MDA_CIBC

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Find CIBC research on Bloomberg, Reuters, firstcall.com CIBC World Markets Inc., P.O. Box 500, 161 Bay Street, Brookfield Place, Toronto, Canada M5J 2S8 (416) 594-7000and ResearchCentral.cibcwm.com

Institutional Equity Researc

Earnings Update

July 30, 2014 Software & Systems

MacDonald, Dettwiler andAssociates Ltd.Q2 Results A Beat As RCM And Other ContractsRamp Up

MDA reported Q2 results that were well ahead of consensus, with revenue

of $553 mln. and adjusted EPS of $1.43 (consensus of $502 mln/$1.39).

The beat was driven by the faster-than-expected ramp-up of RCM and oth

recent contract wins. Backlog was $3 b ln., up seq. from $2.8 bln.

EBITDA margins (16.4% vs. 17.6% cons.) were impacted by construction

ramp-up, pricing pressure and legal expenses associated with ViaSat. We

expect margins to trend closer to 18% as revenue mix normalizes and cos

savings are realized from processes refinement and tech. improvement.

SSL continues to maintain its historic market share (25%-30%), with five

awards YTD. Bidding activity remains competitive and commercial demand

robust. U.S. government work is slowly gaining traction and MDA is well

positioned (recent tuck-in, USAF IDIQ position, DARPA work).

Looking forward, the pipeline remains robust as satellite orders flow and w

view the overall outlook as stable given solid demand. We continue to see

upside potential from emerging markets, hosted payloads, robotics and

acquisitions. We retain our SO rating and $94 price target.

Stock Price Performance

Source: Reuters

All f igures in Canadian dollars, unless otherwise stated. 14-130835

CIBC World Markets does and seeks to do business with companies covered inits research reports. As a result, investors should be aware that the firm may

have a conflict of interest that could affect the objectivity of this report.

Investors should consider this report as only a s ingle factor in making their

investment decision.

See "Important Disclosures" section at the end of this report for important

required disclosures, including potential conflicts of interest.

See "Price Target Calculation" and "Key Risks to Price Target" sections at th

end of this report, where applicable.

Stephanie Price, CFA1 (416) [email protected]

Varun Choyah1 (416) [email protected]

Stock Rating:

Sector OutperformerSector Weighting:

Market Weight12-18 mo. Price Target $94.00

MDA-TSX (7/30/14) $82.00

Key Indices: None

3-5-Yr. EPS Gr. Rate (E) 6.0%

52-week Range $74.66-$91.20Shares Outstanding 36.0M

Float NA Shrs

Avg. Daily Trading Vol. 109,500Market Capitaliza tion $2,952.0M

Dividend/Div Yield $1.30 / 1.6%

Fiscal Year Ends DecemberBook Value $23.34 per Shr

2014 ROE (E) 26.3%

Net Debt $624.8MPreferred Nil

Common Equity $840.4MConvertible Av ailable No

Earnings Per Share Prev Current

2013 $5.13A2014 $5.89E $5.89E

2015 $6.70E $6.67EP/E2013 16.0x2014 13.9x 13.9x2015 12.2x 12.3x

EBITDA ($mln)2013 $325.4A2014 $369.5E $371.1E2015 $412.3E $413.0E

EV/EBITDA2013 11.0x2014 9.7x 9.7x

2015 8.7x 8.7x

Company DescriptionMacDonald, Dettwiler and Associates Ltd. providessystems for earth observation, space, and defence, aswell as information products that deliver land andproperty information.www.mda.ca
http://www.mda.ca/http://www.mda.ca/http://www.mda.ca/

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Q2 Results A Beat As RCM And Other Contracts Ramp Up - July 30, 2014

2

MacDonald, Dettwiler and Associates Ltd. Sector OutperformeMDA-TSX 7/30/14 $82.00 Stephanie Price, CFA (416-594-7047) Stephanie.Price@cibc.

12- To 18- Month Price Target: $94.00 Varun Choyah, (416-956-3229) [email protected] & SystemsSector Weighting: Market Weight

All Figures in Canadian millions, except per share data.

Key Statistics

Share Price $82.00 Net Cash (Debt) (624.8)

Shares Outstanding 36.1 Enterprise Value 3,583

Market Capitalization 2,959

Key Multiples F2013A F2014E F2015E

P/E 16.0x 13.9x 12.3x

EV/EBITDA 11.0x 9.7x 8.7x

Peers (Average)

P/E 18.7x 17.7x 17.8x

EV/EBITDA 11.9x 10.2x 9.1x

Profitability F2013A F2014E F2015E

EBITDA Margin 17.9% 17.0% 17.5%

Net Margin 9.9% 9.7% 10.2%

Cash Per Share $2.45 $7.02 $10.88

Nebt Debt/EBITDA 1.57 0.96 0.28

Income Statement F2013A F2014E F2015E

Sales 1819.0 2178.2 2361.0

Growth (y/y) 106.7% 19.8% 8.4%

Expenses 1505.3 1822.9 1962.7

EBITDA 325.4 371.1 413.0

Amortization (76.9) (79.8) (56.0)

Interest (49.0) (29.2) (20.1)

EBT 128.6 219.6 322.2Tax Expense (Recovery) 23.5 49.8 87.0

Adjusted Net Income (Loss) 179.9 212.3 240.7

Adj. FD EPS $5.13 $5.89 $6.67

Free Cash Flow Performance F2013A F2014E F2015E

Cash Flow From Operations 152.4 293.7 343.3

Capital Expenditures (41.5) (53.8) (50.0)

Free Cash Flow 111.0 239.9 293.3

Free Cash Flow Per Share $3.17 $6.65 $8.13

Free Cash Flow Yield 4% 8% 10%

Balance Sheet F2013A F2014E F2015E

Cash & ST Investments 86.0 253.4 392.5

Goodwill & Intangibles 1076.1 1054.4 1015.7Total Assets 2584.2 3085.3 3288.1

Debt 596.3 607.9 507.9

Total Liabilities 1788.1 2151.5 2157.2

Shareholder's Equity 796.2 933.8 1130.9

MacDonald, Dettwiler and Associates Ltd. is a global communications and

information company providing operational solutions to commercial and governme

organizations.

The $875 million acquisition of SS/L provides the company with a critical mass in

commerical satellite market, increases private sector revenue base and increases

US presence.

Investment Thesis

Company Profile

-50%

0%

50%

100%

150%

200%

Q1-2009

Q3-2009

Q1-2010

Q3-2010

Q1-2011

Q3-2011

Q1-2012

Q3-2012

Q1-2013

Q3-2013

Q1-2014

Revenue Growth Contribution Margin LTM Growth

0

100

200

300

400

500

600

Q1-2008

Q3-2008

Q1-2009

Q3-2009

Q1-2010

Q3-2010

Q1-2011

Q3-2011

Q1-2012

Q3-2012

Q1-2013

Q3-2013

Q1-2014

Revenue($mlns)

-50%

0%

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100%

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350%

400%

Y/YGrowth(%)

Revenue Y/Y Backlog Growth

Source: Company reports and CIBC World Markets Inc.

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Q2 A Beat As RCM And Other Contracts RampMacDonald Dettwiler and Associates (MDA-SO) reported Q2 results that were

well ahead of consensus, with revenue of $553 million and adjusted EPS of

$1.43 (versus consensus of $502 million/$1.39). Total backlog was $3 billion,

sequentially from $2.8 billion.

The steady pace of satellite awards and ramp-up of RCM (nearing the peak) led

to the top-line beat. However, profitability (16.4% margins versus expectation

of 17.6%) was impacted by the larger proportion of satellite construction work

continued pricing pressure in the commercial satellite market and legal expens

associated with the ViaSat (VSAT-OTC) lawsuit ($2.5 million spent to date). MD

is currently undertaking a processes improvement initiative to streamline

processes, enhance efficiency and improve technology. This is expected to driv

cost savings and offset margin pressure. We expect margins to improve towar

the targeted 18% level over the next year.

U.S. government market is slowly gaining traction; however, activity remains

well below pre-sequestration. Given pent-up demand, we expect orders to flow

at some point, but believe it w ill take several quarters for procurement activity

to be set in motion. Subsequent to the quarter, MDA secured a position on a

five-year IDIQ vehicle with the USAF for hosted payloads for LEO and GEO

satellites, with a ceiling of $500 million, and the company continues toparticipate in DARPA and NASA projects. We believe these early successes will

position the company to secure larger contracts in the future.

Looking forward, the pipeline remains robust as satellite orders flow, with SSL

maintaining historic market share (25% to 30%). While we see some areas of

potential concern (Russia, Ukraine and ViaSat claim), we believe these are

contained and view the overall outlook as stable given solid demand for

commercial satellites. We continue to see upside potential from emerging

markets, hosted payloads, robotics and acquisitions. We retain our SO rating

and $94 price target.

Exhibit 1. GEO Satellite Awards 2014 YTD

Satelli te Customer Contractor Model Expected Laun

SES 10 SES Americom Airbus Defense and Space Eurostar-3000 2

SES 12 SES Americom Airbus Defense and Space Eurostar-3000EOR 2

Intelsat 35e Intelsat Boeing Satellite Systems BSS-702MP 2

NexStar 1 Aniara Dauria Aerospace 2

NexStar 2 Aniara Dauria Aerospace 2

Superbird 8 SKY Perfect JSAT Mitsubishi Electric DS-2000 2

Thaicom 8 Thaicom OSC Star-2 2

BRIsat Bank Rakyat Indonesia Space Systems Loral LS-1300 2

Echostar 23 Echostar Space Systems Loral LS-1300 2

Hispasat 1F Hispasat Space Systems Loral LS-1300 2

JCSat 15 JSAT Space Systems Loral LS-1300 2

JCSat 16 JSAT Space Systems Loral LS-1300 2

HellasSat 3 Inmarsat / HellasSat Thales Alenia Spacebus-4000C4 2

Koreasat 5A KT Sat Thales Alenia Spacebus-4000B2 2

Koreasat 7 KT Sat Thales Alenia Spacebus-4000B2 2

Yamal 601 Gazprom Space Systems Thales Alenia Spacebus-4000C4 2

Telkom 3S PT Telkomunikasi Thales Alenia Spacebus-4000B2 2


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Financial HighlightsMDA reported Q2 revenue of $553 million and adjusted net income of $51.5

million ($1.43/share).

Exhibit 2. Financial Summary ($ mlns., except EPS)

Revenues EBITDA Adj. Net

Income

Adj. EPS

Q2/14 Actual 553 90.7 51.5 1.4

Year Ago Q2/13 450 81.5 43.3 1.

Y/Y Change 23% 11% 19% 19

Consensus 502 88.2 47.9 1.

Q2/14 CIBC Est. 510 92.0 51.9 1.


Revenue:Revenue in the communications segment was $391 million, up

17% Y/Y as a result of increased volumes from higher levels of activity on

satellite construction as well as favorable FX translation. Revenue insurveillance and intelligence was up 39% year over year to $161 million

primarily due to the ramp-up of RCM, which contributed over $40 million in

Q2 and is approaching its peak, as well as higher volumes in robotics

programs.

Backlog And Contract Signings:Total backlog stood at $3 billion, up

sequentially from $2.8 billion. Notable contracts in Q2 include 1) a satellite

orders from Bank Rakyat Indonesia (BBRI-JK) and HISPASAT, with an orde

from Echostar (SATS-OTC) announced post quarter; 2) a $30 million hoste

payload order from Aselsan Electronic Industries (ASELS-IS); 3) $5 million

UAV award with the Canadian Defense Force, with $11 million in optionalit

and 4) over $32 million in geospatial contracts.

Profitability: Adjusted EBITDA was $90.7 million versus $81.5 million a

year ago. Margins of 16.4% were lower than consensus (17.6%) and our

estimate of 18%. The 170 bps Y/Y impact is attributable to higher proporti

of satellite construction contracts, pricing pressures on the commercial

satellite market and mix of construction and service contracts in the

surveillance and intelligence business.

Cash:MDA used $6 million in cash from operations versus $27 million use

in Q2/13 primarily due to drawdowns in working capital for satellite

construction contracts. We expect a reversal in working capital in the back

half of the year as satellite construction work progresses. During the

quarter, the company invested $17.6 million in capex and drew $70 million

from its revolver to fund operating activities. The company exited the

quarter with net debt of $625 million (1.77x net debt to EBITDA) versus

$609 million ($1.73x) in Q1.

Acquisitions: Post Q2, MDA announced a tuck-in acquisition of an unnam

radar and information sensor business in the U.S., which provides unique

radar processing capability. This together with SSL provides MDA with abili

to secure additional U.S. surveillance and intelligence work, in our view.

ViaSat Litigation: During the quarter, Loral (LORL-NASDAQ) and SSL file

12 post-trial motions seeking to overturn the verdict of patent infringemen

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of three ViaSat patents and US$283 million damage award. We note MDA i

indemnified up to a cap of US$200 million from issues surrounding the

lawsuit and related costs based on the purchase agreement with Loral

Holdings. As a result, we believe the headwind from the potential damage

award will be relatively muted. SSL is looking to have the jurys decision

thrown out or reduced to a lower amount (possibly below the indemnity

cap). Though MDA already has a design work-around in place to mitigate

patent infringement, the impact on existing construction work is muted

given there is no significant HTS-type satellite in the pipeline. In post-trial

motions, ViaSat is seeking a permanent injunction to halt the sales of

current and future infringing satellites. SSL and Loral have opposed this

motion. A hearing for these motions is set for August 7. We believe there i

a strong likelihood that the motion for permanent injunction will be

dismissed as ViaSat has to demonstrate proof of entitlement to this remed

Changes To Our Model

We have revised our model to reflect recent results and the current outlook as

follows:

Exhibit 3. Financial Outlook

Revs ($ mln.) EBITDA ($ mln.) EPS

2013A 1,819 325.4 5.1

2014E

CIBC new 2,178 371.1 5.8

CIBC prior 2,053 369.5 5.8

Consensus 2,010 352.1 5.6

2015E

CIBC new 2,361 413.0 6.6CIBC prior 2,205 412.3 6.7

Consensus 2,167 393.0 6.4

Source: Company reports and CIB C World Markets Inc.

Price Target CalculationOur $94.00 price target is derived by applying a 9.5x multiple to our 2015estimates, supported by a discounted cash flow (8.27% discount rate, 12x

terminal multiple).

Key Risks To Price TargetThe key risks to our price target include, but are not limited to: delayed or

reduced spending from Canadian, U.S. or international space/defense agencies

on satellite/aerial surveillance, imaging or robotics technology; the inability of

management to deploy its capital on accretive acquisitions or investments; and

cost overruns on large, fixed-price contracts.

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Our EPS estimates are shown below:

1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Yearly

2013 Current $1.30A $1.20A $1.29A $1.34A $5.13A2014 Prior $1.37A $1.44E $1.50E $1.59E $5.89E

2014 Current $1.37A $1.43A $1.51E $1.57E $5.89E

2015 Prior -- -- -- -- $6.70E

2015 Current -- -- -- -- $6.67E

Our EBITDA ($mln) estimates are shown below:

1 Qtr. 2 Qtr. 3 Qtr. 4 Qtr. Yearly

2013 Current $81.6A $81.5A $80.4A $81.9A $325.4A2014 Prior $85.3A $92.0E $94.2E $98.0E $369.5E

2014 Current $85.3A $90.7A $96.5E $98.6E $371.1E

2015 Prior -- -- -- -- $412.3E

2015 Current -- -- -- -- $413.0E

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IMPORTANT DISCLOSURES:

Analyst Certification: Each CIBC World Markets research analyst named on the front page of this research report, or

at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein

accurately reflect such research analyst's personal views about the company and securities that are the subject of this

report and all other companies and securities mentioned in this report that are covered by such research analyst and (i

no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific

recommendations or views expressed by such research analyst in this report.

Potential Conflicts of Interest: Equity research analysts employed by CIBC World Markets are compensated from

revenues generated by various CIBC World Markets businesses, including the CIBC World Markets Investment Banking

Department. Research analysts do not receive compensation based upon revenues from specific investment banking

transactions. CIBC World Markets generally prohibits any research analyst and any member of his or her household fro

executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets

generally prohibits any research analyst from serving as an officer, director or advisory board member of a company th

such analyst covers.

In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report,

CIBC World Markets may have a long position of less than 1% or a short position or deal as principal in the securities

discussed herein, related securities or in options, futures or other derivative instruments based thereon.

Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosuresset forth below, may at times give rise to potential conflicts of interest.

Important Disclosure Footnotes for MacDonald, Dettwiler andAssociates Ltd. (MDA)

2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services

from MacDonald, Dettwiler and Associates Ltd. in the next 3 months.

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Companies Mentioned in this Report that Are Not Covered by CIBC World Markets Inc.:

Stock Prices as of 07/30/2014:

Airbus Group NV (AIR-PA, 45.00, Not Rated)

Aselsan Elektronik Sanayi ve Ticaret AS (ASELS-IS, [TRL]9.47, Not Rated)

Bank Rakyat Indonesia (BBRI-JK, [IDR]11200.00, Not Rated)

Boeing Company (BA-NYSE, US$122.29, Not Rated)

Echostar Corporation (SATS-OTC, US$51.47, Not Rated)Gazprom OAO (GAZP-MO, [RUB]133.40, Not Rated)

Inmarsat Holdings (ISAT-L, p7.40, Not Rated)

Intelsat LTD (I-NYSE, US$19.00, Not Rated)

KT Corp. (KTC-NYSE, US$16.12, Not Rated)

Lockheed Martin Corporation (LMT-NYSE, US$170.18, Not Rated)

Loral Space & Communications (LORL-NASDAQ, US$72.31, Not Rated)

Mitsubishi Electric Corp. (6503-T, 1392.00, Not Rated)

Orbital Sciences Corp. (ORB-NYSE, US$25.72, Not Rated)

PT Telekomunikasi Indonesia (TLKM-JK, [IDR]2650.00, Not Rated)

SES SA (SESG-PA, 27.58, Not Rated)

SKY Perfect JSAT Holdings (9412-T, 625.00, Not Rated)Thaicom (THCOM-BK, [THB]35.50, Not Rated)

Thales SA (HO-PA, 43.15, Not Rated)

ViaSat Inc. (VSAT-OTC, US$59.79, Not Rated)

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CIBC World Markets Inc. Price Chart

HISTORICAL PERFORMANCE OF CIBC WORLD MARKETS INC. RECOMMENDATIONS FOR MACDONALD,

DETTWILER AND ASSOCIATES LTD. (MDA)

Date Change Type Closing Price Rating Price Target Coverage

08/01/2011 52.97 SP 59.50 Stephanie Price, CFA

08/23/2011 47.85 R - Stephanie Price, CFA




06/28/2012 57.05 SO 66.00 Stephanie Price, CFA09/14/2012 51.34 SP 54.50 Stephanie Price, CFA

10/28/2012 50.18 SO 66.00 Stephanie Price, CFA



03/07/2013 72.77 R - Stephanie Price, CFA





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CIBC World Markets Inc. Stock Rating System

Abbreviation Rating Description

Stock Ratings

SO Sector Outperformer Stock is expected to outperform the sector during the next 12-18 months.

SP Sector Performer Stock is expected to perform in line with the sector during the next 12-18 months.

SU Sector Underperformer Stock is expected to underperform the sector during the next 12-18 months.

NR Not Rated CIBC World Markets does not maintain an investment recommendation on the stock

R Restricted CIBC World Markets is restricted*** from rating the stock.

Sector Weightings**

O Overweight Sector is expected to outperform the broader market averages.

M Market Weight Sector is expected to equal the performance of the broader market averages.

U Underweight Sector is expected to underperform the broader market averages.

NA None Sector rating is not applicable.

**Broader market averages refer to the S&P 500 in the U.S. and the S&P/TSX Composite in Canada.

"Speculative" indicates that an investment in this security involves a high amount of risk due to volatility and/or liquidity issues.

***Restricted due to a potential conflict of interest.

Ratings Distribution*: CIBC World Markets Inc. Coverage Universe

(as of 30 Jul 2014) Count Percent Inv. Banking Relationships Count Percen

Sector Outperformer (Buy) 150 40.0% Sector Outperformer (Buy) 145 96.7%

Sector Performer (Hold/Neutral) 181 48.3% Sector Performer (Hold/Neutral) 168 92.8%

Sector Underperformer (Sell) 37 9.9% Sector Underperformer (Sell) 30 81.1%

Restricted 6 1.6% Restricted 6 100.0%

Ratings Distribution: Software & Systems Coverage Universe

(as of 30 Jul 2014) Count Percent Inv. Banking Relationships Count Percen

Sector Outperformer (Buy) 3 60.0% Sector Outperformer (Buy) 3 100.0%

Sector Performer (Hold/Neutral) 2 40.0% Sector Performer (Hold/Neutral) 2 100.0%

Sector Underperformer (Sell) 0 0.0% Sector Underperformer (Sell) 0 0.0%

Restricted 0 0.0% Restricted 0 0.0%

Software & Systems Sector includes the following tickers: CDV, CSU, DSGX, MDA, OTEX.

*Although the investment recommendations within the three-tiered, relative stock rating system utilized by CIBC World Markets Inc.

do not correlate to buy, hold and sell recommendations, for the purposes of complying with NYSE and NASD rules, CIBC World

Markets Inc. has assigned buy ratings to securities rated Sector Outperformer, hold ratings to securities rated Sector Performer, and

sell ratings to securities rated Sector Underperformer without taking into consideration the analyst's sector weighting.

Important disclosures required by IIROC Rule 3400, including our system for rating investment opportunities and

our dissemination policy, can be obtained by visiting CIBC World Markets Inc. on the web at

http://researchcentral.cibcwm.comunder 'Quick Links' or by writing to CIBC World Markets Inc., Brookfield Place, 161Bay Street, 4th Floor, Toronto, Ontario M5J 2S8, Attention: Research Disclosures Request.
http://researchcentral.cibcwm.com/http://researchcentral.cibcwm.com/http://researchcentral.cibcwm.com/

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Legal Disclaimer (Continued)

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