newsat ltd (asx nwt) baillieu research report

E.L. & C. Baillieu Stockbroking Ltd ABN 74 006 519 393 www.baillieu.com.au Please read the disclaimer at the end of this report.

INITIATION OF COVERAGE

NewSat Ltd (ASX:NWT; OTC:NWTLY) Business transformation drives compelling investment opportunity

NewSat’s experience in the satellite communications industry is extensive and diverse. The company is a leading provider of teleport services and reseller of third-party geostationary satellite communications capacity, but is about to undergo a transformation as it embarks on becoming an owner and operator of communication satellites.

NewSat proposes to launch a fleet of Jabiru communication satellites over the next few years and is well advanced in its plans to launch both Jabiru-1 and Jabiru-2. To enable its geostationary satellite strategy, NewSat will use a combination of export credit debt funding and equity from both existing shareholders and new investors.

NewSat will transform from a small Australian-based communications technology company into a major international provider of satellite communications capacity to a range of premium clients. These clients include the US military, national governments and a number of blue chip corporate clients in the national security, natural resources and telecommunication service provider industries.

NewSat’s existing highly attractive teleport business will be added to vertically by the ownership of satellites, a business that enjoys much higher margins.

The vertical integration that takes place commencing with Jabiru-1 will enhance margins overall and lift the value of the existing teleport business to 0.5 cents per share. Jabiru-1 adds 3.4 cents per share in value. Jabiru-2, scheduled for launch in the fourth quarter 2013, adds 0.2 cents per share, while the remaining satellites Jabiru-3, Jabiru-4 and Jabiru-5 are estimated to add a combined total of 4.3 cents per share.

Based on our sum of parts valuation (refer to the table opposite) we estimate the shares to be worth 8.4 cents per share. Although the stock is regarded as high risk, we recommend the shares based on our view of expected returns outweighing the risk profile of the investment.

Our 12-month share price target is 5.0 cents per share.

Wednesday, 7 September 2011

In Brief Recommendations Short Term: Buy Long Term: Buy Risk: High Price: 0.8 cents Price Target: 5.0 cents

Snapshot Monthly Turnover $3.2m Market Cap $70m Shares Issued 8,787.3m 52-Week High $0.01 52-Week Low $0.003 Sector Telecommunications

Business Description NewSat Ltd (ASX: NWT; OTC:NWTLY), Australia’s leading independent satellite service provider, specialises in global satellite communications and provides tailored VSAT, teleport and satellite services to 75 percent of the earth’s surface. It supplies fast, secure and reliable internet, voice, data and video communications to remote and temporary sites.

Sum of Parts Valuation Summary

12-Month Price and Volume

Analyst Name – Vincent Pepe; Ivor Ries [email protected]; [email protected]

Disclosure: The authors own no shares in NWT.

NewSat: Investment Summary Year to June 30 2011 2012 2013 2014 2015 Revenue $m 29 35 39 42 169 EBITDA $m 1.8 3.5 4.4 5.8 103.3 EBIT $m 0.3 1.7 2.1 3.7 74.2 Reported Profit $m 0.3 1.7 2.1 3.7 53.0 Adjusted Profit $m 0.3 1.7 2.1 3.7 53.0 EPS (reported) ¢ 0.0 0.0 0.0 0.0 0.3 EPS (adjusted) ¢ 0.0 0.0 0.0 0.0 0.3 EPS Growth (%) N/A 432.6 26.5 76.4 1319.8 PER (reported) (x) N/A 98.4 77.7 44.1 3.1 PER (adjusted) (x) N/A 98.4 77.7 44.1 3.1 Dividend ¢ 0.0 0.0 0.0 0.0 0.0

Component Valuation (US$m)

Value per Share (¢)

Existing teleport business 43.5 0.5

Jabiru-2 15.2 0.2

Jabiru-1 310.9 3.4

Satellite slots (Jabiru-3, 4 & 5) 395.1 4.3

Total Present Value of Equity 764.7 8.4


Sum of parts valuation We have reviewed NewSat’s current operations and its

strategic vision to leverage off its blue chip client base and become an operator of geostationary satellites in high premium markets, and we conclude that the company has a high probability of success, despite its low share price and equity base.

Based on a valuation consisting of the sum of parts of NewSat’s existing business (which is essentially the owning and operating of two highly regarded and very strategic teleports and the reselling of capacity on third-party satellites) plus the value that will emerge as a result of NewSat launching, owning and operating its own geo-satellites, we believe that the shares are trading at an order of magnitude below what they are currently worth.

We conclude from our sum of parts valuation that NewSat’s shares are worth closer to 8.4 cents each compared with their current trading price of approximately 0.8 cents each (refer to the sum of parts valuation table below).

Sum of parts valuation summary

We believe our valuation will crystallise for investors as significant milestones are reached and NewSat transforms into Australia’s leading technology and satellite-communications company. Here, we list some of the milestones already achieved and some of those on the not too distant horizon.

Operational and investment milestones

NewSat is strategically moving from being an operator of teleports and a reseller of satellite bandwidth to being an owner-operator of its own satellites. The ownership of vertically integrated infrastructure from satellites down to teleports dramatically expands the margins available along the value chain.

NewSat has already achieved a number of significant milestones towards its goal of becoming a vertically integrated owner-operator of satellites and the provision of value-added services to premium customers. However, the own-and-operate satellite strategy is still generally not well understood and is potentially perceived by the investment community as high risk. After due consideration we believe that risk is overstated.

We believe that the ownership of satellites is no different from owning real estate and that similar – if not the same – principles can be followed. Furthermore, we believe the value added to the Jabiru satellite business by NewSat’s management team is not reflected in the current share price.

In addition, as further milestones are reached and the perceived risk dissolves, the true value of NewSat and its operational strategy will become more evident and will consequently be reflected in the share price.

During the current calendar year to date, NewSat has:

• acquired rights from AP Kypros Satellites Limited (KyproSat) and received Cypriot government approval for seven premium orbital satellite slots for development;

• agreed key commercial terms to sell significant capacity to high-value customers on Jabiru-1;

• entered into non-binding term sheets for approximately $70 million per annum of satellite capacity on Jabiru-1;

• received detailed submissions from the world’s major satellite manufacturers;

• substantially progressed the funding arrangements for Jabiru-1;

• accelerated its satellite program through Jabiru-2;

• commenced preliminary work on Jabiru-3 and Jabiru-4;

• entered into new contracts totalling $12 million for the supply of satellite communications, which includes $4.4 million from the US military in Afghanistan;

• entered into other contracts across the oil and gas and mining industries, both domestically and internationally;

On 10 August 2011, NewSat announced that it had achieved a major milestone towards the launch of Jabiru-1 by securing a cornerstone “take-or-pay” contract for a minimum of US$105 million commencing in 2015. The three-year contract for satellite capacity on Jabiru-1 is with major global communications carrier TrustComm Inc of the US. TrustComm provides managed and secure broadband satellite, wireless and terrestrial communication services to a range of government and enterprise clients.

On 29 August 2011, NewSat announced that it had signed a take-or-pay contract to supply 3A Technology, a leading Pakistani telecommunications provider to government and enterprise customers, with US$134 million of transmission capacity on Jabiru-1 over a 10-year period commencing in 2015.

Upcoming major milestones that investors can be expected to respond to are:

• the finalisation of further binding take-or-pay agreements for pre-launch satellite capacity to support the debt financing requirements;

• the selection of a satellite manufacturer and launch vehicle arrangements and agreements with other vendors;

• the securing of debt commitments from one or more of the export credit agencies, COFACE or Ex-Im Bank;

• the finalisation of equity requirements to satisfy the debt to equity funding arrangements;

• the finalisation of an “all events” insurance cover for the Jabiru fleet of satellites;

• the extension of teleport infrastructure into Europe and North America.

Component Valuation (US$m)

Value per Share (¢)

Existing teleport business 43.5 0.5

Jabiru-2 15.2 0.2

Jabiru-1 310.9 3.4

Satellite slots (Jabiru-3, 4 & 5) 395.1 4.3

Total Present Value of Equity 764.7 8.4


Overview Background

In 2002, NewSat made the strategic decision to enter the satellite services industry and provide satellite broadband services to potential blue chip global customers. The acquisition of two teleports, one in Adelaide and the other in Perth, was the first significant step towards achieving its longer-term goal. Since then, NewSat has stayed clear of the retail consumer communications markets (such as consumer broadband) and has instead built a reputation for high quality, reliable service with a range of premium blue chip corporate customers.

Today, NewSat is Australia’s leading independent satellite service provider, specialising in global satellite communications. NewSat delivers internet voice, video and data communications through tailored very small aperture terminal (VSAT) and satellite services to 75 percent of the earth’s surface.

NewSat provides remote and temporary sites with fast, secure and reliable solutions ensuring unrestricted connectivity anywhere, anytime.

NewSat’s experience in the satellite communications industry is extensive and diverse, and its satellite solutions are deployed across a range of industries and landscapes from mining and defence through to energy and retail. The company works with its clients to engineer the most efficient, cost-effective solution, incorporating the latest satellite developments and standards to meet clients’ individual needs.

NewSat has strong strategic relationships with other worldwide teleport facilities and was a finalist in the World Teleport Association’s Awards for Excellence in 2010. NewSat’s Adelaide teleport is recognised as a highly secure Global Access Point, supporting certified classified networks to ensure the transmission of vital and sensitive information for government clients. Both the Perth and Adelaide teleports are accredited to supply services to the Australian Department of Defence, and as such NewSat is recognised as a trusted and reliable supplier of services under the Defence Recognised Supplier Scheme (DRSS).

NewSat will be furthering its satellite capabilities in 2014 with the Jabiru satellite program set to launch and operate Jabiru-1, Australia’s first independently owned commercial satellite. Jabiru-1, a large hybrid Ku-band and Ka-band next-generation satellite, will provide superior coverage over Asia, the Middle East and North Africa. Jabiru-2, scheduled to commence service in 2013, will deliver enhanced Ku-band coverage across Australia, Papua New Guinea and East Timor. NewSat believes its fleet of next-generation geostationary satellites will lead Australia’s space quest.

Infrastructure

Teleports are ground stations (also known as global access points or anchors) consisting of a conglomeration of sending and receiving antennae used to communicate with satellites and to provide a communication path with other ground stations around the world. NewSat currently operates two linked teleports delivering a range of voice, data and video communications. These two state of the art facilities were purchased from SES NewSkies Satellites in 2005.

Illustrations: Supply chain (top); Jabiru-1 (bottom)

The Adelaide teleport consists of 11 antennae ranging from 2.4 to 13 metres in size, and is capable of up-linking to eight geostationary satellites across the C and Ku-bands. The Perth teleport hosts 12 antennas ranging from 2.4 to 13 metres in size, up-linking to nine geostationary satellites across the C and Ku-bands. Both teleports are interconnected to terrestrial fibre networks and the internet backbone, operate 24x7x365 and have on-site network operations centres.

Teleports provide services for satellite-based communications on behalf of clients including internet, voice, video, data and telemetry; tracking and control of satellites for their operators; hub hosting; carrier service monitoring; and terrestrial backhaul.

As mentioned above, the Adelaide teleport is a highly secure Global Access Point, supporting certified classified networks to ensure the transmission of vital and sensitive information for government clients.

NewSat employs 20 highly experienced engineers to provide its services, which includes full redundancy in the case of an unforeseen event.


Photos: Perth teleport facilities (top); VSAT on remote offshore oil and gas site (middle); VSAT on remote onshore site (bottom)

Clients and services

NewSat’s markets comprise premium high-growth situations with substantial customers in mining, oil and gas, typically in very harsh or remote locations and usually for the life of the project from exploration to end of mine life. Premium clients include the US military, large retailers, major corporate entities and local and international governments.

NewSat services resources projects, including oil and gas projects, in remote locations, including the Gorgon project off the North West Shelf of Australia (see below).

NewSat’s impressive list of clients includes Chevron and Exxon Mobil, two of the six supermajor oil companies; Schlumberger, the world’s largest oilfield services provider with operations in about 80 countries; and CapRock Communications, which provides broadband internet, secure corporate networking, VoIP and real-time video for customers operating in remote environments within the energy, government, maritime, engineering and construction, mining and disaster recovery markets. Other major customers include:

• Proactive Communications Inc – is proven and trusted

for its satellite communications in the most demanding situations and harshest environments. US-based Proactive Communications is an “all-conditions” satellite communications provider contracted by the US government and corporate entities around the world to provide mission critical communications for the US military in war zones, including the Middle East and Afghanistan. Proactive chose NewSat’s C and Ku-band coverage from its Adelaide teleport and its fibre backhaul technology to provide its required services.

• Amstar Communications – was selected to provide vital communication services to the Gorgon project, one of the world’s largest natural gas projects. NewSat was chosen by Amstar because it already services a number of large oil, gas and mining projects. NewSat has provided Amstar with in-room entertainment, internet, voice and payphones to more than 1,000 permanent and temporary staff.

• Nixon Communications – offers innovative and effective end-to-end communication solutions for remote and non-remote environments. NewSat provided Nixon with satellite services during the construction of a 950 kilometre pipeline, running from Wallumbilla in south-east Queensland to Moomba in South Australia. More specifically three fully self-sufficient transportable camps with 300 beds each were provided with access to full high-speed voice and data services during the 370-day construction process.

NewSat is partner-focused and enjoys relationships or is affiliated with numerous other leading companies in the oil, gas, mining, defence, government, communications, construction, disaster recovery and digital and broadcasting sectors, too many to detail in this report.

NewSat provides one of Australia’s largest retailers with satellite communications for media and broadcasting throughout their 900-plus stores Australia wide. This enables the client to meet the challenge of keeping customers informed


about new products, offers, ideas and trends through innovative and constantly updated electronic displays.

NewSat provides broadband services to the remote Kimberley region of Western Australia, and has designed, developed and deployed satellite broadband to 16 of the most isolated towns. The satellite broadband service is supplied through NewSat’s Perth teleport and a satellite wireless installation in each town. Through this infrastructure, NewSat delivers broadband and VoIP services, as well as internet access for corporate, government and casual "hot-spot" users.

NewSat provides customised fly-away kits to the Australian Defence Force’s Joint Combined Training Capability (JCTC) program. These kits comprise all components, including antennae, routers and modems, and are easily transportable from air, land or sea.

Major services

NewSat offers low-price shared bandwidth referred to as a “contended” service, which is suitable for general communications, and a “dedicated bandwidth” service with high throughput and maximum security at a premium price for clients such as the military and government users.

Another of NewSat’s services is VSAT, which connects clients with multiple sites in some of the world’s most remote regions and provides multiple solutions for their communication needs.

In addition to the above, NewSat also provides up-linking, IP/terrestrial, co-location and rack space, telemetry, tracking and control, VoIP and other value-added services.

Recent announcements The number of geostationary satellites that can be placed

into orbit is limited by the number of slots that are available, with the International Telecommunications Union (ITU) managing allocations. A new satellite owner must therefore either purchase existing satellites or have available slots into which satellites can be placed. In February 2011, NewSat announced that it had secured a strategic parcel of seven slots that would permit the launch of several satellites to be named Jabiru after the indigenous Australian stork.

On 13 April 2011, NewSat announced the appointment of David Ball as chief technology officer. Mr Ball was previously managing director at IntelSat Asia Pacific. IntelSat is one of the world’s leading satellite operators.

In May 2011, NewSat announced that it had achieved significant external validation of its Jabiru satellite project by securing more than $12 million in funding through three instruments to take it to the “financial close” of its final investment decision on the Jabiru projects. The three instruments are as follows:

(i) a convertible note with a total value of $1 million issued to the Singaporean investment house Khattar Holdings Pte Ltd with a conversion price of 1.6 cents per fully paid ordinary share being a premium of more than 100 percent over the current share price;

(ii) a $6.5 million share placement to sophisticated and professional investors at 0.7 cents per share which was taken up by NZ Funds Management , DAUN Consulting (Singapore), Khattar Capital and other institutions. These investors also received a warrant for every two shares purchased. The warrants have an exercise price of 1.0 cent and expire five years from the date of issue;

(iii) the expansion of NewSat’s secured facility with the National Australia Bank for a total of $5 million, at an interest rate of 9.3 percent and with duration until October 2012.

On 10 August 2011, NewSat announced that it had achieved a major milestone towards the launch of Jabiru-1 by securing a cornerstone take-or-pay contract for a minimum of US$105-114 million over the contract term. The contract is with major global communications carrier TrustComm Inc of the US, which provides managed and secure broadband satellite, wireless and terrestrial communication services to a range of government and enterprise clients.

The TrustComm contract is for a three-year term and is expected to yield NewSat with revenues of US$105-114 million over the contract term. The Jabiru-1 Ka-band satellite capacity purchased by TrustComm will serve multiple high-demand regions within the Middle East including Afghanistan, Iraq, Saudi Arabia, Yemen, Qatar and Pakistan and validates the high level of market demand for NewSat’s Ka-band service offerings.

On 16 August 2011, NewSat announced the appointment of Michael Hewins as chief operating officer. Mr Hewins was previously chief commercial officer at AON/International Space Brokers, a leading global space risk insurance broker.

On 29 August 2011, NewSat announced that it had signed a take-or-pay contract to supply 3A Technology, a leading Pakistani telecommunications provider to government and enterprise customers, with US$134 million of transmission capacity on Jabiru-1 over a 10-year period.

On 6 September 2011, NewSat proposed to implement a performance rights plan (PRP) to reward key employees and directors. The proposal, which is part of the planned financing and launching of Jabiru-1, is to issue 400 million PRPs which will vest in accordance with the following provisions and be convertible into one ordinary share in the company:

• Financial close: one half of the PRPs will vest on the execution of binding commitments for the debt and equity necessary to fund the construction of a Jabiru satellite;

• Launch: the other half of the PRPs will vest on the successful launch and delivery into orbit of the satellite and completion of in-orbit testing.

Shareholder approval will be sought at a general meeting before 30 October 2011for the issue of 250 million of the PRPs to NewSat CEO Adrian Ballintine, and the balance of 150 million PRPs will be issued at the discretion of NewSat’s board. We note that the PRPs will vest only once conditions precedent have been met and consequently have not been included in the total number of shares on issue at this point in time.


FY2011 result

NewSat posted revenue of $28.8 million for FY2011, up 15 percent from $25 million in FY2010. Gross margin of $12.9 million was up 9 percent from $11.8 million in FY2010. EBITDA of $1.8 million was up 17 percent on FY2010. NPAT attributable to members at $0.3 million was up markedly on the previous corresponding period’s $0.03 million. A gross margin of 45 percent indicates that the teleport business has a high fixed-cost infrastructure component. NewSat’s results indicate that its current activities are now operating profitably.

During FY2011, NewSat won 175 high grade contracts of which 132 were to existing customers and 43 to new ones, indicating that sales growth is continuing to build. The year was highlighted by steady growth in the oil, mining and gas communications market as well as significant growth in military communications requirements. A large number of contracts were signed and deployed in the second half of FY2011, so the full impact of these contracts will not become evident until FY2012. NewSat’s monthly recurring customer revenue charge (MRC) at the start of FY2012 is running in excess of $2.6 million per month.

NewSat’s 2011 results highlighted its continuing strong revenue growth and consistent EBITDA while the company invested in the “company-transforming” Jabiru satellite project.

The company’s FY2011 accounts also revealed the following:

(i) the top two customers accounted for 14 percent and (more than) 10 percent of total revenues respectively;

(ii) the company has in excess of $47 million in unused tax losses for which no deferred tax asset has been recognised;

(iii) the valuation ascribed to the two teleports (land and buildings asset class) is $3.9 million against an unrecognised replacement cost of $18.7 million;

(iv) $13.4 million in intangibles was ascribed to internally generated intangibles associated with its satellite development strategy;

(v) investment expenditure on the Jabiru satellite development during the course of FY2011 amounted to $11.7 million.

Growth in telecommunication bands The globalisation of content and consequently broadband

communications across more and more devices, telecoms, high-definition applications and mobility (in particular devices hosting numerous applications), not to mention advanced transmissions of video, data and voice services, is fuelling the next-generation growth of the ever-expanding universe of satellite communications.

Ku-band applications have been in existence for at least the past 30 years and existing resources are straining to meet demand. Ka-band on the other hand represents a greenfield opportunity for the provision of high capacity services to premium customers. NewSat is positioning itself to take advantage of the additional benefits provided by Ka-band.

NewSat is now poised to execute the final step towards the launching of the first of its fully owned satellites, Jabiru-1, which has Ka-band transponders. Jabiru-3, 4 and 5 will follow.

Jabiru provides change of scale Currently, NewSat’s operations consist of providing teleport

services to a range of clients and the reselling of capacity on a number of satellites owned by third-party satellite operators.

The near to medium-term strategy includes the locating of a third teleport in Europe and the selling of capacity on Jabiru-2. Capacity on Jabiru-2 is at wholesale rates as opposed to that being resold on behalf of owner-operators at present which is at a retail rate.

The launch of the fully owned Jabiru-1 in FY2014-15 will open up a whole new scale of business for NewSat with that satellite’s entire capacity being managed and sold by NewSat which will benefit from the higher net margins that comes with owning the infrastructure.

Over the next several years, NewSat plans to launch a number of satellites, effectively transforming the company from a teleport operator and satellite-capacity-reseller to a vertically integrated owner-operator and provider-manager of satellite services to high-end premium clients.

Competitive landscape – teleport business

There are 1,700 teleports in the world with the leading operators being Arabsat, Arqiva, Intelsat, the RRSat Global Communications Network and SES World Skies.

The World Teleport Association (WTA) lists Stratos Global (USA), GlobeCast (France), Arqiva Broadcast & Media (USA), CapRock Communications (USA), Globecomm Systems (USA) and MTN Satellite Communications (USA) as the top six independent teleport operators based on revenue. Out of the top 10 independent operators, six are American and the other four are from France, the UK, Israel and Germany.

Of the top 20 global operators, 45 percent are independent teleport operators while the other 55 percent are satellite operators that operate their own teleports. Reports recently published by the WTA show that satellite operators are investing in their ground-based businesses because of the big increases expected from teleport and terrestrial transmission revenues.

In fact, based on a recent WTA report titled “What Customer Want: Enterprise 2011”, the association said that “enterprise communications is a stable and recession-resistant business where satellite plays a vital role in specific niches” and that “transmission requirements would increase in the next two years, driven by rising overall demand for connectivity and the increasing use of video, social networking and apps on smartphones and tablets”.

In March 2010, NewSat was a finalist in the Independent Teleport Operator category at the World Teleport Association Awards for Excellence, in a field of more than a thousand global teleports.


Competitive landscape – satellite business

According to the Satellite Industry Association in a report released on 20 June 2011, satellite services revenue grew by 9 percent over the previous year to reach US$101.3 billion per annum.

NewSat has conducted an analysis of competitive operators to Jabiru-1 which number 14, and found that its combination of choice of transmission band, signal strength and beam shaping will make it very attractive to the market segments that it is targeting.

NewSat’s direct competitors in the Middle East and North Africa (MENA) are Yahsat, Eutelsat, Arabsat, Avanti and Amos/Spacecom, four of which are not well positioned with the US military or, as in the case of Avanti, are consumer-oriented.

The military market covers a wide range of applications and frequencies, but with a focus on Ku-band, Ka-band and X-band. The research also highlights high throughput services (HTS) as a key focus area. The Jabiru pattern of Ka-band spot beams across the Middle East will be a prime example of this emerging market.

Commercial supply to military is a changing marketplace with the future impact of high throughput services, hosted satellite payloads and unmanned aerial vehicles (UAVs) in particular expected to be the subject of increasing demand.

Overall, a slowing of demand is forecast for the sector, but there will still be significant (single figure) growth in demand worldwide. The area in which most demand growth is focused is the Middle East and the Horn of Africa.

For the segments of the market specifically targeted by Jabiru-1: demand for capacity for UAVs is growing due to record increases in government applications, including civil applications such as emergency response; HTS (including Ka-band) demand will continue to grow for both mobile and fixed applications; the one market that is singled out for the most growth in the military and government market is the Middle East.

The demand for capacity in fixed satellite services in the Middle East is expected to grow by as many as 250 transponders by 2020.

The key market segments identified in our market research for multispotbeam networks are:

• trunking, backhaul and multi-usage (essentially telco and network-related services);

• broadband access (the wholesale component of this sector, not the retail component);

• enterprise networks (NewSat is strong in this sector);

• military satellite communications systems (NewSat is strong in this sector).

Worldwide, there is extremely aggressive growth in these segments. Total demand is at a low level, but is expected to outstrip supply by as much as 20 to one by 2020.

In summary, there are a number of satellite operators with orbital positions addressing some or all of the Middle East footprint of Jabiru-1. However, most of these have little or no Ka-band service covering the footprint.

NewSat will be competitive with both Ka-band and Ku-band operators. Ku-band is in short supply in the region and Jabiru-1 will introduce new coverage which will be competitive with Ku-band on price and performance.

Because of its versatile payload, Jabiru-1 will also compete aggressively with Ka-band spot and shaped beams in the region.

In addition, the design of Jabiru-1 will enable it to shift capacity from areas of low demand into areas of high demand to optimise the return from the satellite. This also means that Jabiru-1 can choose to evade competitors and concentrate on areas of demand.

Valuation NewSat’s teleport operations

Through its two teleports, NewSat is currently linking to 13 geostationary satellites, by which it provides services to its clients. The 13 satellites are as follows.

Present access to satellites

NewSat’s revenue is essentially derived from two sources:

(a) the reselling of capacity on board third parties’ satellites;

(b) from the provision of teleport services to receive and transmit signals to and from the satellites providing the link between the two transmission/receiving points.

Revenue derived from reselling activities comes from two levels of service or security provided:

• “contended services”, which is essentially a lower quality service whereby customers essentially share bandwidth;

• “dedicated bandwidth”, which commands a price and margin premium and can take the form of “point-to-point” or single channel per carrier bandwidth.

Over the past two years, total revenue has grown at a rate of 20.3 percent compound per annum. In FY2011, approximately 26 percent of total revenue was derived from contended services, while dedicated bandwidth contributed approximately 40 percent. More importantly, over the three-year period from FY2009 to FY2011 the bulk of the revenue growth was sourced from the higher margin-yielding dedicated bandwidth segment of the market (refer to the following table).

AsiaSat - 4 IS - 8

AsiaSat - 5 GE - 23

Apstar -IIR NSS - 6

Apstar -VI NSS - 9

Inmarsat - 2F4 NSS - 12

JCSat - 2A Superbird C2

IS - 5


NewSat effectively buys bandwidth at a “retail” rate and only through providing value-adding services does the company produce a net margin. NewSat could expand margins by having a third teleport (or more) so as to provide an even greater coverage of the globe – beyond the 75 percent that it has at present. Future teleport targets that are earnings-accretive and under consideration include ones in Europe and North America.

The potential acquisition of additional teleports to support NewSat’s emerging fleet of satellites would realise the company’s strategic vision of global coverage. In other words, under a “growth via acquisition” scenario, NewSat would undertake complementary acquisitions in satellite communication services or overseas teleports to expand its footprint to close to 100 percent of the globe. Management believes that offering a global footprint would very quickly attract additional business, and by offering an end-to-end global service an additional premium margin would be achieved.

A powerful feature of NewSat’s business is the “stickiness” of customers, or low “churn rate”. In other words, once customers sign contracts with the company, the majority of those clients build on the initial contracts going forward. Consequently, sustained growth is reflective of both substantial gains in new business and strong retention of existing contracts and customers. NewSat has approximately 600 contracts in place with blue chip customers, including Proactive Communications, CapRock Communications, Nixon Communications, NextGen, Schlumberger, Chevron, Exxon Mobil and the Australian Defence Force.

As mentioned above, NewSat at present has a MRC run-rate of $2.6 million per month and climbing. There is sufficient growth capacity at both its teleport facilities (Adelaide and Perth) and new contracts won will deliver higher-margin EBITDA and positive cash flow. According to NewSat management, the two existing teleports can be expanded progressively to service $75 million in annual revenues for a modest capex of only $4 million.

The biggest growth market opportunity for NewSat is the resources sector which has earmarked $180 billion in project expenditure. Based on market estimates, the satellite communications component of this market segment is estimated at $200 million per annum. However, NewSat’s growth opportunity rests with extending into the global satellite market which – inclusive of bandwidth sales, teleports and hardware – is estimated at $80 billion per annum.

To arrive at forecast financials for NewSat’s existing reselling and teleport operations, we have assumed total revenue growth over the next five years of only 7.5 percent per annum and declining to 3 percent per annum from FY2020 onwards.

For valuation purposes we have adopted an enterprise valuation approach based on forecast forward financials at the mid-point between FY2012 and FY2013 (refer to the Appendix, tables 1 and 2). On this basis we believe the appropriate EBITDA to base our valuation on is $4 million.

From our comparison table in the Appendix (table 2), we note the companies that NewSat resembles most are SES Global, Eutelsat and Avanti which are currently trading at an average enterprise value to EBITDA multiple of 8.4 times.

However, NewSat does not fit the mould of mobile satellite communication companies which use low earth orbit satellites. It also doesn’t fit the mould of satellite manufacturing which is a completely different business model, nor does it fit the TV broadcast and satellite broadband model. Satellite TV broadcast companies are essentially business-to-consumer-oriented (B2C) and not business-to-business (B2B). B2B is more NewSat’s revenue orientation, normally associated with lower churn rates and a higher net margin.

Furthermore, NewSat is at a point on its growth curve just before the commencement of exponential growth. Consequently, we believe that an EV/EBITDA multiple premium of 25 percent would be justified, which translates into a multiple of 10.5 times. On this basis we value the existing NewSat business at 0.5 cents per share (refer to the following table).

Valuation of existing business per share

Risk

The risk to the above valuation is that the margins that are evolving in the existing business do not eventuate (that is, not at a point just prior to exponential growth) and the current margins continue to prevail, in which case this equity component would be valued at $35.2 million or the equivalent of only 0.4 cents per share.

The Jabiru program

NewSat and Jabiru-2

The middle ground towards becoming an owner-operator of satellites is the wholesale purchase of third-party satellite capacity and its resale at retail prices.

FY12/13 EBITDA $m 4.0

EBITDA multiple x 10.5

Enterprise value $m 41.7

$m -1.8

$m 43.5

No. of shares on issue m 9124.8

Valuation per Share ¢ 0.5

Net debt

Equity value

* US dollars

Revenue FY09 FY10 FY11 %

Satellite capacity

Contended services 7,187 7,457 7,559 26.3

Satellite bandwidth 4,373 8,084 11,505 40.0

7,433 7827.9 7,311 25

Cadetnet 121 436 380 1.3

Hardware & installation, etc 763 1,145 1,981 6.9

Total Revenue 19,876 24,951 28,736 100.0* AU dollars

Teleport services


Jabiru-2 is not a satellite, but rather a “hosted payload” of capacity or payload on another satellite. In what is referred to in the industry as a condominium arrangement, NewSat is in the process of purchasing a dedicated, state of the art Ku-band transponder payload on a satellite to be launched in the fourth quarter of 2013. Jabiru-2 will provide NewSat with enhanced coverage in and around Australia and deliver internet, voice, data and video communications to the oil, gas and mining industries across Australia, Timor Leste and Papua New Guinea. NewSat intends to migrate some of its existing customer base across to Jabiru-2, which will provide NewSat with an expansion in margins.

With more than 200 MHz of transponder capacity, Jabiru-2 could represent as much as 50 percent of NewSat’s expected reselling revenues in 2012. Over the 15-year life of the Jabiru-2 satellite, NewSat would expect revenues to exceed $110 million but at significantly higher margins than it achieves at present as a reseller of retail cost bandwidth.

NewSat expects Jabiru-2 will commence in FY2014 with a utilisation rate of 50 percent. Baillieu has taken the more conservative view that the utilisation rate will be 50 percent but Jabiru-2’s first year will be FY2015, producing revenues of $3.9 million. After allowing for cost of sales Jabiru-2 is forecast to make an EBITDA contribution in that year of $0.9 million, growing to $1.4 million in FY2016 and plateauing out at $1.8 million in FY2017 (refer to the Appendix, table 3).

As comparable enterprise to EBITDA multiples are generally not available for companies this far into the future, a valuation based on market comparables is not possible and a net present value approach has been adopted.

Three further assumptions were made to arrive at a valuation of NewSat’s Jabiru-2 business on a standalone basis:

(i) that the forecast EBITDA for FY2015 onwards will be a good approximation to free cash flow;

(ii) that the structure housing the Jabiru-2 business will essentially be without debt;

(iii) in the current low interest rate environment, a discount rate or weighted average cost of capital of 7 percent is applicable.

Based on these assumptions, we arrive at a valuation of the Jabiru-2 on a standalone basis of 0.2 cents per share (refer to the following table).

Valuation of Jabiru-2 standalone

Jabiru-1

As previously stated, NewSat has embarked on becoming a satellite operator via its Jabiru satellite project. This will commence with the launch and operation of Jabiru-1. The pre-launch preparations, inclusive of design and funding requirements, have commenced. NewSat has assembled an impressive team, both internally and externally, for the long-term project which consists of the launch of potentially up to seven satellites. The first satellite, Jabiru-1, has now reached the tender selection and funding stage.

Advising NewSat are: Argosat – technical advisers on the optimal orbit and business plan; Lazard – financial advisers advising on debt and equity funding; Pilsbury Winthrop – legal advisers in relation to contractual commitments including build contracts; and PriceWaterhouseCoopers on tax and structuring.

Jabiru-1 is NewSat’s first geostationary communications satellite. It will be one of the most high-powered communications satellites ever launched, providing high bandwidth satellite capacity to high value customers in the military, defence and government markets as well as other enterprise segments such as resources. These are customers that NewSat already services from its secure teleport facilities, and the vertical integration that results from owning a satellite dramatically increases NewSat’s ability to secure large capacity contracts and significantly expand EBITDA margins.

Jabiru-1 is a large hybrid Ku-band and Ka-band next-generation satellite, providing superior coverage over Asia, the Middle East and North Africa. The range of view of Jabiru-1, which will be located in the region of 90 degrees East, is shown in the following chart.

The Ku-band transponders on Jabiru-1 will be used to service traditional satellite customers in south Asia and south-east Asia. The Ka-band spot beams will be used to service military users, government agencies and telecommunication service providers in south-west Asia, the Middle East and the Horn of Africa (refer to the following two charts).

NPV EBITDA x 15.2

Enterprise value $m 15.2

Net debt $m 0

Equity value $m 15.2

No. of shares on issue m 9,124.8

Valuation per Share ¢ 0.2

* US dollars


Generally speaking, Ku-band is in limited supply worldwide but especially in the Middle East where there is huge demand for secure communications. Ka-band is an emerging band and provides the possibility of more capacity, and is consequently ideal for clients wishing to utilise spot and steerable beams and/or dedicated bandwidth. In summary, NewSat can expect ever-increasing demand in the segments in which it already operates in.

There are 40 operators of satellites and approximately 20 of these have coverage in the Middle East and of these 15 operate predominantly Ku-band and C-band, meaning that there are potentially five operators with whom NewSat will compete for customers in its business segments.

Of the remaining five operators, Avanti not only has limited coverage of the Middle East, but it is also predominantly focused on broadband and has only limited coverage of Afghanistan. Eutelsat deploys a Ka-band satellite and is largely consumer-oriented, but it does supply limited two-way bandwidth. Inmarsat will have coverage of the Middle East via Global Express, but has less functionality and is predominantly focused on the maritime market.

Clearly, those companies that could be viewed as competitors do not operate in the same space, leaving NewSat in a strong position in those market segments that it specialises in, namely military, oil, gas and mining. According to management, trunking and backhauling are possible market extensions to those markets in which NewSat already specialises in.

Funding requirements

NewSat has completed detailed costings for the Jabiru-1 project and the total cost is estimated at approximately $415 million as shown below.

Jabiru-1 funding requirements

Funding will be via a combination of debt and equity. Debt funding will come from export credit finance guarantee agencies in France or the US. Both COFACE of France and Ex-Im Bank of the US are offering to provide government-backed debt funding for the project (refer to the following table). Although NewSat has not settled on the final details, the debt funding is likely to take the form of a seven-year facility (five years after 2015) with a refinancing option after eight years.

Jabiru-1 funding sources

In the current global economic environment, the interest rate being offered by both government agencies is at an all-time low and in the vicinity of 4.2 percent per annum. The exceptionally low interest rate not only reduces the weighted average cost of capital because of the low cost of debt, but also the discount rate applicable to valuing the project. The exceptionally low

US$m

Spacecraft/satellite plus:

Launch vehicle cost 330

Insurance cost 40

Operating costs pre-launch 20

Financing costs 20

Other fees & expenses 5

Total Funding Required 415

US$m

ECA debt financing 303

Equity (NWT & new investors) 106

Hosted payload 6

Total Funding Required 415


interest rate skews the debt and equity ratio to a level not dissimilar to that encountered with home financing.

Based on debt of US$303 million and an interest rate of approximately 4.2 percent, we estimate that over a seven-year term annual interest and principle repayments (assuming $4 million per year is capitalised for the first three years) will be US$50.6 million per annum.

To ensure that these repayments can be met, NewSat has pre-sold some of its capacity on a take-or-pay basis to TrustComm, 3A Technology and others.

From TrustComm and 3A Technology alone, NewSat will receive US$41 million, US$50 million and US$53 million per annum in FY2015, 2016 and 2017 respectively, which will completely service (interest and principal) the proposed export credit agency debt of US$303 million.

In addition to the above, NewSat’s total take-or-pay pre-launch term sheets now exceed US$40 million per annum for FY2015 onwards, which puts NewSat firmly on target with its required capital raising and launch requirements.

NewSat has also entered into “all-conditions” insurance arrangements (see above), whereby it will be in receipt of insurance payments regardless of what happens (that is, “all conditions”) once the launch vehicle has taken off.

According to management’s latest forecasts, based on a likely capacity mix over the 15-year expected lifetime of Jabiru-1, projected revenues are expected to exceed US$2.5 billion. Based on margins typically achieved by satellites, we forecast an EBITDA of US$96.1 million in FY2015. The choice of multiple for an enterprise valuation needs to take into consideration both the high margins evident for this type of business and the fact that it is being applied to forecast EBITDA almost three years out.

We believe it to be appropriate to apply an EBITDA as derived from the Appendix, table 2 and applied to next year’s forecast EBITDA. In other words, a forward EBITDA is applied to next year’s earnings to arrive at an enterprise value (and the corresponding equity value), which is then discounted to arrive at a net present value of the equity (refer to the following table).

Valuation of Jabiru-1

Based on an enterprise value to EBITDA multiple in the range of 8.0 to 8.8 times we ascribe an enterprise value to Jabiru-1 of US$769 million to US$846 million. After adjusting for the debt associated with the project we arrive

at a value of between US$331 million and US$401 million, which corresponds to between 3.6 to 4.4 cents per share.

The above valuation assumes that Jabiru-1 is 100 percent certain of reaching completion. However, as success depends on a number of factors still pending, it would be reasonable to introduce a probability of completion, after taking all factors into consideration. We refer to this adjustment as a probability-adjusted valuation.

After taking into account all key hurdles, we believe that a probability to completion of Jabiru-1 as a successful satellite would be 85 percent. We apply this probability to the mid-point of our valuation range to arrive at a probability-adjusted valuation for Jabiru-1 of US$310.9 million, which is equivalent to 3.4 cents per share.

Incremental value for the remainder of the fleet

The key limiting factor for an aspiring satellite operator is the availability of future suitable satellite slots in which a satellite can be housed. On 1 February 2011, NewSat announced that it had reached an agreement with AP Kypros Satellites Limited (KyproSat) for a portfolio of slots that offer fully protected and secure global satellite coverage to enable fleet expansion beyond Jabiru-1 and Jabiru-2.

In fact, the seven KyproSat slots were very carefully assembled to enable full global coverage with particular strength in the Ka-band – which is ideally suited to NewSat’s business model. The agreement with KyproSat enables NewSat to take its preferred initial three slots and keep a first option (on an as-required basis) over the next few years. The other valuable feature of the KyproSat slots is the lengthy period to expiry. All filed requests for use of geostationary orbital slots are maintained and regulated by the International Telecommunication Union. All ITU filings have an expiration date of six and half years after the requests have been filed. This means that under the current filings the window to launch is at least four years unless additional procedural steps are undertaken.

Information in relation to sales and/or leasing arrangements for satellite slots by their owners is very scant and shrouded by confidentiality arrangements. Valuing NewSat’s options over these slots by reference to market transactions is therefore pretty much impossible. Consequently, we have adopted the following scenario to value the slots it has gained control of. NewSat launches an additional three satellites, one every three years, following the successful launch of Jabiru-1. In other words, NewSat launches a satellite for all three slots it has procured and takes up only one of the four slots over which it has a first option. We believe this is a conservative scenario in light of the fact that NewSat would not be lacking in partners wishing to joint venture satellites.

For the three satellites after Jabiru-1, we have assumed that they practically mirror Jabiru-1 in relation to both revenues and margin. In other words, Jabiru-3 is a financial replica of Jabiru-1, but delayed by three years and with a lower probability of only 75 percent of going to fruition, compared with Jabiru-1, which we currently rate as a 85 percent probability (refer to the Appendix, table 5). Similarly, we have attached probabiities of only 50% and 40% to Jabiru-4 and Jabiru-5. On this basis, we value Jabiru-3, 4 and 5 at US$214.2 million, US$110.1 million and US$70.8 million respectively.

FY14/15 EBITDA $m 96.1 96.1

EBITDA multiple x 8.0 8.8

FY14 enterprise value $m 769.1 846.0

Net debt plus new equity $m 409.0 409.0

FY14 equity value $m 360.1 437.0

FY12 equity value $m 330.5 401.1

No. of shares on issue m 9,124.8 9,124.8

Valuation per Share ¢ 3.6 4.4

* US dollars


Personnel None of all of this happens by itself, and to ensure that

everything goes to plan requires the best people in the industry. NewSat has built an impressive and highly skilled executive team spanning sales and marketing, technology and development, including support, over a relatively short period of time and which is the envy of major satellite operators. The team includes:

• Mr Adrian Ballintine – founder and chief executive. Mr Ballintine was recently named by the World Teleport Association as the WTA Executive of the Year. He was the architect of the teleport acquisitions and strategised the company’s shift into satellite ownership.

• Mr Michael Hewins – recently appointed as chief operating officer. Mr Hewins was previously chief commercial officer at AON/International Space Brokers, a leading global space risk insurance broker.

• Mr David Ball – chief technology officer. Mr Ball is the former managing director of Intelsat Asia-Pacific and has 20 years’ experience in the satellite communications sector in a variety of technical and sales management roles.

• Mr Adam Shapiro – chief financial officer. Mr Shapiro has been in the role for the past four years and has more than 10 years’ assurance and advisory experience with Ernst & Young.

• Mr William Abbott – corporate counsel. Mr Abbott has been practising as a corporate and commercial lawyer for more than 35 years. He has extensive experience in mergers and acquisitions, capital raising, listing companies on the ASX, corporate governance and all aspects of commercial advice and negotiations.

• Mr Mike Kenneally – vice-president, Satellite Strategy. Mr Kenneally has more than 30 years’ experience in the satellite and ICT industries. He was a former member of the Australian Trade Commission’s ICT Export Advisory Board and chair of the industry group Spatial Australia for six years.

• Mr Len McGoldrock – vice-president, Engineering & Operations. Mr McGoldrock has worked for British Telecom International, AAPT Sat-Tel and Newskies commissioning satellite networks and supporting multiple special earth station projects in Europe and the Middle East. He assumed his current role in 2008.

• Mr Andrew Matlock – vice-president, Sales. Mr Matlock has been with NewSat since 2007. He was previously regional manager for Calcomp Inc, a division of Lockheed Martin, and VP Sales for Double Impact.

• Mr Merv Kuek – vice-president, Marketing. Mr Kuek has more than a decade of marketing experience, working for telecommunications companies Telstra and Crazy John’s (part of Vodafone Hutchison Australia).

NewSat’s board of directors comprises:

• Mr Richard Green – non-executive chairman. Mr Green has spent more than 40 years in stockbroking corporate finance. In the past three years he has also served as director of VentureAxess, Dromana Estates, Authorised Investment Fund and Queensland Trustees & Investment.

• Mr Elwood Ellison – non-executive deputy chairman. Mr Ellison has more than 30 years’ experience in sales and marketing in high-tech companies including Microsoft, Ashton-Tate, Gupta Technologies Inc and Asymetrix.

• Mr Andrew Plympton – non-executive director. Mr Plympton has extensive experience in financial services, sports administration and listed companies, including as CEO of two global insurance broking firms and president of the St Kilda Football Club.

• Mr Mark Fishwick – non-executive director. An out-of-home media veteran with 30 years’ experience founding Nettlefold/NLD/Boyd (now Eye Corp), Cody (now APNO) and Claude Group, among other brand names. Currently Mark is the group managing director of Ambient Advertising.

• Mr Adrian Ballintine (see above for details).


Appendix Table 1: NewSat – existing business P&L (US$m)

Table 2: NewSat – comparable companies (A$m)

30 June Year End FY11 FY12 FY13 FY14 FY15

Revenues 28.8 35.3 38.6 41.5 44.6

COGS (15.9) (20.1) (21.9) (22.8) (24.5)

Gross profit 12.9 15.2 16.7 18.7 20.1

Direct expenses (5.9) (5.6) (6.0) (6.6) (7.1)

Overhead costs (5.2) (6.1) (6.3) (6.2) (6.7)

EBITDA 1.8 3.5 4.4 5.8 6.2

D&A (1.5) (1.8) (2.3) (2.1) (2.2)

EBIT 0.3 1.7 2.1 3.7 4.0

Interest expense/(income) 0.0 0.0 0.0 0.0 0.0

PBT 0.3 1.7 2.1 3.7 4.0

Tax 0.0 0.0 0.0 0.0 0.0

Net income 0.3 1.7 2.1 3.7 4.0

Equity Net Enterprise Net Debt/ 2011 EBITDA EV / EBITDA Price / Earnings

Value Debt Value 2011 EBITDA Margin 2011F 2012F 2013F 2011F 2012F 2013F

NewSat53 -2 51

NM 8.3% 19.1x 12.8x NA NM 27.8x NA

TV Broadcast & Satellite Broadband

SES SA 10,020 5,201 15,267 2.9x 74.1% 8.6x 8.1x 5.7x 13.4x 13.0x 8.0x

Eutelsat 8,873 2,997

11,976 2.3x 78.9% 9.1x 8.5x 8.0x 18.1x 16.3x 15.0x

Asiasat 765 -73 693 NM NM NA NA NA NA NA NA

Avanti 393 42 435 33.7x 4.7% NM 8.7x NA NM NM NA

Thaicom 374 186 561 1.9x 39.8% 5.8x 5.0x NA NM 34.4x NA

APT Satellite 120 60 180 NM NM NA NA NA NA NA NA

Mean 10.2x 42.6% 6.9x 6.8x 6.9x 14.7x 18.7x 11.5x

Mobile Satellite Communications

Inmarsat 3,189 1,138 4,328 1.4x 61.4% 5.3x 5.4x 5.4x 8.9x 9.3x 9.1x

Iridium 518 154 672 0.9x 48.1% 3.9x 3.5x 3.0x 12.3x 8.7x 6.2x

Globalstar 210 651 861 NM NM NM NA NA NM NA NA

Mean 1.1x 54.8% 4.6x 4.4x 4.2x 10.6x 9.0x 7.7x

Satellite Equipment / Manufacturing

Loral 1,559 -169 1,391 NM NM NA NA NA NA NA NA

Viasat 1,318 309 1,631 2.0x 18.9% 10.4x 8.3x 5.7x 35.8x 21.4x 12.4x

Mean 2.0x 18.9% 10.4x 8.3x 5.7x 35.8x 21.4x 12.4x1) Equity values in AUD calculated using share prices as at 23-Aug-11. Equity values shown calculated using fully diluted number of shares.2) All figures calendarised to December year end (majority of companies December year end).3) No earnings estimates available for Asiasat and Loral.4) NewSat EBITDA forecasts as per company internal business plan. NPAT calculated as EBIT adjusted for interest income on cash. No tax assumed.


Table 3: Jabiru-2 standalone – income statement (US$)

Table 4: Jabiru-1 standalone financial statements (US$m)

30 June Year End FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29Revenue 0.0 0.0 0.0 0.0 120.3 129.0 132.7 176.2 176.2 182.4 182.4 182.4 182.4 182.4 182.4 182.4 182.4 182.4 182.4

Cost of Goods SoldSlot concession 0.0 0.0 0.0 0.0 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5

TT&C 0.0 0.0 0.0 0.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0

In-orbit insurance 0.0 0.0 0.0 0.0 5.7 5.0 4.3 3.6 3.0 2.3 1.6 5.0 4.3 3.6 3.0 2.3 1.6 1.6 1.6

Total COGS 0.0 0.0 0.0 0.0 7.2 6.5 5.8 5.1 4.5 3.8 3.1 6.5 5.8 5.1 4.5 3.8 3.1 3.1 3.1

Gross profit 0.0 0.0 0.0 0.0 113.1 122.4 126.8 171.1 171.8 178.7 179.4 175.9 176.6 177.3 178.0 178.7 179.4 179.4 179.4

Operating expenses

Sales & marketing 0.0 0.0 0.0 0.0 14.4 15.5 15.9 17.6 17.6 18.2 18.2 18.2 18.2 18.2 18.2 18.2 18.2 18.2 18.2

Other G&A 0.0 0.0 0.0 0.0 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5

EBITDA 0.0 0.0 0.0 0.0 96.1 104.5 108.4 151.0 151.7 157.9 158.6 155.2 155.9 156.5 157.2 157.9 158.6 158.6 158.6Margin 79.9% 81.0% 81.7% 85.7% 86.1% 86.6% 86.9% 85.1% 85.4% 85.8% 86.2% 86.6% 86.9% 86.9% 86.9%

Total expenses 0.0 0.0 0.0 0.0 24.2 24.5 24.3 25.3 24.6 24.5 23.8 27.3 26.6 25.9 25.2 24.5 23.8 23.8 23.8

Depreciation 0.0 0.0 0.0 0.0 26.9 26.9 26.9 26.9 26.9 26.9 26.9 26.9 26.9 26.9 26.9 26.9 26.9 26.9 26.9

Interest income

Interest expense 0.0 0.0 0.0 0.0 12.7 10.7 8.8 6.8 4.9 2.9 1.0 4.9 8.8 6.8 4.9 2.9 1.0 0.0 0.0

Pre-tax profit 0.0 0.0 0.0 0.0 56.6 66.9 72.8 117.3 119.9 128.1 130.8 123.4 120.2 122.9 125.5 128.1 130.8 131.8 131.8

Taxes 0.0 0.0 0.0 0.0 (8.2) (10.6) (12.0) (22.1) (22.9) (24.9) (25.7) (23.5) (22.5) (23.3) (24.1) (24.9) (25.7) (26.0) (26.0)

Net Income 0.0 0.0 0.0 0.0 48.4 56.3 60.8 95.2 97.0 103.3 105.1 100.0 97.7 99.6 101.4 103.3 105.1 105.8 105.8

Margin 40.3% 43.7% 45.8% 54.0% 55.1% 56.6% 57.6% 54.8% 53.6% 54.6% 55.6% 56.6% 57.6% 58.0% 58.0%

30 June Year End FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29

Transponder fill rate 50% 75% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Revenue per year $'000 3,900 5,850 7,800 7,800 7,800 7,800 7,800 7,800 7,800 7,800 7,800 7,800 7,800 7,800 7,800

Total cost per year $'000 3,000 4,500 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000

NewSat profit $'000 900 1,350 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800 1,800

Implied margin $'000 23% 23% 23% 23% 23% 23% 23% 23% 23% 23% 23% 23% 23% 23% 23%

Total satellite revenue $'m 3.9 5.9 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8 7.8

- cost of capacity $'m (3.0) (4.5) (6.0) (6.0) (6.0) (6.0) (6.0) (6.0) (6.0) (6.0) (6.0) (6.0) (6.0) (6.0) (6.0)

EBITDA $'m 0.9 1.4 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8


Table 5: Probability-adjusted valuation of Jabiru fleet (US$)

Year of launch FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26

Jabiru-1 Jabiru-1

398.6

Jabiru-1 FY12 nominal val'n $m 365.8

Probability % 85%

Jabiru-1 FY12 prob-adj val'n $m 310.9

Jabiru-1 val'n per share ¢ 3.4

Jabiru-3 Jabiru-3

398.6

Jabiru-3 FY12 nominal val'n $m 285.6 365.8

Probability % 75%



Jabiru-4 Jabiru-4

398.6


Probability % 50%



Jabiru-5 Jabiru-5

398.6


Probability % 40%



$m 706

¢ 7.7

Total probability adjusted valuation of satellites


E.L. & C. Baillieu Stockbroking Ltd

NewSat Ltd (NWT)

Analyst: Vincent Pepe Date: 7 Sep 2011 Share Price: ($A) $0.008 Issued Shares: 8,787.3m Market Cap: $70m

Financial Performance ( $m) Year End: June 30 2011 (E) 2012 (E) 2013 (E) 2014 (E) Sales Revenue 28.8 35.3 38.6 41.5 EBITDA 1.8 3.5 4.4 5.8 Depreciation 1.5 1.8 2.3 2.1 EBITA 0.3 1.7 2.1 3.7 Amortisation 0.0 0.0 0.0 0.0 EBIT 0.3 1.7 2.1 3.7 Net Interest 0.0 0.0 0.0 0.0 Other Non-Oper Inc/(Exp) Pre-tax Profit 0.3 1.7 2.1 3.7 Tax 0.0 0.0 0.0 0.0 Associates Outside Equity Int. Reported NPAT 0.3 1.7 2.1 3.7 Significant Items Adjusted Profit 0.3 1.7 2.1 3.7 Balance Sheet ( $m) Year End: June 30 2011 (E) 2012 (E) 2013 (E) 2014 (E) Cash 1.0 54.2 17.9 1.0 Receivables 4.7 5.8 6.3 6.8 Inventories Other 2.1 2.1 2.1 2.1 Current Assets 7.8 62.1 26.4 9.9 Investments Prop, Plant & Equip 14.4 157.5 296.3 430.6 Intangibles (net) 10.3 15.8 21.3 26.8 Other 0.0 0.0 0.0 0.0 Non-current Assets 24.7 173.4 317.7 457.5 Total Assets 32.6 235.4 344.0 467.4 Payables 2.2 2.6 2.8 2.9 Borrowings 8.2 0.0 0.0 7.8 Provisions & Other 4.1 4.1 4.1 4.1 Current Liabilities 14.5 6.7 6.9 14.8 Payables Borrowings 0.0 103.6 209.9 321.6 Provisions & Other 0.2 0.2 0.2 0.2 Non-current Liabilities 0.2 103.8 210.1 321.8 Total Liabilities 14.7 110.5 217.0 336.6 Share Capital 125.8 231.2 231.2 231.2 Reserves Retained Profits -108.0 -106.3 -104.2 -100.4 Shareholders Equity 17.9 124.9 127.0 130.8 Outside Equity Int. Total Equity 17.9 124.9 127.0 130.8 Total Funds Employed 26.1 228.6 337.0 460.2

Recommendations: Short Term: Buy Long Term: Buy Valuation: $0.084 Price Target $0.050

Cash Flow ( $m) Year End: June 30 2011 (E) 2012 (E) 2013 (E) 2014 (E) Receipts from customers 28.5 34.9 38.2 41.1 Payments to suppliers -15.9 -20.1 -21.9 -22.8 Other -15.7 -12.0 -12.3 -12.8 Operating Cash Flow -3.0 2.9 4.1 5.5 Capital Expenditure -9.2 -145.0 -141.1 -136.4 Other 0.0 -5.5 -5.5 -5.5 Investing Cash Flow -9.2 -150.5 -146.6 -141.9 Proceeds from Issues Net Borrowings 0.0 103.6 106.3 111.7 Dividends Other 8.2 97.2 0.0 7.8 Financing Cash Flow 8.2 200.8 106.3 119.5 Net Change in Cash -4.0 53.2 -36.3 -16.9 Cash at Begin. of Year 5.0 1.0 54.2 17.9 Exchange Rate Adj. Cash at End of Year 1.0 54.2 17.9 1.0 Ratios Year End: June 30 2011 (E) 2012 (E) 2013 (E) 2014 (E) EBITDA Margin (%) 6.3% 10.0% 11.4% 14.0% EBIT Margin (%) 1.1% 4.7% 5.5% 9.0% NPAT Margin (%) 1.1% 4.7% 5.5% 9.0% Return on Assets (%) 1.0% 0.7% 0.6% 0.8% Return on Equity (%) 1.8% 1.3% 1.7% 2.9% Net Debt to Equity (%) 40.4% 39.6% 151.1% 251.1% Net Interest Cover (x) Fixed Charges Cover (x) Valuation Year End: June 30 2011 (E) 2012 (E) 2013 (E) 2014 (E) Basic EPS ¢ 0.0 0.0 0.0 0.0 Adjusted EPS ¢ 0.0 0.0 0.0 0.0 EPS Growth N/A 432.6% 26.5% 76.4% P/E Ratio (x) 524.0 98.4 77.7 44.1 DPS ¢ 0.0 0.0 0.0 0.0 Yield (%) 0.0% 0.0% 0.0% 0.0% Franking (%) 0% 0% 0% 0% (Refer to the table on page 1 for FY2015)

Recommendations Buy: Share price expected to appreciate by more than 10% during next 12 months. Accumulate: Share price expected to appreciate by more than 10% during next 12 months. However, further short-term weakness possible. Hold: Share price expected to trade between +10% and -10%. Lighten: Share price expected to fall by more than 10% during next 12 months. However, share price may appreciate marginally in short term. Sell: Share price expected to fall by more than 10% during next 12 months.


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Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgement at its original date of publication and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments.

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