Ann: UtiliSat Inc acquisition presentation, page-9

Morgans Downgrade from Buy to Hold:
SDA has announce
d
it will acquire peer UltiSat for
US
$65m, with
the majority
■
funded via debt. The deal is EPS and valuation accretive as it
i
s attractively priced
on 7.0x FY17F EV/EBITDA or 5.5x post
-
synergy EV/EBITDA (which should take a
few years to be reali
s
ed). That said
,
we have downgraded our SDA
recommendation f
rom an Add to a Hold following the acquisition.
Our previous
ly
positive investment view on SDA was predicated on its attractive
■
valuation and our view that management simply needed to integrate the
Harris
Cap
Rock (HCR) acquisition
.
HCR is company
-
transfor
ming acquisition so
successful integration
would de
-
risk SDA
and the free cash flow from the
combined businesses would
de
-
gear
SDA
’s
balance sheet
to
create equity value.
However
,
the UltiSat acquisition muddies the waters and i
nvestors will not see a
■
cle
an (acquisition
free) set of numbers in FY17 nor will the balance sheet be de
-
geared (cashflow
is
diverted
and Net Debt to EBITDA actually increases).
As a result,
our investment thesis in no longer intact for SDA in FY17 and we
■
consequently downgrade our
recommendation to a Hold
.