NewSat’s $600 million satellite could see it join Australia’s largest businesses, or crash
Tuesday, October 29, 2013/
On the outskirts of Adelaide sits what’s called a teleport. It receives and transmits satellite signals to geostationary satellites, and sells that bandwidth on to third parties.
It’s one of two teleports owned by NewSat. The other is in Perth. Due to a mix of low rainfall, geographical position, state-of-the-art engineering and political stability, both teleports are considered some of the best places in the world from which to secure satellite bandwidth, offering up-times of nearly 100%.
NewSat, a microcap satellite company listed on the ASX, does not currently own any satellites. It’s a middle man. It buys bandwidth from the handful of major satellite companies and sells it on to governments and companies in the telecommunications and resource industry. But that’s about to change.
For the past few months, NewSat’s CEO, Adrian Ballintine, has been travelling around the world trying to raise the $600 million necessary to build and launch a satellite.
It wasn’t easy. When he started, his company had a market capitalisation of just $60 million.
But he’s pulled it off. Through a mix of export development funds and institutional investment, NewSat has the money to build its first satellite. Jabiru 1 is due to lift off in 2015. If that launch is successful, NewSat will be well on track to become one of Australia’s largest, most profitable companies.
The barriers to entry in building, launching and operating satellites are extraordinary. But as governments and corporations increase their usage of high-quality communications their need for satellite bandwidth grows.
For companies able to offer new satellites, there’s a huge amount of money to be made. And NewSat is looking to cash in.
“The reason we’re launching a satellite is because we just can’t get enough capacity from other vendors,” Ballintine tells SmartCompany.
“At the moment, our business model is that we buy capacity from other satellite producers, we add value services to do it, and we on-sell that bandwidth. That’s a 30% margin business.
“By launching our own satellite, we become masters of our own capacity, and we go from a 30% margin business to an 80% margin business.”
That’s why he could raise the money. The demand for satellite bandwidth is huge. Already, Jabiru 1 has sold 20% of its capacity – bringing in $800 million. Once it’s launched, Ballintine says it could bring in $3 billion in revenue, with earnings before interest, tax, depreciation and amortisation (EBITDA) of at least $150 million a year.
And that’s just one satellite. NewSat owns eight orbital slots. There are 160 in the world (one for every two degrees along the equator). Into the eight slots it owns, NewSat can put 20 satellites. It’s already got plans for Jabiru 2, 3, 4 and 5.
NewSat got its start through ownership of the teleports. It bought them for $17 million in 2005 when its previous owners decided to sell their Australian operations. They’re very good teleports, but there are 1700 in the world overall. Ownership of the teleports wasn’t enough to break into the satellite game.
That took financing. A lot of it.
The bulk of the money came on loan from the American and French governments.
Building the satellite will create 1000 jobs at Lockheed Martin in the United States. And building the launcher will create 600 jobs at French company Arianespace.
“Both those governments spent a year doing due diligence on our contracts and our projects, and decided to lend us $400 million at 2% [interest per annum]. That’s why export money is the best money you can get. It’s cheap money, because you’re providing jobs.”
NewSat itself directly employs 75 people. But the hundreds of temporary jobs it would create in the United States and France got it $400 million in funding. NewSat then put $50 million of its own money in, used debt instruments for another $50 million, and raised equity worth $100 million.
When it came to private investors, the bulk of interest came from the US and UK.
“Initially, we were laughed out of everyone’s offices in Australia,” Ballintine says. “We were a little company raising $600 million in a financial community that had no way of understanding anything about satellite technology. Australian analysts understand resources, and digging holes. It was just the wrong place to start. So we started in markets that understood space and satellites.
“Funding the first satellite is murder. The due diligence we had to go through was an enormous task.” But since they started, NewSat’s market cap has risen from $60 million to $300 million. As the company gets bigger, raising the funds for satellites will get easier.
But one huge risk remains: that of the satellite crashing to the ground.
It’s not unheard of. A Russian company has had seven failed launches in just over a year; a July launch destroyed navigational satellite equipment worth $200 million.
That’s why NewSat is going with Arianespace to build its launcher. The French company hasn’t had a failure in 57 launches.
NewSat’s satellite is big. By global standards it’s huge. Ballantine says realistically, Arianespace was the only company who had a launcher big enough to carry it.
The technical aspects of the satellite and launcher are wholly built to minimise risk. The satellite design aims to change as little as possible from previous successful launches, so as not to introduce any new design flaws. Satellites stay up for at least 15 years, so the engineers are highly conservative, using only materials that have been tried and tested as opposed to the newest innovations. As one of NewSat’s engineers said to SmartCompany: “If a bolt hasn’t flown before, we don’t want it.”
If all else fails, NewSat pays $36 million in insurance premiums every year. It also owns the orbital slot next door, so it could migrate some of the contracts it’s already sold to Jabiru 2, which it hopes to launch a few months after the first satellite.
But launch failure would be a huge setback. “Even though we have insurance, and even though there hasn’t been an Arianespace failure in 57 launches, an explosion is always a risk,” Ballintine says.
If it works though, the possibilities are extraordinary. NewSat could come from virtually nowhere to being one of Australia’s largest companies.
The sums speak for themselves.
Ballintine says satellite companies typically trade at multiples of between eight to 12 times EBITDA.
The EBITDA on NewSat’s first satellite is close to $200 million. If NewSat launches five, that’s a billion in EBITDA right there, which you’d then multiply by at least eight to get a multibillion dollar market capitalisation.
“It’s not just a wild stab,” Ballintine says. “If we get our act right, and we launch multiple satellites … there’s no question this could be a very large company indeed.”