Norsat International Acquisition Likely But For How Much?

Last Monday I purchased shares in Norsat International, and so far I’m up 22%. The story is evolving faster than I had anticipated…

NSAT is a small Canadian manufacturer of satellite components, and yet another stock which was trading at very cheap multiples (6x EV/EBITDA,  1.3x Price/Sales, 1.2x Price Book, very little debt)  due to negative investor sentiment towards the satellite industry in general. Norsat specializes in custom, rugged, portable satellite equipment. I have some (small) experience using satellite equipment myself from the military. Compared to cell phones or landlines, satellite is far from perfect in implementation, but also far better than nothing at all.

Viasat’s aggressive new Ka band satellite launches have been turning up the heat on an already precarious industry. Bankruptcies and mergers still loom for satellite providers due to a lot of satellite oversupply coming onto the market. More competition between Ka and Ku band providers should result in lower costs of renting satellite bandwidth, which is a good thing for satellite customers, and ultimately, the manufacturers making the equipment to connect to the satellites. Consequently, NSAT is showing solid EBITDA and margin growth as they roll out Ka band equipment alongside their existing Ku gear.

Norsat had suffered from poor management and lack of profitability about a decade ago before bringing on CEO Aimee Chan, who has cut costs and swung the company back to the black. About 6 months ago the firm published a press release stating that it had received multiple buyout offers, including one from Privet Fund LP for $8.00. I was surprised to see a company which had such good upside optionality only trading at $8. Privet had taken a 17.6% stake in the common shares, which perhaps convinced investors that this was a done deal, but it is often the case that companies receiving buyout offers trade through the initial offer price. The valuation multiples I mentioned above along with the emphasis on the phrase “multiple offers” piqued my interest further. I made this a mid-sized position at $8.

The stock shot up on Friday after Privet Fund raised its initial offer from $8/share to $10.25/share. Given the aggressive interest from Privet I am a bit puzzled about why the stock is only trading at $9.80 as of the end of close Friday. At 8x EV/EBITDA NSAT is no longer what I would define as cheap, but it isn’t rich either. I plan to keep holding for now.

Oh also, please note the following news about Duke basketball.

Rock Chalk!

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Author: secondhandstocks

The genesis for this blog stems from a Marine buddy and I came back from Afghanistan with more money than knowledge, and heedlessly tossed our hats into the stock market ring. A few months later, I remember discovering the classic book The Intelligent Investor by Graham and Dodd, and ravenously devouring my first introduction to value investing. That framework - with some generous additions by Seth Klarman, and Joel Greenblatt among others - guides my investment philosophy. I spent five years working in the intelligence field, both in the Marine Corps and then for a government agency after that. I speak Arabic and Pashto, have programming and analysis experience, and enjoy investing in technology companies as a hobby. I also spent a year on Wall Street working on a #1 Ranked Institutional Investor team, before deciding that that the Sell-Side was not for me.

2 thoughts on “Norsat International Acquisition Likely But For How Much?”

  1. Is there an opportunity for the company to land large US Gov’t contracts? based on the increased military spending?

    On Mon, Mar 20, 2017 at 4:48 AM, Secondhand Stocks wrote:

    > secondhandstocks posted: “Last Monday I purchased shares in Norsat > International, and so far I’m up 22%. The story is evolving than I had > anticipated… NSAT is a small Canadian manufacturer of satellite > components, and yet another stock which was trading at very cheap multiples > ” >

    1. Probably, but I didn’t hinge my buy thesis around a single large contract. The custom nature of their products lends itself well to special forces etc, so the biggest U.S. contract they have received so far was for $5.5m in 2008. In Q4 2015 they were subcontracted for $2.7m worth of gear for a new VSAT Ka band terminal. VSAT is where I think most of the new growth will come from.

      In general I expect NATO countries to increase their spending over the coming years and NSAT could certainly benefit.

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