Title: Macdonald, Dettwiler andAssociates Ltd. - MDA (TSX) $48.30 Price: $48.30 StockRating: Outperform TargetPrice: $63.

00 Headline: Stock Sell-Off Overdone: Risk/Reward Profile NowLooks Very

J uly 31, 2014 The NBF Dai l y Bul l et i n
Aer ospac e & Def enc e

MacDonald, Dettwiler and Associates Ltd.
MDA (TSX) $81.48
St oc k Rat i ng: Sec t or Per f or m
(Was Outperform)
Tar get : $90.00

(Was $95.00)
Ri sk Rat i ng: Above Aver age
Q2 2014 results; Moving to SP
Record revenue on back of strong satellite
contracts offset by lower margins

(Unchanged)
Est . Tot al Ret ur n (I nc . di vi dend) 12%

HIGHLIGHTS
Stock Data:
52-week High-Low (Canada) $91.20 - $74.66
Bloomberg/Reuters: Canada MDA CN / MDA.TO
(Year-End Dec 31)
2012A 2013A 2014E 2015E
Revenue (mln) $880 $1 819 $2 054 $2 174
EBITDA (mln) $202 $314 $340 $377
Adjusted EPS $3.91 $5.14 $5.65 $6.29
CFO (mln) $147 $152 $163 $307
FCF (mln) $141 $113 $121 $268
FCF/share $4.44 $3.22 $3.36 $7.43
Dividend/share $1.30 $1.30 $1.30 $1.30
Dividend (mln) $41 $44 $47 $47
Valuation
EV/Sales 4.1x 2.0x 1.7x 1.6x
EV/EBITDA 17.7x 11.4x 10.5x 9.5x
P/E - Adjusted 20.9x 15.9x 14.4x 12.9x
P/FCF 20.8x 26.1x 24.3x 11.0x
Fi nancial Data:
Shares outstanding - Basic / FD (mln) 36.1 / 36.1
Annual Dividend $1.30
Market Capitalization (mln) $2 940
Enterprise Value (mln) $3 571
Cash (mln) $27
Debt (mln) $658
Net Cash (Debt)/Share ($17.48)

Industry Rating: Market Weight
(NBF Economics & Strategy Group)
Revenue beats due to higher acti vity levels and FX
tailwinds. Revenue was $553 mln (consensus $500 mln), up
23% y/y. Communications segment revenue was $391 mln,
up 17% y/y, due mainly to high levels of commercial satellite
programs. Surveillance & Intelligence revenue was $161 mln,
up 39% y/y, due to RADARSAT Constellation Mission and
space robotics programs. FX added ~$25-30 mln in revenue.
Slight EPS beat as pricing pressure lowers margin. EPS
was $1.43/sh vs. consensus $1.40/sh. Reported EBITDA
margin was 16.4% vs. 17.3% last quarter. Communications
EBITDA margin was 11.8% as commercial satellite
construction contracts composed a bulk of the revenue mix
(lower margin and high flow-through cost in the quarter). MDA
is seeing increased activity in the commercial satellite
segment, however increased competition continues to
pressure pricing downward on new procurements.
MDA is winning more than its fair share of new satellite
orders. On J uly 1, MDA announced another SSL win with
Spanish satellite operator HISPASAT Group for the fifth
satellite booking year-to-date. Order backlog is $3 billion (up
$2.8 bln q/q) as MDA has won a little over 30% of commercial
satellite awards YTD. The Russian political environment may
result in MDA foregoing ~$50 mln/year in revenue.
MDA does not expect ViaSat litigation to impact 2014
results. The next hearing is Aug. 7
th
. MDA has incurred $2.5
mln in legal costs YTD. We are concerned that this process
drags on longer than expected resulting in some potential
satellite award losses from customer hesitation.
U.S. national security radar related acquisition expected
to close in Q4. ~$40 mln in annual revenue and 170
employees will be on-boarded with this deal. Management
expects this to drive higher-margin, organic growth.
Rating moves to Sector Perform; target to $90/share
(~14.3x 2015E EPS) on potential margin contraction. More
M&A and organic growth initiatives offer upside to estimates.
Stock Performance (Source: Thomson ONE, NBF)
Company Profile:
MDA is based in Richmond, BC & provides ground, air &
space based information solutions to customers globally.
Solutions include, space-based platforms for Earth
observation & advanced solutions for space exploration
missions & mission sub-systems and support services,
Earth observation ground systems, defence information
systems, airborne surveillance systems, transportation
management systems. MDA completed the transformative
SSL acquisition in Nov/12, becoming a major player in the
commercial communication satellite space.
Kris Thompson, MBA (416) 869-8049
kris.thompson@nbc.ca

Auritro Kundu, MBA (416) 869-7495
kris.thompson@nbc.ca

Steven Walt (416) 869-7938
steven.walt@nbc.ca



NBF Disclosures, click here: http://www.nbcn.ca/contactus/disclosures.html


Page 2

Q2 results summary and NBF estimate revisions
Exhibit 1: Q2 revenue beats; margins under pressure from competitive pricing environment
(C$ mln except EPS) Consensus NBF Delta Y/Y Sequential
Q2/14E Q2/14E Q2/14A Q2/13A Growth Q1/14A Growth
Backlog NA NA $3 000 $3 000 0.0% $2 800 7.1%
Revenue
Communications $348 $391 12.5% $334 17.1% $344 13.7%
Surveillance and intelligence $151 $161 7.2% $116 38.8% $148 8.8%
Total $500 $498 $553 10.9% $450 22.7% $493 12.2%
EBITDA (reported)
Communications $45 $46 3.3% $48 -3.4% $42 9.7%
Surveillance and intelligence $42 $44 5.4% $34 32.2% $43 3.0%
Total EBITDA $87 $87 $91 4.3% $81 11.3% $85 6.3%
Less corporate expenses ($2) ($5) ($3) ($2)
Adjusted EBITDA $85 $85 0.5% $79 8.8% $83 2.5%
Margin 17.4% 17.1% 15.5% 17.4% 16.9%
EBITDA margin (reported)
Communications 12.9% 11.8% 14.3% 12.2%
Surveillance and intelligence 28.0% 27.5% 28.9% 29.1%
Total 17.4% 16.4% 18.1% 17.3%
EPS - IFRS $1.21 $1.01 -16.6% $0.86 16.9% $0.69 46.1%
EPS - Adjusted $1.40 $1.39 $1.43 2.7% $1.20 18.6% $1.37 4.3%
Source: Company reports, Bloomberg, Thomson Reuters, NBF


Exhibit 2: New estimates by reported segment
2014E 2015E
New New
Revenue
Communications $1 414 $1 475
Surveillance and intelligence $640 $699
Total Revenue $2 054 $2 174
EBITDA (reported)
Communications $171 $188
Surveillance and intelligence $183 $201
Total EBITDA $354 $389
Less corporate expenses ($14) ($12)
Adjusted EBITDA $340 $377
Margin 16.6% 17.3%
EPS - Adjusted $5.65 $6.29
Source: Company reports, NBF


Exhibit 3: Commercially awarded communications satellite trends improving
Source: Company reports, NBF
SSL
SSL SSL SSL
SSL
SSL
SSL
Boeing
Boeing
Boeing
Boeing
Boeing
Boeing
Orbital
Orbital
Thales
Thales
Thales
Astrium
Astrium
Astrium
Astrium
Astrium
Astrium
Others
0
2
4
6
8
10
12
14
Q
1
/
1
2
Q
2
/
1
2
Q
3
/
1
2
Q
4
/
1
2
Q
1
/
1
3
Q
2
/
1
3
Q
3
/
1
3
Q
4
/
1
3
Q
1
/
1
4
Q
2
/
1
4
C
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m
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o
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t
r
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SSL Boeing Orbital Thales Astrium Others
Boeing
Astrium
Thales


Page 3
Exhibit 4: Revenue by segment
Source: Company reports, NBF
0
100
200
300
400
500
600
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14
R
e
v
e
n
u
e

(
$

m
l
n
)
Communications
Surveillance and intelligence

Exhibit 5: Reported EBITDA by segment and margins
Source: Company reports, NBF
0%
5%
10%
15%
20%
25%
30%
35%
0
10
20
30
40
50
60
70
80
90
100
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14
E
B
I
T
D
A

(
$

m
l
n
)
Communications
Surveillance and intelligence
EBITDA margin

Exhibit 6: Revenue by geography
Source: Company reports, NBF
0
100
200
300
400
500
600
Q1/12 Q2/12 Q3/12 Q4/12 Q1/13 Q2/13 Q3/13 Q4/13 Q1/14 Q2/14
R
e
v
e
n
u
e

(
$

m
l
n
)
Other
Brazil/South
America
Asia
Australia
Europe
U.S.
Canada






Page 4

MDA EARNINGS MODEL - FISCAL YEAR END: DECEMBER ($ 000)
Dec-12 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Dec-15
F2012 F2013 Q1/14 Q2/14 Q3/14E Q4/14E F2014E Q1/15E Q2/15E Q3/15E Q4/15E F2015E
Revenue
Communications 386 584 1 334 604 344 209 391 246 344 296 333 968 1 413 719 347 326 361 219 375 668 390 695 1 474 909
% of revenue 44% 73% 70% 71% 68% 67% 69% 67% 68% 68% 68% 68%
y/y growth % 245% 4% 17% 2% 0% 6% 1% -8% 9% 17% 4%
Surveillance and intelligence 493 345 484 380 148 356 161 431 163 852 166 310 639 950 169 636 173 029 176 490 180 020 699 175
% of revenue 56% 27% 30% 29% 32% 33% 31% 33% 32% 32% 32% 32%
y/y growth % -2% 51% 39% 30% 16% 32% 14% 7% 8% 8% 9%
Total revenue 879 929 1 818 984 492 565 552 677 508 149 500 278 2 053 669 516 963 534 249 552 158 570 714 2 174 084
y/y growth % 16% 107% 15% 23% 10% 5% 13% 5% -3% 9% 14% 6%
Total direct costs 679 332 1 505 313 409 826 467 694 424 595 416 981 1 719 096 430 298 444 410 459 003 474 092 1 807 803
y/y growth % 17% 122% 18% 26% 9% 5% 14% 5% -5% 8% 14% 5%
Segment profit
Communications 65 638 142 820 31 650 35 800 31 504 30 559 129 513 32 996 35 219 37 567 40 046 145 828
% of revenue 17% 11% 9% 9% 9% 9% 9% 10% 10% 10% 10% 10%
y/y growth % 118% -25% 26% 20% -34% -9% 4% -2% 19% 31% 13%
Surveillance and intelligence 129 798 136 442 41 737 43 012 45 879 46 567 177 195 47 498 48 448 49 417 50 405 195 769
% of revenue 26% 28% 28% 27% 28% 28% 28% 28% 28% 28% 28% 28%
y/y growth % 5% 46% 39% 52% 0% 30% 14% 13% 8% 8% 10%
Total profit 195 436 279 262 73 387 78 812 77 383 77 126 306 707 80 494 83 667 86 984 90 452 341 597
% of revenue 22% 15% 15% 14% 15% 15% 15% 16% 16% 16% 16% 16%
y/y growth % 43% 4% 33% 37% -17% 10% 10% 6% 12% 17% 11%
Reported EBITDA
Communications 76 126 181 853 42 146 46 235 41 939 40 994 171 314 43 431 45 654 48 002 50 481 187 568
% of revenue 20% 14% 12% 12% 12% 12% 12% 13% 13% 13% 13% 13%
y/y growth % 139% -18% -3% -5% -1% -6% 3% -1% 14% 23% 9%
Surveillance and intelligence 138 319 143 519 43 154 44 444 47 311 47 999 182 908 48 930 49 880 50 849 51 837 201 497
% of revenue 28% 30% 29% 28% 29% 29% 29% 29% 29% 29% 29% 29%
y/y growth % 4% 42% 32% 48% -1% 27% 13% 12% 7% 8% 10%
Total EBITDA 214 445 325 372 85 300 90 679 89 250 88 993 354 221 92 361 95 534 98 851 102 319 389 065
% of revenue 24% 18% 17% 16% 18% 18% 17% 18% 18% 18% 18% 18%
y/y growth % 52% 5% 11% 17% -1% 9% 8% 5% 11% 15% 10%
Adjusted EBITDA (after corp expense) 201 745 314 072 83 400 85 479 85 250 85 993 340 121 89 361 92 534 95 851 99 319 377 065
% of revenue 23% 17% 17% 15% 17% 17% 17% 17% 17% 17% 17% 17%
y/y growth % 56% 5% 9% 17% -1% 8% 7% 8% 12% 15% 11%
Dividend per share $1.30 $1.30 $0.65 $0.00 $0.65 $0.00 $1.30 $0.65 $0.00 $0.65 $0.00 $1.30
Dividend $ 41 378 44 283 23 444 - 23 461 - 46 905 23 480 - 23 500 - 46 980
Net income - adjusted 124 371 180 083 49 357 51 477 51 718 51 389 203 941 53 597 55 896 57 945 60 092 227 530
Adjusted EPS - Basic $3.91 $5.14 $1.37 $1.43 $1.43 $1.42 $5.65 $1.48 $1.55 $1.60 $1.66 $6.29
y/y growth % 31% 31% 5% 19% 11% 6% 10% 8% 8% 12% 17% 11%
Adjusted EPS - Di luted $3.91 $5.14 $1.37 $1.43 $1.43 $1.42 $5.65 $1.48 $1.55 $1.60 $1.66 $6.29
y/y growth % 31% 31% 5% 19% 11% 6% 10% 8% 8% 12% 17% 11%
Weighted avg. shares outstanding - Basic 31 835 35 063 36 068 36 082 36 094 36 109 36 088 36 124 36 139 36 154 36 169 36 146
Weighted avg. shares outstanding - Diluted 31 835 35 063 36 068 36 082 36 094 36 109 36 088 36 124 36 139 36 154 36 169 36 146
Total shares outstanding - Basic 31 859 36 056 36 073 36 086 36 101 36 116 36 116 36 131 36 146 36 161 36 176 36 176
Total shares outstanding - Diluted 31 859 36 056 36 073 36 086 36 101 36 116 36 116 36 131 36 146 36 161 36 176 36 176
Source: NBF, Company reports