What is the stock?
Speedcast International is a global service provider of satellite-based communications networks and is the largest provider of end-to-end remote communications solutions to the oil and gas industry and the maritime sector.
How long have you held the stock?
We have held the stock since April 2018.
What do you like about it?
We are attracted to the company’s high projected growth profile with substantial leverage to the recovery in the energy sector. Speedcast is trading on 13 times FY19 earnings, with a free cash flow yield of 8%, despite forecasts of double digit EPS growth over the next few years. We believe there is material earnings upside should there be a sustained recovery in the offshore oil and gas space, based on the recent surge in the oil price and bullish commentary from key market participants, such as Schlumberger and Transocean (Speedcast’s largest customers in the Energy segment).
How is it better than its competitors?
As the main industry consolidator in a fragmented market, Speedcast is now the largest commercial buyer of satellite capacity in the world, with a geographic footprint unmatched in the industry. This scale provides Speedcast with increased buying power and allows it to provide a level of global support that smaller rivals struggle to match. Recent contract wins with NBN Co in Australia and Noble Drilling are testament to the advantages provided by Speedcast’s global network.
What do you like about its management?
CEO Pierre-Jean “PJ” Beylier has been the chief executive of Speedcast since 2004 and has driven the transformation of the company from a small regional player, to a globally diversified industry leader. As a significant shareholder himself, Beylier is well aligned with other shareholders and has a strong track record.
What is your target price?
Our target price is $6.50.
At what point would you sell it?
We will start to take profit as its share price reaches our target valuation.
How much has it added to your overall portfolio over the last 12 months?
It has delivered over 15% since our initial purchase.
Where do you see value?
Aside from the mining services sector, where there is increasing earnings momentum, we are also seeing valuation support for domestic cyclical sectors such as the consumer sector. Trading on a steep discount to the market, investors are not paying much for the leverage to the improving economic activities driven by the strengthening capex cycle.
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