Why Newsat Limited shares have copped a pasting today

Australia's only pure satellite company sees shares crash back to earth

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published July 31, 2014 4:14 pm AEST

Satellite communications company Newsat Limited (ASX: NWT) has seen its shares slammed down 21% today – despite the company not releasing any news. At the finish, Newsat shares closed at 20.5 cents.

By comparison, the S&P / ASX All Ordinaries Index (Index: ^AORD) (ASX: XAO) managed to eke out a 0.1% gain for the day.

Newsat is looking to launch its satellite Jabiru-2 later this year, shortly followed by Jabiru-1 in 2015. It will be Australia's first commercial Ka-band satellite, providing coverage over South East Asia, the Middle East and North Africa.

According to the company, Jabiru-1 has already secured US$644 million in pre-launch customer contracts, and US$454 million in forward sales. Newsat also operates a number of teleports, and holds eight orbital satellite slots.

But it seems not everything is going to plan. Jabiru-2 was meant to launch in May 2014, but has been delayed until September 2014. Then in early June, Newsat announced that it had secured a short-term loan from a related party of a director of the company to shore up its teleport business. The Teleport business has been struggling, largely due to the loss of a US government contract.

Then on June 30, three of the non-executive directors, Mark Fishwyck, Andrew Plympton and Brendan Fleiter all resigned. As an explanation, Newsat said, "in the current economic climate, there is an imperative to minimise overhead costs, and the reduction in Director fees and numbers will enable the company to simplify and refocus for the future."

It seems to me that the missed launch of Jabiru-2 was probably a hugely important milestone for Newsat's patient shareholders, and rescheduling the launch to September 2014 has upset the applecart. Not helping the matter was the decision of broker Bailleau Holst to cease coverage of Newsat.

Investors appear to have lost faith with management, and that is the most likely reason that shares in Newsat are being sold off today. We'll continue to watch Newsat; it's an interesting story, and could be a nicely profitable business, once it has its satellites in space.

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