Intelsat: Private Equity-Owned Leader in Industry with High Barriers to Entry

A.J. Noronha of Desai Capital Management presented his in-depth investment thesis on Intelsat (NYSE: I) at Best Ideas 2018.

While A.J. typically avoids leveraged companies in industries like technology that may have ongoing capex needs, and believes the company’s debt has justifiably weighed on the share price since the IPO, the selloff has created a buying opportunity with asymmetric return potential.

Despite the high debt, Intelsat’s strong margins, cash flow, discount to intrinsic value, concentrated ownership, and industry leadership position made A.J. take a closer look. With a strong contract backlog representing revenue that is several multiples of the recent market capitalization, high cash flow and margins, favorable industry growth trends, and the stock trading near the trough of the prior years, A.J. believes the shares have asymmetric return potential.

Intelsat’s leadership position in a fragmented industry with high barriers to entry provides sustainable competitive advantage, and concentrated ownership among private equity investors creates the potential for both an M&A liquidity event and a short squeeze. High debt is a legitimate concern, and A.J. would like to see the balance sheet prudently deleveraged. He also believes catalysts make Intelsat an attractive buying opportunity, with a price target range of $9-11 per share over two to four years.

About the instructor:

A.J. Noronha has over seven years of investment management experience, and has worked closely with Mr. Desai since Desai Capital Management’s inception with all aspects of the fund, with his primary responsibilities being equity research, due diligence, and developing investment theses for DCM’s portfolio. His independent research on Dow Chemical was rated by leading buyside community SumZero as one of their top ideas of 2015, and he was ranked as SumZero’s #15 overall LTM analyst during 2016. He was an invited participant (non finalist) in the 2017 Sohn Conference Foundation Idea Contest and 2017 SumZero/Van Biema Value Partners Idea Challenge. Prior to DCM, Mr. Noronha gained investment experience working for a mid-market PE/VC fund, and also co-founded and served in an executive role for a biomedical engineering startup. He earned a degree in Finance, magna cum laude, from the University of Notre Dame, where he was selected to be a member of the prestigious Applied Investment Management honors finance course where students manage a portion of the University endowment under the guidance of the Chief Investment Officer, and also holds a JD with Dean’s List honors & a concentration in business enterprise (selected coursework taken through the Kellogg School of Management) from Northwestern University. He successfully completed the CFA Level 1 & Level II exams on his first attempt, is preparing for the Level III exam in June 2018, and is an active Candidate Member of the CFA Society of Chicago & serves on its Professional Development Advisory Group Board.

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