x owner earnings of $5.60.  Not crazy cheap by any means but a reasonable price for a company with a good track record and in a niche industry.  The company has very little debt.  Made it through the GFC with very little impact on earnings.  Did hit a bit of a slump a few years ago when it sold a division but has recovered very nicely to new earnings highs since then.  When it sold it's division mgmt used the proceeds to buy back a significant chunk of shares (15-20%), so some outsider behavior there.  Management has grown the company from $.60 earnings in 2000, to the $5.60 and change today.  Historically the company has traded between 13-14x owner earnings and as much as 24-25x.

 

It was a recommended buy by donville kent in January.  Price has moved up 5-10% since then, but the company has executed throughout the year so presumably he still holds.

 

http://www.donvillekent.com/pdf/DKAM-Newsletter_January_2014_Final.pdf