Newsat Limited (ASX: NWT) shares are on a tear, soaring over 33 per cent between Friday afternoon and Monday.
Following the massive gains, the company is now capitalised at over $125 milllion – not bad for a company with revenues in 2011 of less than $30 million.
As Australia's leading independent satellite service provider, NewSat specialises in global satellite communications providing tailored VSAT, Teleport and satellite services to 75% of the earth's surface. NewSat provides remote and temporary sites with fast, secure and reliable solutions ensuring unrestricted connectivity, anywhere, anytime.
Picks and shovels
Think of the company as a 'picks and shovel' play on the mining boom.
The excitement surrounding Newsat – seemingly in terms of its share price – appears to surround its planned Jabiru Satellite program. The company hopes the Jabiru Satellite Program will transform it from a "reseller" of satellite capacity into an "owner" of satellites, enabling a step-change in earnings and EBITDA margins, along with a platform for sustainable future growth.
On Friday 18th November 2011, the ASX issued Newsat with a speeding ticket, asking if the company knew of any information concerning it that has not been announced which, if known, could be an explanation for recent trading in the securities of the Company
The short answer was no.
The long answer likely only added to what appears to be the current hype around Newsat.
Newsat reiterated to the exchange now it has made significant progress in both its current operations and in continuing to develop the Jabiru satellite project over recent months, noting amongst other things;
– The Company recently completed a 50:1 share consolidation;
– Baillieu Stockbroking Ltd recently initiated research with a target price of $2.50, significantly above the current price of around 70 cents;
– The Company has recently signed binding customer contracts totalling US$279 million for the Jabiru project and continues to progress negotiations with additional customers for significant contracts on the satellite and future satellites;
– The company has been in detailed negotiations with both a satellite builder and a satellite launch vehicle manufacturer over the last 60 days and expects to announce both of the contracts within a short timeframe;
– The Company recently submitted a formal application to the US Ex-Im Bank and COFACE (France) for export credit agency backed debt financing.
The Foolish bottom line
Newsat is a classic blue sky speculative investment. Broker Baillieu Stockbroking say so themselves, labelling their recommendation as high risk.
Although on the surface Newsat appears an interesting investment opportunity, much has to go right in the future for investors to be rewarded in the long-term.
We'll be keeping an eye on progress, but are happy to watch this one from the sidelines. In our experience, if Newsat truly is going to transform itself into a major international provider of satellite communications, there will be plenty of time for investors to buy into the growth story between now and 2015.
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