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Big premium on sale of ORBCOMM didn’t catch everyone by surprise

The telematics, ELD and satellite provider is getting sold for a 50% premium. Even that is less than at least one analyst saw as its value


Michael Walkley, an analyst at Canaccord Genuity, had a target of $13 on the share price of ORBCOMM (NASDAQ: ORBC). He raised it from $11, and he says it was well above what other analysts were projecting. It also looked that it might be overly bullish given that the price of the electronic logging device and IoT provider was firmly stuck below $8.

On Thursday, that $13 price wasn’t realized when it was announced the company was being sold for $11.50 per share. But in the announcement of its sale to GI Partners, a San Francisco-based private equity company, ORBCOMM did manage to pull in a 52% premium to where the company’s stock price closed Wednesday, validating what Walkley and other bullish analysts had said about the company: It was undervalued. 

The total value of the deal was put at $1.1 billion. That included the company’s debt, which recently had been restructured.

“I’ve covered ORBCOMM a long time and I’m hearing from institutional investors who are happy they stuck with the stock,” Walkley said in a phone interview with FreightWaves. “I just view it as an attractive business model.”

Walkley wasn’t the only analyst predicting big things for ORBCOMM. On Tuesday, just two days before the deal with GI Partners was announced, a contributor to the SeekingAlpha page wrote an analysis of ORBCOMM headlined “Why Orbcomm Is Still An Exceptional Stock To Buy.”

The $11.50-per-share price is not just a significant premium over the Wednesday closing price. It is well above the $2.22 price recorded just about a year ago, when the trucking sector, following a burst of activity at the start of the pandemic, sank into a month or two of depressed volumes and freight rates.

ORBCOMM produced total revenue in 2020 of $248 million, down from $272 million in 2019. But despite the bullish outlook, the company is not profitable on a net income basis. It had a fourth-quarter net loss of $14.8 million in 2020 and a full-year loss of $33.9 million.

Management has chosen to focus in its statements on earnings before interest, taxes, depreciation and amortization, which would be net of the interest burden the company faces because of its debt load. EBITDA in the fourth quarter was $55 million, with free cash flow of $48 million. It also had $40 million in cash on the books at the end of the year. 

In the fourth quarter, ORBCOMM posted earnings from operations of $2 million but interest expense of $4 million, a number that is expected to drop because of the debt restructuring. 

Canaccord’s Walkey said that while ORBCOMM is known for its ELD business, he views it as a “global leader in cargo tracking.” He said the company is particularly strong in the refrigerated market and in intermodal. 

In February, Walkey raised the price target on ORBCOMM to $13 from $11. In his report supporting that move, he said the company benefited from “recurring revenue [that] remains protected as its business is dedicated to helping its customers transport food, medicine, and vaccines during these uncertain times.

“With transportation customers recovering and improving order trends, new products driving incremental growth, and strong incremental margins from both new subscribers and increased hardware sales levels, [ORBCOMM] should achieve its 10% revenue growth and 20% adjusted EBITDA growth targets in 2021 despite industry supply constraints,” Walkley wrote.

In raising his estimate in February, Walkley said the company was “well positioned to consolidate market share and return to 10% organic revenue growth longer-term.”

“Management anticipates the company will generate 20% adjusted EBITDA growth once organic growth returns to 10% given the strong incremental margins for both the services and hardware businesses,” he added.

Walkley noted that ORBCOMM’s stock price had been lagging some of its peers, which he said might be tied in part to the fact that it is not a true software as a service (SaaS) company, because it still sells a lot of hardware. A full SaaS operation generally stays out of that side of the business, and Walkley said he believed that might have held back the company’s valuation. 

“A lot of these SaaS companies are getting much higher valuations,” he said. But Walkey added that private investors have been looking at ORBCOMM as an acquisition target for at least two years.

ORBCOMM has a significant satellite business as well as its ground-based telematics/ELD business. Walkley said he could envision GI Partners looking to ultimately spin off those two businesses separately to maximize value.

On the company’s fourth-quarter conference call in February, CEO Marc Eisenberg talked about ORBCOMM’s new product offerings. Some of them are an integration between the satellite capabilities and the telematics products. On a more terrestrial basis, Eisenberg also touted a new video product for in-cab use and camera capabilities to monitor cargo.

Walkley said the company’s performance recently has been slowed by integrating numerous acquisitions. Eisenberg made reference to that on the fourth-quarter earnings call when he said, “We’ve just been through a very difficult integration.” But he added then that ORBCOMM did not have any plans for further acquisitions. 

ORBCOMM and GI Partners declined further comment on the acquisition beyond the prepared statement they issued Thursday when the deal was announced. 

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John Kingston

John has an almost 40-year career covering commodities, most of the time at S&P Global Platts. He created the Dated Brent benchmark, now the world’s most important crude oil marker. He was Director of Oil, Director of News, the editor in chief of Platts Oilgram News and the “talking head” for Platts on numerous media outlets, including CNBC, Fox Business and Canada’s BNN. He covered metals before joining Platts and then spent a year running Platts’ metals business as well. He was awarded the International Association of Energy Economics Award for Excellence in Written Journalism in 2015. In 2010, he won two Corporate Achievement Awards from McGraw-Hill, an extremely rare accomplishment, one for steering coverage of the BP Deepwater Horizon disaster and the other for the launch of a public affairs television show, Platts Energy Week.