Newsat Limited shares plunge to a 3-year low: Is now the time to buy?

Should you speculate on a huge rise from Newsat Limited (ASX:NWT)?

Andrew Mudie

Andrew joined the growing team of Motley Fool freelance writers in mid-2013 following years of personal development as a passionate self-taught sharemarket investor. At the time, Andrew was an engineer by trade, writer by hobby, and an investing nerd by passion who spent far too many breaks reading, writing and learning. Andrew’s first investing lesson came with his first stock selection in 2011 when takeover rumours caused a spike and subsequent plunge in the share price of Woodside and then the 21% fall in the market through mid-2011. The next four years of investing saw Andrew dabble in a vast array of strategies until settling on his favourite investment methodology, which is closely aligned with that of the Motley Fool: Fundamentals-based long-term buy-and-hold of great companies at great prices.

Published January 27, 2015 9:08 am AEDT

Newsat Limited (ASX: NWT) shares fell another 7% on Friday when the company announced that it had renegotiated an agreement with A.P. Kypros Satellites Limited for its eight licenced geostationary orbital satellite slots located above the equator.

The licences to use the slots, which could be likened to a freeway in space, are to be used for Newsat's future satellites and are one of Newsat's key assets.

Massive Losses

Newsat, Australia's largest pure-play satellite communications company, has been a horror investment so far.

The shares traded as high as 90 cents in 2012 but the long-term nature of the company's operations and concerns over financing agreements has seen investor resolve weaken recently. Much like TFS Corporation Limited (ASX: TFC), which owns sandalwood plantations that take as long as 15 years to mature, Newsat's flagship Jabiru-1 satellite has been a long time coming and has recently been delayed from a 2015 launch to the first half of 2016.

The company has a poor track-record for on-time performance. The problems started with the five month delay to the launch of the company's first satellite, Jabiru-2, from May 2014 to September and have continued to Jabiru-1.

Funding Problems

Since then, issues surrounding funding for the Jabiru-1 project have come to light. In the latest statement, Newsat confirmed that it had accepted a waiver from its financiers for an alleged technical breach of its project financing facilities.

The company is yet to comply with all of the conditions of the waiver and negotiations are apparently ongoing to satisfy the lenders. Options from here may include further financing from a third party or the issue of more stock, which would not be ideal with the share price at such low levels.

Plenty of Upside

It can't be denied that there is plenty of upside to Newsat's current share price. The problem for investors is that until this funding debacle is finalised there's very little reason to buy any more shares. As a result it's common for there to be more than double the amount of outstanding sell orders as there are buy orders.

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