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July 31, 2014

Action Notes
Equity Research
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Company Profile
MDA sells satellite and advanced
technology solutions in the surveillance and
communications markets. Its customers
include global satellite operators,
government entities, and other corporate
clients. The company is headquartered in
Richmond, B.C., and operates 11 offices in
Canada, the U.S., and internationally

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MDA-T: Price



Please see the final pages of
this document for important
disclosure information.
MacDonald, Dettwiler and Associates Ltd.
(MDA-T) C$82.41

Strong Q2 Revenue and Bookings; Mixed Outlook

Event
Revenue was well ahead of expectations. EBITDA and EPS were just ahead
of the Street with lower margins, higher taxes, and corporate expenses.
Book/bill was 130%+. We maintain our HOLD rating and $90.00 target
price.

Impact: NEUTRAL
• The SSL business is showing positive top-line momentum... This
division generated the revenue upside in the quarter and five satellite
contract announcements drove the strong overall book/bill. Management
spoke to an active pipeline with six more bid decisions expected in the
coming months.
• …but pricing pressure remains a concern. The communications
business margins continue to decline gradually, which was attributed
partially to increased competition. Management has initiatives in place
to improve efficiency over the medium term.
• Other headwinds that could affect H2 results. The ongoing ViaSat
litigation, force majeure on the Ukrainian satellite project, and
government sanctions on Russia present headwinds to growth.
• The Surveillance/Intelligence business is a positive offset, but
growth is tough to forecast. This business continues its steady
performance on the back of RCM, Australia UAV, and the geospatial
business. MDA has recently secured toehold positions in several
interesting growth areas (i.e., hosted payloads, asteroid redirect);
however, meaningful revenue contracts in these areas will not hit the
pipeline until 2015, at the earliest.
• Our EBITDA estimates are unchanged. The net impact of our revised
model assumptions is neutral to EBITDA; however, our EPS forecast is
lower on a higher anticipated tax rate.
• Commentary seemed more cautious on the potential for another
large acquisition. MDA said that there are very few large potential
targets out there and the company remains focussed on organic growth
and tuck-ins that give access to new areas. Very little new detail was
provided on the recent unnamed acquisition announcement.

TD Investment Conclusion
We maintain our HOLD rating and $90.00 target price. We continue to
apply 10x EV/forward EBITDA for our target price. This is in line with the
recent 10x median and equates to 15x 2015E EPS. Peer valuations are about
8x FTM EBITDA. We believe that MDA does deserve a premium valuation
Technology
Recommendation: HOLD
Unchanged
Risk: MEDIUM
12-Month Target Price: C$90.00
Unchanged
12-Month Dividend (Est.): C$1.30
12-Month Total Return: 10.8%

Market Data (C$)
Current Price $82.41
52-Wk Range $74.66-$91.20
Mkt Cap (f.d.)($mm) $2,975.0
EV ($mm) $3,606.0
Current Dividend $1.30
Dividend Yield 1.6%
Avg. Daily Trading Vol. (3M-All Exch) 39,984

Financial Data (C$)
Fiscal Y-E December
Shares O/S (f.d.)(mm) 36.1
Float Shares (mm) 36.1
Net Cash/Shr (f.d.) --
Net Debt ($mm) $618.7
Net Debt/Tot Cap 41.0%

Estimates (C$)
Year 2012A 2013A 2014E 2015E
Sales ($mm) 879.9 1,819.0 2,082.6 2,190.7
Sales (old)($mm) -- -- 2,016.3 2,110.7
EBITDA ($mm) 201.7 314.1 334.6 355.2
EBITDA (old)($mm) -- -- 335.4 354.2
EPS (f.d.) 3.98 5.13 5.60 6.12
EPS (f.d.)(old) -- -- 5.82 6.29

EPS (f.d.) Quarterly Estimates (C$)
Year 2012A 2013A 2014E 2015E
Q1 0.92A 1.30A 1.37A 1.53E
Q2 0.91A 1.20A 1.43A 1.53E
Q3 0.89A 1.29A 1.41E 1.53E
Q4 1.27A 1.34A 1.39E 1.53E

Valuations
Year 2012A 2013A 2014E 2015E
EV/Sales 4.1x 2.0x 1.7x 1.6x
EV/EBITDA 17.9x 11.5x 10.8x 10.2x
P/E (f.d.) 20.7x 16.1x 14.7x 13.5x



All figures in C$, unless otherwise specified.

Scott Penner, CFA Doug Taylor, CFA
416 308 3406 416 983 2664
scott.penner@tdsecurities.com doug.taylor@tdsecurities.com

Action Notes
July 31, 2014
Equity Research
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based on its higher margin profile and the option value of new potential areas of business.
Details
Exhibit 1. Earnings Summary

Communications 391.2 350.0 41.2 17% 14% 5 new commercial satellite awards were secured since Q1 results
Surveillance and Intelligence 123.9 115.4 8.5 51% 8%
Geospatial Services 37.5 42.5 (5.0) 9% 1% $35-40mm as per management
Total Revenue 552.7 507.9 44.8 503.0 23% 12% Long-term target is for high-single digits to low-teens organic growth
EBITDA ($mm) 85.5 84.0 1.5 85.1 9% 3% Margin lower due to a higher mix of commercial satellite and increased competition
Margin (%) 15.5% 16.5%
Adjusted EPS ($) $1.43 $1.48 ($0.06) $1.40 18% 4%
Backlog 3,000 -2% 8% Did not provide backlog broken down by segment this quarter
Implied Bookings 768
Book/Bill 139%
Source: Company reports, TD Securities estimates, Capital IQ consensus.
Comments
Growth
q/q
Q2/14A
Variance
($mm)
TD Ests.
Growth
y/y
Consensus


Communications (71% of Revenue): Strong Revenue and Bookings; Lower Margins. Revenue upside was
a result of higher activity levels on satellite construction programs. Commercial satellite awards YTD are five
(representing a consistent 30% win rate per management), which contributed to the $700mm–$800mm in
bookings this quarter (130%+ book/bill). The SSL business looks to be on track for an up year vs. 2013.
Bidding activity is said to remain very high with a $2bln+ pipeline and six bids awaiting announcement in the
coming weeks/months. The market was also described as highly competitive. This is affecting margins (Q2
EBITDA margins were 11.8% vs. 12.2% in Q1 and 13.6% in 2013). We have increased our SSL revenue
assumption, given strong bookings and expected expansion to facilities to accommodate higher throughput.
However, we model limited margin expansion through 2015.

The Communications Business Does Face Some Growth Headwinds. The ongoing ViaSat litigation (next
hearing is August 7) could lead to an injunction, preventing MDA from using certain technologies. The
company said it has workaround solutions that are cost neutral for affected projects; however, new bookings
could be affected by customers fearing the injunction. The company’s non-SSL business could be affected in
H2 because of the force majeure on the Ukrainian satellite ($50mm of revenue delayed). There is also arguably
a lower prospect of additional Russian satellite work to backfill the nearly completed AM6 project owing to
government sanctions (this impact could be about $50mm/year in revenue).

Surveillance/Intelligence (29% of Revenue): Revenue and Margins In line with our Expectations. This
segment continues its steady performance with RCM fully ramped ($40mm/quarter), stable geospatial business
($35mm–$40mm/quarter) and Australian UAV work continuing to be extended (about $15mm/quarter). MDA
announced initial contracts in several growth areas, including NASA’s asteroid redirect mission and DARPA’s
hosted payload solution. Timing on related growth from these opportunities is uncertain — management said
larger related bookings could affect the 2015 pipeline — and are already contemplated in our projected growth.

Very Few New Details Provided on the Recent Unnamed Acquisition. Recall that earlier this month MDA
announced an agreement to acquire a $40mm/revenue year business, which provides radar and other
information sensors for U.S. national security. The deal is expected to close in mid-Q4 and MDA withheld any
additional information on the purchase price beyond that it is “not material.” Management added that this
business currently has 10% margins, but the company hopes to grow both revenue and margins over time to
resemble its geospatial business (we estimate 35% margins).

MDA Seemed to be More Cautious on the Potential for Additional, Larger M&A. When asked about the
pipeline of larger deals, management said that there are very few targets, and for the time being it is focussing
on the organic business. Potential tuck-in deals could provide access to new markets (i.e., Brazil). We believe
that commentary suggests a lower probability of another game-changing acquisition (such as SSL) than at this
point last quarter.


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July 31, 2014
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Outlook
The net impact of our changes increases our revenue expectations, but is EBITDA-neutral. Our EPS forecast
declines on higher projected taxes than management had previously forecasted (now “low-20s” vs. our 20%
earlier assumption).

Exhibit 2. Estimate Changes

2014E 2015E
Current Prior % Chg. Current Prior % Chg. Current Prior % Chg. Growth % Growth %
SS/L $325.0 $300.0 8% $1,305.5 $1,204.2 8% $1,300.0 $1,200.0 8% 20% 0%
MDA Communications $40.0 $50.0 -20% $160.0 $190.0 -16% $200.0 $240.0 -17% -35% 25%
Total Communications $365.0 $350.0 4% $1,465.5 $1,394.2 5% $1,500.0 $1,440.0 4% 10% 2%
Surveillance/Intelligence $116.2 $115.4 1% $465.6 $460.6 1% $530.7 $490.7 8% 39% 14%
Geospatial $40.0 $42.5 -6% $151.5 $161.5 -6% $160.0 $180.0 -11% 2% 6%
Total Surveillance/Intel. $156.2 $157.9 -1% $617.1 $622.1 -1% $690.7 $670.7 3% 27% 12%
Total Revenue $521.2 $507.9 3% $2,082.6 $2,016.3 3% $2,190.7 $2,110.7 4% 137% 5%
Street Consensus $506.1 $2,011.4 $2,168.3
EBITDA
1
$83.3 $84.0 -1% $334.6 $335.4 0% $355.2 $354.2 0% 66% 6%
Street Consensus $87.5 $347.4 $385.5
FD EPS $1.41 $1.48 -5% $5.60 $5.82 -4% $6.12 $6.29 -3% 106% 9%
Street Consensus $1.43 $5.68 $6.48
1
EBITDA as we define it is based on MDA's "operating" EBITDA less corporate expense allocations. Consensus likely reflects a variety of definitions.
Source: TD Securities estimates, Capital IQ consensus.
Q3/14E 2014E 2015E


Valuation
Currently, MDA trades at EV/forward EBITDA of 10.5x using our estimates (10.3x using consensus). The
peer group trades at a median 8x forward EBITDA. We believe that this premium is justified by higher
margins at MDA. On EV, the stock is a 7–8% FCF yield using our estimates for 2014 or 2015.

Exhibit 3. Historical Valuation – EV/Forward EBITDA (Using Consensus Estimates)

Source: CapitalIQ
2.0x
4.0x
6.0x
8.0x
10.0x
12.0x
14.0x
16.0x
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MDA:
3-Yr Median: 8.1x (1-yr median is 10.4x which may better capture SSL)
Normalized Low: 6x
Normalized High: 11x
Current: 10.3x


Justification of Target Price
Our $90.00 target price (unchanged) is based on 10x forward EBITDA one year out. This would be in line
with its recent (post SSL) valuation, and would equate to 16x 2014E EPS and 15x 2015E.


Action Notes
July 31, 2014
Equity Research
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Key Risks to Target Price
Key risks to target price include the following: 1) Risks associated with acquisitions, which continue to be an
element of MDA’s growth strategy; 2) the Systems business is partially dependent on government budgets for
satellites and space exploration that can be volatile; 3) potential for cost over-runs on fixed price contracts,
and; 4) industry competition/market share.













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July 31, 2014
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MacDonald, Dettwiler and Associates
Ltd.
MDA-T n/a


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20%
30%
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50%
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80%
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Research Ratings
ACTION LIST BUY: The stock's total return is expected to exceed a minimum of 15%, on a risk-adjusted basis, over the next 12 months and it is a top
pick in the Analyst's sector.
BUY: The stock’s total return is expected to exceed a minimum of 15%, on a risk-adjusted basis, over the next 12 months.
SPECULATIVE BUY: The stock's total return is expected to exceed 30% over the next 12 months; however, there is material event risk associated with
the investment that could result in significant loss.
HOLD: The stock’s total return is expected to be between 0% and 15%, on a risk-adjusted basis, over the next 12 months.
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view that a superior offer is not forthcoming.
REDUCE: The stock’s total return is expected to be negative over the next 12 months.

Overall Risk Rating in order of increasing risk: Low (6% of coverage universe), Medium (34%), High (50%), Speculative (10%)

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