Written by Rajiv Nanjapla at The Motley Fool Canada
After delivering returns of more than 50% over the past two years, the S&P/TSX Composite Index has maintained its upward trajectory, gaining about 12.5% year-to-date. Higher commodity prices and improving corporate earnings have supported the broader Canadian equity market.
Meanwhile, Telesat (TSX: TSAT), which provides secure, high-capacity, low-latency broadband connectivity to enterprises, defence agencies, and government customers, has significantly outperformed the broader market. The stock has delivered a 71.4% return year-to-date and approximately 221.7% over the past three years. Growing demand for its connectivity solutions, new contract wins, and ongoing expansion initiatives have strengthened investor sentiment and supported the stock’s strong performance.
However, Telesat has recently come under pressure amid a broader pullback in the technology sector, with the stock losing more than 20% from its recent high. Following this decline, let’s examine the company’s second-quarter performance, expansion initiatives, growth prospects, and valuation to assess whether the pullback presents a potential buying opportunity for investors.
Telesat’s second-quarter performance
Telesat operates through two segments: Geostationary Earth Orbit (GEO) services and Low Earth Orbit (LEO) services. Its GEO services segment operates and manages the company’s existing fleet of geostationary satellites and generates most of its current revenue and cash flow. Meanwhile, the LEO services segment focuses on developing and deploying Telesat Lightspeed, the company’s next-generation low-Earth-orbit satellite constellation, which represents a significant potential growth opportunity.
However, Telesat’s recently reported second-quarter results remained under pressure. Revenue declined 25.1% year over year to $79.5 million, primarily due to the non-renewal of certain broadcast contracts and lower service revenue from fixed broadband customers. New contract wins helped offset some of the decline but were not enough to fully offset weakness in the company’s legacy operations.
Adjusted EBITDA fell 62.3% to $22.1 million, while the adjusted EBITDA margin contracted from 55.3% to 27.8%. Lower revenue and higher expenses related to the company’s debt refinancing weighed on profitability. Telesat’s net loss also widened sharply from $75.5 million to $558.6 million, mainly due to non-cash losses from changes in the fair value of financing warrants, unfavourable foreign-currency translation, and higher debt from the stronger U.S. dollar.