Barclays AST SpaceMobile Research.pdf - Mathieu Robilliard

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FOCUS Equity Research Telecommunications | European Telecom Services 12 July 2021 AST SpaceMobile Inc Bridging Space and Earth Stock Rating OVERWEIGHT from N/A Industry View NEUTRAL We initiate coverage of AST SpaceMobile with an Overweight rating and a $29 price Unchanged target. AST SM’s proposition is unique and the addressable market is very significant: Price Target USD 29.00 extend mobile coverage everywhere via satellite. This promises to address a growing from N/A policy priority for governments: bridging the digital divide. The investment case does come with elevated risks, but if the technology works as planned and management Price (09-Jul-2021) USD 12.76 executes, we see a compelling investment opportunity. Potential Upside/Downside +127.3% Tickers ASTS A unique proposition. AST SM’s project is to extend mobile coverage when out of range of cell towers via its satellite constellations. Key to the project is the fact that there would Market Cap (USD mn) 2316 be no need to modify mobile handsets to connect to the satellites. There are currently Shares Outstanding (mn) 181.53 5bn mobile handsets globally. As importantly, this will be pursued in cooperation with Free Float (%) 76.45 mobile operators that will market, distribute and bill the service, as well as share their 52 Wk Avg Daily Volume (mn) 1.5 terrestrial spectrum with AST SM, removing many of the hurdles to deploying satellite Dividend Yield (%) N/A connectivity to the consumer market. Return on Equity TTM (%) -0.03 Current BVPS (USD) 11.34 Key investors and partners, experienced management. AST SM is supported by Source: Bloomberg strategic investors (Vodafone, ATC, Rakuten) that will collaborate with AST AM to develop the project. In addition, AST has signed a commercial agreement with Vodafone Price Performance Exchange-Nasdaq to deliver the service and MOUs with a number of other telecom operators (AT&T, 52 Week range USD 25.37-6.96 Telefonica, Millicom). This and the experienced and incentivized management team provide confidence in this endeavour despite the many uncertainties. High technology, regulatory and execution risks. AST SM is ‘pre’ revenues, and it still has to perform important additional tests for its technology and manufacture the Restricted - Internal satellites at the ambitious specs and low costs it is expecting. Also, it needs regulatory approval to use terrestrial spectrum for satellite. So it is conceivable that the whole Source: IDC; Link to Barclays Live for interactive charting project does not materialise and the equity value is fully impaired. ASTS: Quarterly and Annual EPS (USD) European Telecom Services 2020 2021 2022 Change y/y Mathieu Robilliard FY Dec Actual Old New Cons Old New Cons 2021 2022 +44 (0)20 3134 3288 mathieu.robilliard@barclays.com Q1 -0.01A N/A 0.04A 0.04A N/A N/A N/A 500% N/A BBI, Paris Q2 -0.01A N/A -1.03E N/A N/A N/A N/A N/A N/A Q3 -0.01A N/A -1.03E N/A N/A N/A N/A N/A N/A Maurice Patrick +44 (0)20 3134 3622 Q4 -0.09A N/A -0.09E N/A N/A N/A N/A 0% N/A maurice.patrick@barclays.com Year -0.12A N/A -0.27E -0.11E N/A -0.72E -0.30E N/A N/A Barclays, UK P/E N/A N/A N/A Titus Krahn Source: Barclays Research. Consensus numbers are from Bloomberg received on 09-Jul-2021; 12:50 GMT +44 (0)20 7773 0469 titus.krahn@barclays.com Barclays, UK Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with Simon Coles, CFA companies covered in its research reports. As a result, investors should be aware that the +44 (0)20 3555 4519 firm may have a conflict of interest that could affect the objectivity of this report. Investors simon.aa.coles@barclays.com should consider this report as only a single factor in making their investment decision. Barclays, UK This research report has been prepared in whole or in part by equity research analysts based outside the US who are not registered/qualified as research analysts with FINRA. PLEASE SEE ANALYST CERTIFICATION(S) AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 37. Barclays | AST SpaceMobile Inc European Telecom Services Industry View: NEUTRAL AST SpaceMobile Inc (ASTS) Stock Rating: OVERWEIGHT Income statement ($mn) 2020A 2021E 2022E 2023E CAGR Price (09-Jul-2021) USD 12.76 Revenue N/A 4 5 156 N/A Price Target USD 29.00 EBITDA -1 -46 -55 86 N/A Why Overweight? AST SM’s proposition is unique EBIT -1 -68 -148 -111 N/A and the addressable market is very significant: Finance costs - net 1 0 -25 -100 N/A extending mobile terrestrial coverage everywhere via Pre-tax income 0 -66 -173 -211 N/A satellite, with no need to change users’ mobile handsets. If the technology works as the company Tax rate (%) 46 25 25 25 -18.7% expects and execution follows on, the stock could be Net income -1 -49 -130 -158 N/A worth multiples of its current market valuation, in our EPS (adj) ($) -0.12 -0.27 -0.72 -0.87 N/A view. Diluted shares (mn) 7 182 182 182 195.9% DPS ($) 0.00 0.00 0.00 0.00 N/A Upside case USD 37.50 The company moves successfully through the initial Margin and return data Average milestones (gradual regulatory approval in different EBITDA margin (%) N/A -1,150.0 -1,100.0 55.1 -731.6 countries, successful test of BlueWalker 3) and as EBIT margin (%) N/A -1,694.8 -2,963.0 -70.8 -1,576.2 such the risk of the project diminishes. Pre-tax margin (%) N/A -1,644.1 -3,463.0 -134.9 -1,747.3 Net margin (%) N/A -1,233.0 -2,597.3 -101.2 -1,310.5 Downside case USD 0.00 Operating CF margin (%) N/A -850.3 -1,600.0 -9.0 -819.8 The technology successfully tested with BlueWalker 1 ROCE (%) -0.3 -21.9 -24.5 -10.1 -14.2 does not scale up or work as expected when tested by RONTA (%) N/A N/A -56.7 -10.1 -33.4 BlueWalker 3. ROA (%) -0.3 -21.9 -23.7 -9.9 -13.9 ROE (%) -17.2 -986.4 -34.1 -62.9 -275.2 Upside/Downside scenarios Cash flow and balance sheet ($mn) CAGR Cash flow from operations -1 -34 -80 -14 N/A Capex and acquisitions 0 -218 -714 -1,034 N/A Free cash flow 0 -291 -794 -1,048 N/A NOPAT -1 -51 -111 -83 N/A Tangible fixed assets N/A 196 817 1,654 N/A Intangible fixed assets N/A 0 0 0 N/A Cash and equivalents 0 350 56 9 307.7% Total assets 232 468 838 1,680 93.4% Short and long-term debt 0 0 500 1,500 N/A Other long-term liabilities 68 66 66 66 -1.0% Total liabilities 77 87 587 1,587 174.4% Net debt/(funds) -232 -350 444 1,491 N/A Shareholders' equity 5 381 251 93 164.9% Valuation and leverage metrics Average P/E (adj) (x) N/A N/A N/A N/A N/A Prop. EV/EBITDA -79.5 -45.5 -52.5 45.8 -32.9 Prop. EV/OpFCF -79.5 -7.9 -3.8 -4.2 -23.8 Prop. EFCF yield (%) -0.8 -10.2 -32.4 -42.9 -21.6 P/BV (x) 17.9 6.1 9.2 24.9 14.5 Dividend yield (%) 0.0 0.0 0.0 0.0 0.0 Total debt/capital (%) 0.0 0.0 66.6 94.2 40.2 Net debt/EBITDA (x) 0.0 4.8 -10.4 18.8 3.3 Source: Company data, Bloomberg, Barclays Research Note: FY End Dec 12 July 2021 2 Barclays | AST SpaceMobile Inc The Story in 6 Charts FIGURE 1 FIGURE 2 A large addressable market Satellite constellation: 336 satellites by 2028e FIGURE 3 FIGURE 4 AST SM satellite illustration How is it expected to work ? FIGURE 5 FIGURE 6 Wide range of potential valuations (1) based on DCF Wide range of potential valuations (2) based on DCF Share price ($) WACC 10.0% 15.0% 20.0% 25.0% 30.0% 1.00% 139 66 36 22 14 Terminal g rate 1.50% 145 68 37 22 14 2.00% 152 69 38 22 14 2.50% 160 71 38 23 14 3.00% 169 73 39 23 14 Sources: Company data, https://www.worldometers.info/world-population (Figure 1), AST SM (Figures 2-4), Barclays Research estimates (Figures 5-6) 12 July 2021 3 Barclays | AST SpaceMobile Inc Executive Summary We initiate coverage of AST SpaceMobile with an Overweight rating and a $29 PT. AST SM’s proposition is unique and the addressable market is very significant: extending mobile terrestrial coverage everywhere via satellite, with no need to change users’ mobile handsets (currently 5bn mobile handsets globally). This promises to address a growing policy priority for governments: bridging the digital divide. This will be pursued in cooperation with mobile operators that will market and distribute the service, as well as share their spectrum with AST SM. If the technology works as the company expects and execution follows on, the stock could be worth multiples of its current market valuation, in our view. The investment case does come with elevated risks: AST SM is ‘pre’ revenues, and it still has to perform important additional tests for its technology and manufacture the satellites at the ambitious specs and low costs it is expecting. Also, it needs regulatory approval to use terrestrial spectrum for satellite. So it is conceivable that the whole project does not materialise and the equity value is fully impaired. Importantly, the company is supported by strategic investors (Vodafone, American Tower, Rakuten) that will collaborate with AST AM to develop the project. In addition, AST has signed a commercial agreement with Vodafone to deliver the service and MOUs with a number of other telecom operators (AT&T, Telefonica, Millicom). This provides confidence in this endeavour despite the many uncertainties. In addition, AST SM has an experienced and incentivized management team. Founder and CEO Abel Avellan has been working in the space industry for more than 25 years. Abel Avellan has a technology background (BS in Electrical Engineering) and is the co-inventor of 24 US patents, some of which are behind the satellite constellation project of AST SM. CFO Thomas Serveson has more than 20 years’ experience in financial management. The CTO, Dr Huiwen Yao, has more than 30 years’ experience in engineering and was involved in building more than 40 GEO satellites. Looking at the remuneration and incentives in place for AST’s senior management and employees, we note a clear focus on aligning incentives with the company’s share price performance. This is particularly visible in the relatively low fixed compensation of AST’s CEO, but also in the dominant use of stock-based long-term compensation in the new incentive award plan. It will take some time for the business model to be fully validated, but we see important milestones over the coming years that will provide testing points to the investment case: 1/ Regulatory approval in a growing number of countries 2/ Launch and tests of the technology in space with satellite BlueWalker 3 planned for 4Q21 3/ Launch of the first 20 satellites in late 2022 4/ Commercial launch in 2023 Each event, if positively resolved, should enable the stock valuation to grow substantially, in our view, as the high risk that we factor into our valuation (20% WACC) should reduce. 12 July 2021 4 Barclays | AST SpaceMobile Inc FIGURE 7 Investment case Positives/Opportunities Negatives/Risks Very large market opportunity Early-stage company with limited operating history and no revenues Addresses a growing policy priority for governments: bridging the Technology to connect satellite to mobile handset still unproven on a digital divide large scale Direct connection to standard/unmodified terrestrial mobile handsets Execution risk on building, launching and deploying the satellites No need to acquire spectrum as uses mobile partners' spectrum No spectrum ownership Regulators may not approve the use of mobile terrestrial spectrum for Distribution, billing and marketing done by mobile partners satellite Agreement with American Tower to use its facilities for the ground Competitors may challenge the use of mobile terrestrial spectrum for network build-out satellite Important and relevant strategic investors: Vodafone, American Tower, Funding risk: At this stage the business plan is not fully funded and we Rakuten estimate it will need to raise around $1.5bn First mover in integrating satellite communication to terrestrial mobile CEO owns 88% of the voting rights through ownership of Class C shares handsets (10x voting rights) Not competing with existing or future LEO players (OneWeb, Starlink, Kuiper, etc...) Delays in building and launching fleet are very common in the sector Experienced management team with incentives aligned with minority shareholders Source: Barclays Research Besides the elements we list above that are specific to the AST SM investment case, there are generic risks to the satellite industry: - Launch and in-orbit failure: While not frequent, launch failures happen. Insurance companies assume a c.5% failure rate in their pricing. Companies are reimbursed by their insurers for the costs of the satellite and the launch, but since it can take up to three years to build and launch a new satellite, this can mean lost revenue opportunities. - Malfunction: Once a satellite is launched, there are currently no repair capabilities in space to rectify any malfunction that leads to a partial or total reduction in capacity. Some companies insure their satellites for their entire lifetime, but again the risk of lost revenue opportunities remains. - Interference/collision risk: The ITU and national regulators grant orbital positions and spectrum rights, and one of their key objectives is to avoid any interference and collision risk with constellations/satellites that are already operating. In some cases, the decisions are challenged by existing operators and authorisation may in some cases allow for a risk, even if minimal, of such problems occurring. 12 July 2021 5 Barclays | AST SpaceMobile Inc Bridging Telecoms and Satellite: New Players The satellite industry generates revenues of around $12bn per year – i.e. less than 1% of the global telecom industry. Historically, its main service was to broadcast video (direct to home or to cable head-ends), which represented c.60% of revenues. On the data side it has been providing mobility services (communication at sea and in air) but also fixed services (backhauling/business communication) in remote areas to many types of customers (government/military, B2B, telecom operators). We see the industry as set to play a larger role in the telecoms industry owing to sharply declining costs due to technological breakthroughs; rising demand for connectivity ‘everywhere’ from consumers, businesses and military; and governments’ focus on reducing the digital divide nationally and also globally. There are many players deploying new constellations with fully integrated and closed solutions. More recently, we have seen new projects integrate terrestrial and satellite technology. The technologies are still in development and similar attempts have failed in the past (Terrastar, for example), but the business opportunity could be very material. Three companies are working on building a dedicated infrastructure (AST SM, Lynk and Omnispace) and Iridium also announced at its Investor Day in May 2021 that it was looking at this opportunity with its existing fleet. Why use satellite? The adoption of mobile telephony has been massive over the past 20 years and it is now estimated by GSMA that there were around 5bn mobile phones globally and 3.8bn mobile internet users at YE 2019. In terms of revenues the mobile industry generates around $1 trillion per year of service revenues. There are, however, still important growth opportunities. The coverage of mobile networks represents around 25% of the land mass of the earth and 10% when including the seas. As a reminder the earth’s surface is 510m square meters. - Among the 5bn mobile phone users, there are at any moment in time around 750m people that cannot obtain a mobile signal as they move outside the range of mobile network coverage. - There were still 600m people living in areas not covered by mobile internet in 2019. - Around 50% of the world’s population remains unconnected to fixed or mobile broadband. While the terrestrial mobile networks continue to expand their coverage, since 95% of the population leaves in 5% of the land the economics become very challenging and this is where satellite can complement terrestrial networks. The unique attribute of the satellite industry is that it is an efficient and inexpensive way to cover the whole globe compared to terrestrial solutions. In fact, three satellites in GEO can deliver services to the whole globe (excluding the poles) for less than $2bn. This is why satellite has been widely used to broadcast TV signals. For two of the three companies looking at integrating the terrestrial and satellite networks, their projects will be based on LEO constellations, so the capex will be higher than using a GEO constellation but still far lower than covering the 75% of land not yet covered with terrestrial infrastructure (which would be in the hundreds of billions of dollars). The key advantage of a LEO constellation is low latency, which is key to delivering good real-time communications (voice, video, interactive social media): latency is >0.5 seconds (round trip) on a GEO satellite but drops below 0.05 seconds on a LEO constellation as it is orbiting 35x closer to earth. 12 July 2021 6 Barclays | AST SpaceMobile Inc FIGURE 8 Economic activity and population are very concentrated Source: ViaSat Three main initiatives As we have established, satellite can complement terrestrial networks to provide better coverage. This is not new in itself as a number of satellite phones already exist (Iridium, Inmarsat). The new projects’ material innovation is that the satellites would connect with existing mobile handsets – i.e. unlike currently available solutions, they would not require dedicated satellite phones or any add-on to terrestrial mobile phones (sleeves, etc). FIGURE 9 New satellite projects Direct to terrestrial mobile AST SM Lynk Omnicom Fortress IG, Columbia Capital, Rakuten, Vodafone, American Greenspring Associates, TDF Main investors Towers N/A Ventures, Telcom Ventures Satellites planned 336 5,000 N/A Satellites in orbit to date 0 0 0 Satellite life expectancy (years) 10 N/A N/A Full launch end (year) 2028 2025 N/A Orbit LEO LEO LEO and MEO Commercial service start 2023 2022 2026 Capex c.$3.3bn >$500m N/A Targeted markets Mobile text/voice/Broadband Mobile text/voice/Broadband Mobile text/voice/Broadband Region Global Global Global Antenna cost (est.) 0 0 0 Spectrum Terrestrial repurposed Terrestrial repurposed S-band Listing ASTS US Source: Company data, Barclays Research AST Space Mobile and Lynk also indicate that their solutions would not require any change in software: this would solve one of the critical barriers for satellite projects: the cost and deployment of ground antennas. Also, the issue of distribution is solved by teaming up with mobile operators that would market and distribute the service to their customer bases. Lastly, AST SM and Lynk will use the spectrum owned by telecom operators, so do not need to get their own spectrum. This will require changes to the current spectrum licences that have been 12 July 2021 7 Barclays | AST SpaceMobile Inc granted for terrestrial use, which will clearly be a complex process. However, with the issue of the ‘digital divide’ growing in importance, regulators and public authorities are likely to be well disposed to support these changes. The three companies are at different stages of development, as shown in the table overleaf, and the projects differ in a number of important respects. AST SpaceMobile: Leading the charge AST SM has developed a unique and proprietary technology to connect mobile phones to satellite with no change in equipment or software required. AST plans to wholesale its capacity to telecom operators leveraging the spectrum, ground infrastructure, distribution and customer bases of telecom players around the globe. The company has already signed commercial agreements with Vodafone and MOUs with seven other mobile operators including AT&T, Telefonica and Tigo. The technology has been tested in space with a nano satellite (BlueWalker 1) in 2019. A second test will be done with the satellite BlueWalker 3, which will be much closer to the final design of the satellites (50% smaller) in Q4 2021. AST plans to start launching its fleet in 2022, with the whole fleet expected to be in space by 2028 (336 satellites). The satellites are very innovative (see pages 10-11 for more details), each weighing around 3,000kg and constituted of a central ‘bus’ and 20m x 20m of phase array antennas, making them the largest satellites ever built. Each satellite is expected to cost around $10m. The constellation will operate at 700km altitude around the earth. The life expectancy of the satellites is 10 years. AST has an impressive list of shareholders, with notably Rakuten owning 17%, Vodafone 6% and American Towers 3%. Each were initial investors and increased their ownership during the capital increase that took place when AST merged with the SPAC named NPA Providence (deal closed on 6 April 2021). AST is listed on the US stock exchange. Lynk: Smaller ambitions initially US-based Lynk also plans to connect satellite to mobile handsets. The company filed a licence with the FCC in May 2021 to launch and operate an initial fleet of less than 10 satellites by 2022, but the constellation is planned to grow to 5,000 satellites in LEO. The satellites will operate at 500-550km orbit and weigh 55-85 kg, and are expected to cost $100k each once construction reaches critical mass. Lynk has tested the technology on a hosted payload on the Cygnus spacecraft that is in space and was able to transmit text messages to mobile phones on the ground. The company plans to have intermittent text message initially, but will then add voice services and eventually broadband by 2025 when it has enough capacity in space. Lynk plans to partner with mobile operators and use their spectrum, similarly to AST SM. Recently the CEO indicated that the company intended to sign commercial agreements with 12 mobile operators initially in 2022. Lynk has raised about $20 million in several funding rounds. Omnispace: A different approach Omnispace has adopted a different approach from AST SM and Lynk. A key difference is that the company has acquired its own spectrum on S-Band. This spectrum comes with the right to communicate directly with mobile devices. Currently this spectrum band is not used in mobile terrestrial, so mobile device and chipset manufacturers will need to be willing to integrate that spectrum band in future mobile handsets if it is to be used. Positively, however, that means that Omnispace will not to have to worry about changing existing licences of terrestrial mobile spectrum for satellite use. 12 July 2021 8 Barclays | AST SpaceMobile Inc Omnispace will provide complementary connectivity to mobile phones in areas where the terrestrial network is absent. It also plans at some point to target the B2B mobility market in maritime, aviation and IOT, competing with the likes of Inmarsat and Iridium. The company will also partner with mobile operators to market and distribute its services. It plans to be in operation by 2026. The company has disclosed limited information on its satellite fleet: the company indicated that it would not be a large constellation (possibly 200 LEO and 15 MEO), and its network would be a hybrid one with satellites in space and terrestrial repeaters on the ground. Two satellites are currently being built by Thales Alenia Space and are expected to be launched in 2022. The company has recently raised $60m in equity. 12 July 2021 9 Barclays | AST SpaceMobile Inc AST SpaceMobile: Initiate with Overweight, $29 PT We initiate coverage of AST SpaceMobile with an Overweight rating and a $29 PT. AST SM’s proposition is unique and the addressable market is very significant: extending mobile terrestrial coverage everywhere via satellite, with no need to change users’ mobile handsets (currently 5bn mobile handsets globally). This promises to address a growing policy priority for governments: bridging the digital divide. This will be pursued in cooperation with mobile operators that will market and distribute the service, as well as share their spectrum with AST SM. If the technology works as the company expects and execution follows on, the stock could be worth multiples of its current market valuation, in our view. FIGURE 10 AST SM: Timeline of phases Source: AST SM AST SpaceMobile: A ‘space breaking’ project The technology: what we know so far The founder of the company, Abel Avellan, has been working in the space industry for more than 25 years (see more details on page 13). Abel Avellan has a technology background (BS in Electrical Engineering) and is the co-inventor of 24 US patents, some of which are behind the satellite constellation project of AST SM. The company has disclosed a number of elements of the technology behind its satellite fleet. A patent filed by Abel Avellan in December 2018 discloses some aspects of the technology, but the fleet already looks different from the patent in some aspects. In total, the company has filed 750 patent claims for the technology used by AST SM. For one example of the patents see: https://patentimages.storage.googleapis.com/94/81/d4/8fe4c138f5bff0/US20180359022 A1.pdf 12 July 2021 10 Barclays | AST SpaceMobile Inc FIGURE 11 AST SM: Satellite image Source: AST SM Innovative technology still to be fully proven The satellites will be positioned at a LEO of 700km above ground. The satellites are made of a central ‘bus’ of 1.5m x 1.5m, which has the usual electronics. Around this element there will be a vast number of tiles, each with a phase array antenna on one side and a solar panel on the other. The tiles will be connected through cables and supported by metal hinges. The satellite size will be extremely large, at 20m x 20m. The weight is c.3,000kg per satellite and life expectancy is 10 years. The constellation will be made of 336 satellites, with 20 launched for the equatorial markets in H2 2022/early 2023 and another 90 launched by 2023 to get global coverage. This will then be complemented by 58 satellites by 2024, which will add capacity to the fleet. Another 168 satellites will be launched between 2027 and 2028 to add further capacity. The concept of these satellites is that, because they have massive antennas (400 square meters), they will beam a powerful signal across a wide area (2,800 square km) that will be enough to reach mobile handsets on the ground, which typically can only get a signal emitted up to 3km away. The connections from the satellite and the mobile handset are then beamed to ground stations. The company indicated that it would require 1-3 gateways per country (depending on the country size). The plan is to combine these with the ground infrastructure of their mobile operators or tower company partners (AST SM has signed an agreement with American Tower for that purpose). AST SM satellites are technology-agnostic: i.e. they support 3G/4G/5G. AST SM believes it can deliver speeds of 30Mbps with less than 0.1 seconds of latency and indoor coverage. One reason that this will facilitate the integration of satellite into terrestrial telephony is the work being done by 3GPP (the wireless industry main standard setting association). 5G is been developed to provide a standardised environment for the devices/software/hardware of all members of the telecoms ecosystem (e.g. equipment manufacturers, software developers, communication operators). For the first time, the satellite industry has joined this effort, which means that its compatibility and interoperability with the terrestrial telecom system stands to be greatly enhanced. This should enable a cost-effective ‘plug and play’ satcoms solution for 5G to facilitate accelerated 5G deployment by telcos and network vendors in all geographies (allowing for backhaul, rural coverage, redundancy, etc.). At this stage AST SM has tested the concept with a nano satellite named BlueWalker 1 in 2019 that successfully connected to a ground antenna using a 4G-LTE protocol. Lynk has also performed a communication between a satellite in space and a mobile handset on the 12 July 2021 11 Barclays | AST SpaceMobile Inc ground, but it was for a text messages so it is much easier to transmit than voice or broadband. In Q4 2021 AST SM expects to launch BlueWalker 3, which is 50% the size and weight of the final satellite design. By being able to connect directly to existing mobile handsets, AST SM removes a massive hurdle to access to satellite: customer equipment on the ground. Other companies competing on the satellite phone segment (Iridium, Globalstar, Inmarsat) require specific satellite phones that can cost up to $1,000 apiece. Low-cost fleet as launch costs coming down The different parts of the satellite will be built by NCE, Safran, Dialog and Nano Avionics (owned by AST SM) and assembled by AST SM in its new facilities in Texas. In terms of launcher, AST SM has not disclosed its choice, but indicated that it would launch satellites in batches of 18 to 20. This represents a payload of 54 to 60 tons and at this stage there are a number of options: the Falcon heavy semi-reusable or expendable, the Delta IV heavy or SLS satellites. The satellites will be folded for launch and unfolded after launch twice to get to their final configuration. The company expects the satellites to cost around $14m initially and then drop to c.$10m once it achieves a high run rate. This includes launch costs. If we take current prices for launches to LEO orbit from Falcon heavy launchers (between $2,000-3,000 per kg for a launch to LEO), this implies a cost for satellite plus insurance (5-10% of the value of the satellite and launch costs) of $8m million initially ($14m-$2,500*3,000kg). The drop to $10m reflects assumptions of lower manufacturing costs but also lower launch costs. The $8m cost per satellite (excluding launch) is high when compared to satellites from OneWeb (>$1m per satellite) or Starlink (<$0.5m per satellite), but AST SM satellites will be much larger and heavier: a OneWeb satellite weighs c.150kg and has a size of 1m3; a Starlink satellite is around 260kg and is roughly the size of a table. A MEO satellite from the O3b constellations weighs 700kg and costs $80m (although one could argue that technology has evolved since it was first designed at the beginning of the 2010s). The cost of a typical GEO satellite, which weighs 4,000kg to 5,000kg, is around $150m. AST SM’s satellite will weigh 3,000kg. So this suggests that AST SM’s technology is innovative not only because it enables voice and data transmission from a satellite to a mobile handset but also because it is particularly inexpensive on a cost per kilogram basis. This is partly explained by the fact that the satellites use identical modules and so there are economies of scale. Once again, it is worth flagging that this has yet to be proven as the company has to our knowledge not yet built the final version of the satellites. Spectrum: Partnering with telecom operators One of the key strengths of AST SM’s proposition is that AST SM will need to acquire minimal spectrum. For communication to and from mobile handsets, AST SM will use the terrestrial spectrum bands of the mobile operators with which it is collaborating. Communication from and to the ground stations will be done on V band. In the US, AST SM has already asked the FCC for authorisation. The challenge will be for AST SM and its partners to get regulatory approval as this spectrum was awarded for terrestrial use only. As long as it does not create interference, one might expect regulators to view the request favourably as AST SM’s project could contribute to resolve a growing policy priority for governments and regulators: bridging the digital divide. This will take time and effort as the request will have to be addressed in each country separately. Positively, it is the mobile operators that will manage the process and costs 12 July 2021 12 Barclays | AST SpaceMobile Inc involved in the vast majority of cases. Negatively, one should also expect competitors to challenge the repurposing of terrestrial spectrum to satellite spectrum or raise concerns of interference. In the US, where AST SM is partnering with AT&T, T Mobile US and Verizon have already notified their concerns to the FCC. With regard to the V-band, Amazon’s Kuiper is disputing its use, although we note there is a large amount of spectrum in this band (30GHz), so it may well be possible to satisfy all the asking parties. With regards to interference, we note that mobile operators are used to managing the many sources of interference on the ground and they will be collaborating with AST SM. We note that Ligado in the US has finally received approval to use L-Band satellite spectrum for terrestrial use after having addressed concerns over interference. Globalstar also obtained a similar approval for its S-band spectrum. Whilst the request from AST SM is the reverse (terrestrial spectrum being allowed for satellite use) these examples show that repurposing of spectrum has been approved by regulators in many instances in the US. At this stage, AST SM has already officially received regulatory approval for its project in Nigeria. Commercial agreement with a number of operators AST SM has already signed a number of commercial agreements with leading mobile operators. In some instances, this was associated with an equity investment in AST SM stock (see next section for more details). - Commercial agreement with Vodafone with mutual exclusivity in all the markets where Vodafone is present for five years after the launch of the first 110 satellites (2023e). AST SM signed a similar deal with Rakuten for the Japanese market for five years after the launch of the first 168 satellites (2024e). - Binding Memorandum of Understanding (MOU) where AT&T will provide technical and commercial resources to develop services and commercial offerings for AST SM in the AT&T coverage areas (US). A commercial agreement is contingent on further agreements. - Non-exclusive MOU with Telefonica, Indosat Ooredoo, Millicom, Telecom Argentina, Telstra, Liberty Latin America and more recently Smart (Philippines) to collaborate on technology development and implementation of the services. In addition, AST SM has signed a commercial agreement with American Tower to use its facilities for AST SM terrestrial gateways in certain markets. Impressive list of shareholders Before its merger with the SPAC New Providence Acquisition on 6 April 2021, AST SM was funded by a number of important players. Of the 129.8m Class B shares issued at $10 per share: - Rakuten took 28.5m shares - Invesat (Cisneros family) took 9.9m shares - Vodafone took 9m shares - America Tower took 2.2m shares The merger with the SPAC was combined with the issuance of 51.7m Class A common shares. American Tower bought 2.5m shares, Rakuten 2.5m shares and Vodafone 1m shares. So in total (i.e. combining Class A and B shares) Rakuten owns 17% of the capital, Vodafone 6% and American Tower 3%. Invesat bought 0.2m shares and now owns 6% of the capital. 12 July 2021 13 Barclays | AST SpaceMobile Inc The Class B and C shares can be converted in Class A shares. The Class C shares will continue to exist for voting purposes but their voting rights will be reduced by the amount of C shares converted into A shares. FIGURE 12 Shareholder equity Par Voting Ticker Security Description Value Shares Out % Rgt Voting % ASTS US Class A 0.0001 51,729,704 28.50% 1 51,729,704 6% 1748346D US Class B 0.0001 51,636,922 28.45% 1 51,636,922 6% 1880711D US Class C 0.0001 78,163,078 43.06% 10 781.630,780 88% Total 181,529,704 884,997,406 Source: Company data, Bloomberg, Barclays Research CEO Abel Avellan got 78.2m Class C common shares. The Class C shares have 10 voting rights and may control a majority of the voting right as long as they represent at least 9.1% of the total common stock (currently they represent 43% of the capital). In addition, there are: - 17.6m warrants outstanding (11.5m public and 6.1m private) with an $11.5 exercise price that are traded (ticker: ASTSW US). These warrants were issued by the SPAC NPA in September 2019 and are exercisable to purchase one Class A share. They expire on April 2026. - 12.794m incentive options granted by AST at an exercise price of $0.84 that are redeemable in one Class A share. All shareholders prior to the merger with the SPAC have 12-month lock-up from the date of the deal closure (6 April 2021). Lock-up on the incentive options is 24 months. An experienced management team and BOD – Highly educated workforce The founder of the company, Abel Avellan, has been working in the space industry for more than 25 years. Abel Avellan has a technology background (BS in Electrical Engineering) and is the co-inventor of 24 US patents, some of which are behind the satellite constellation project of AST SM. Before founding AST SM, Abel Avellan founded EMC, a satellite communication service company that he then sold to Global Eagle Entertainment, which he joined as President and Chief Strategy Officer until April 2017. Abel Avellan worked for 25 years in the satellite industry. The CFO, Thomas Severson, previously held the same position at EMC and Global Eagle Entertainment. Thomas Serveson has more than 20 years’ experience in financial management. The CTO, Dr Huiwen Yao, has more than 30 years’ experience in engineering and was involved in building more than 40 GEO satellites. The BOD includes executives that have an extensive telecommunication industry experience. Among them are Hiroshi Mikitani, founder, Chairman and CEO of Rakuten Inc.; Edward Knapp CTO of American Tower; Tareq Amin, Group Executive VP and CTO of Rakuten Inc.; and Luke Ibbetson, who leads the Vodafone Group Research and Development Organisation. In total, the company has 236 full-time employees and 13-part time employees with more than 24 PhDs. Management incentives Looking at the remuneration and incentives in place for AST’s senior management and employees, we note a clear focus on aligning incentives with the company’s share price performance. This is particularly visible in the relatively low fixed compensation of AST’s CEO, 12 July 2021 14 Barclays | AST SpaceMobile Inc but also in the dominant use of stock-based long-term compensation in the new incentive award plan. The two senior managers, Abel Avellan (CEO) and Thomas Severson (CFO) received an annualised base salary of $36k/$225k, respectively, throughout 2020. Mr Avellan has historically asked not to be paid a base salary in excess of applicable minimum wage requirements. Mr Severson’s salary had been increased in 2020 (from $120k) due to additional responsibilities and individual performance. As part of the business combination, shareholders (and the BoD) adopted a new long-term incentive plan, called ‘SpaceMobile 2020 Incentive Award Plan’, which comprises compensation for all qualified directors, employees, consultants and affiliates. A total number of 10.8 million shares have been made available for issuance as part of the incentive plan. Interesting is the clear focus on stock-based compensation in different forms: through stock options, share appreciation rights, restricted stock and incentive units. We note that the company does not provide specific targets that the company might need to reach for these equity awards to vest, which could be in focus going forward. The agreement defines that vesting conditions may apply to each award and can include not only continued service, but also performance and other conditions. However, we note a clear focus on stock-based compensation (in contrast to cash-based long-term awards): independently of any additional requirements, this should per se lead to an increased focus by management directly on share price performance. Financials: Assumptions and modelling Below we present our modelling for the company, which is based on published information and public comments from the company. It is also based on a large number of assumptions: the company is still at a very early stage of development, execution risk is high and the technology is still largely unproven and likely to evolve. As such, while these forecasts represent our best estimates at this stage, they could change materially over time. The most likely risk is that the build-out, launch and entry into service is delayed, something very common in satellite projects. The most material risk is that the technology does not work or scale as expected. We show below the average financial characteristics of existing GEO satellite operators Market sizing: The world is AST AM’s oyster As we discussed on page 5, the adoption of mobile telephony has been massive over the past 20 years and it is now estimated that there were around 5 billion mobile phones globally and 3.8bn mobile internet users at YE 2019. However, coverage of mobile networks represents around 25% of the land mass of the earth and 10% when including the seas. Importantly, among the 5bn mobile phone users, there are at any moment in time c.750m people who cannot obtain a mobile signal as they move outside the range of mobile network coverage. Also, there were still 600m people that lived in areas that were not covered by mobile internet in 2019 and 50% of the world population remains unconnected to fixed broadband. AST SM plans to gradually deploy global coverage. This excludes a number of countries where they face restrictions on operating, namely China and Japan (where Rakuten will exploit the capacity directly). These countries represent around 1.6bn of population, leaving an addressable 6.2bn population. If we pro-rate the number of mobile phone users, the total existing addressable market falls from 5.0bn to c.4.0bn. AST SM will first focus on covering in the so-called ‘Equatorial’ regions (i.e. basically emerging markets), which it estimates covers a population of 1.6bn (with c.0.7bn unconnected). This will be covered by the first 20 satellites to be launched by end-2022 or early 2023. In these 12 July 2021 15 Barclays | AST SpaceMobile Inc markets AST SM estimated at the time of the merger with the SPAC that it had around 1.2bn population under MOUs with its current partners (i.e. 73% of the addressable 1.6bn population). In July, by signing a deal with Smart, the company added another 108m, bringing the total to c.1.3bn – i.e. such that 80% of the addressable population is under MOUs. AST will launch satellites between 2023 to 2024 to cover the rest of the globe and an estimated 4.6bn population. FIGURE 13 TAM: Population Source: Company data, https://www.worldometers.info/world-population/ Management expects to have an average of 180m subscribers in Equatorial markets by 2030 and 440m in Global markets. While a potential penetration of 11% does not in itself appear to us unrealistic ultimately, we are taking a more conservative approach with regards to the ramp-up of the customer base. FIGURE 14 Addressable market and subscriber estimates In m pop 2030 % TAM TAM 6,225 Equatorial 1,635 Global 4,590 AST SM target 690 11% Equatorial 194 12% Global 496 11% BARC estimates 310 5% Equatorial 110 7% Global 200 4% Source: Company data, Barclays Research estimates ARPU: AST SM expects $1-8 depending on market AST SM has indicated that it will have monthly plans and ‘ad hoc’ plans. There is no indication yet of the price point for ‘ad hoc’ plans, but the company has given some indication in respect of its monthly plans: - In Equatorial markets, it plans to offer cellular connectivity for prices ranging from $0.75 to $2.0 per month depending on the country. 12 July 2021 16 Barclays | AST SpaceMobile Inc - In Developed markets, it will offer two different plans: $5 for text, voice and reduced internet speeds or $25 for text, voice and full broadband speeds. These tariffs will be charged by the mobile operator partner with a 50/50 revenue share between the mobile operator and AST SM. Accessing the service will be easy: once a mobile user moves to an out-of-terrestrial coverage area, they will receive a text message asking whether they want to buy a daily or monthly. FIGURE 15 FIGURE 16 AST AM: Easy to access AST AM: Projected monthly ARPU Source: AST SM (1): share of AST SM ARPU (i.e. 50% of total ARPU) Source: AST SM With these plans, the company expects to have c.$7.6 monthly ARPUs in the US/Europe, c.$2 in ‘Global markets’ (all markets excluding Equatorial) and c.$1 ARPUs in Equatorial markets. Since AST SM is getting 50% of the ARPU, this implies total ARPUs of c.$15, c.$4 and c.$2, respectively. If we consider current mobile ARPUs in different market vs the ARPU that AST SM expects to generate, it does not seem that low actually - A $15 ARPU bill in the US would represent a 30% increase to existing ARPU - A $2.0 bill in a number of EM countries would represent a 30-60% increase in ARPU. 12 July 2021 17 Barclays | AST SpaceMobile Inc FIGURE 17 Monthly mobile ARPU (2019 or 2020 – latest available) USD/month 50 45.9 45 40 35 30 25 20 16.2 15 10 5.6 4.9 3.4 5 0 US Europe EM Latam EM Asia EM Africa Source: Company data, Barclays Research However, we would flag the following: - For some consumers who do not have access to terrestrial networks, this would be the cost of a mobile service in itself and therefore looks palatable when compared to current ARPUs on mobile terrestrial only around the globe. - A large portion of mobile users will not be attracted by this service either because they have terrestrial that they consider good enough, for example urban populations (which according to the UN represent more than 55% of the world population), or because they cannot afford it. However, the more affluent part of the population, business travellers and people that live in less well covered areas may very well be willing to pay that on a monthly basis or through a pay as-you-go service. As we showed in Figure 18, AST SM expects only c.11% of the addressable population to subscribe to its services by 2030 (we assume only 5%). So, put into that context, the ARPU assumptions seem more palatable. Notwithstanding, we are taking a more conservative approach and assume just $1 per month for Equatorial markets and $2 per month for Global markets. FIGURE 19 AST SM: ARPU In $ 2025e 2030e AST SM target 2.02 2.21 Equatorial 1.03 1.03 Global 2.62 2.70 BARC estimates 1.58 1.65 Equatorial 1.00 1.00 Global 2.00 2.00 Source: Company data, Barclays Research Margins: Low operating costs are the norm in the industry As shown below, high EBITDA margins are the norm in the satellite industry as there are minimal operating costs. The main costs are the satellite and the ground infrastructure set- up, but these are mostly included in the capex. What remain are the costs to operate the control centre, and the running/maintenance costs associated with the ground 12 July 2021 18 Barclays | AST SpaceMobile Inc infrastructure. Satellite operators are also for the most wholesaling their capacity, so there are limited marketing and distribution costs as well as low headcount. The main opex lines for AST SM are: - ITU royalty fees for the satellite frequency allocation. - SG&A, Engineering Development and Assembly Integration and Testing costs, mainly comprising costs for employees, external consultants and expenses for each office. AST SM currently has 236 full-time employees and 13-part time employees. - Flight Control Outsource Services (ADS), which are outsourced to an outside third party. However, some other costs that are typically supported by satellite operators will be minimal for AST SM. The terrestrial network connection costs and teleport costs are expected to be largely covered by the mobile operators. For fibre connection costs for the ground stations, AST will be collocating at these operators’ facilities in many cases. The teleport costs of rent and utilities will also be largely covered by Telcos. Based on the company’s disclosed financial projections, opex reached $27m in 2020 and is expected to grow to around $40m in 2021 and up to $140m by 2030. Based on the company’s revenue projections, that suggests an EBITDA margin of 99%. Capex: Limited disclosure on capacity Capex is the main expense for a satellite operator. As shown in Figure 20, over the cycle capex represents on average 30% of revenues in the industry. Importantly satellite capex is lumpy: it is driven by the expansion and replacement of the fleet. When the fleet is small, a single replacement can have a material impact in a given year. The same thing applies when a company is growing its fleet rapidly. FIGURE 21 Legacy satellite players – Key growth rates and margins Eutelsat Inmarsat Intelsat SES Average 15Y revenue CAGR 4% 7% 1% 3% 4% 15Y EBITDA CAGR 4% 6% 1% 2% 3% 15Y average EBITDA margin 78% 58% 77% 69% 70% 15Y average capex/sales 33% 36% 23% 30% 31% 15Y average OpFCF margin 45% 23% 53% 39% 40% Source: Company data, Barclays Research 12 July 2021 19 Barclays | AST SpaceMobile Inc FIGURE 22 Capex to sales varies materially from one company to another at a given point in time (last reported) Capex to sales 35% 30% 25% 20% 15% 10% 5% 0% Capex /sales Echostar Eutelsat Globalstar Iridium JSAT Orbcomm SES Telesat Viasat Source: Company data, Barclays Research On the ground, AST SM’s investments are the following: - A factory in Texas where it assembles its satellites. The company has indicated a cost of $30m. - Ground stations in the country where it operates: 1-3, depending on the size of the country. The unit cost is less than $5m per ground station, but in many cases the cost will be supported by the telecom partner. So far, AST has indicated capex of only $27m for ground capex. That would represent between 2 and 5 countries. The main part of the capex will be related to satellites: launching them to get global coverage, increasing the capacity and then replacing them when they end their lives (10-year life expectancy). As discussed above, AST SM has indicated a cost of $14m per satellite (including launch costs) initially, then dropping to below $10 per satellite as launch and manufacturing costs come down. The satellite capex forecast by the company breaks down as follows: - Equatorial coverage capex 2022: 20 satellites for $174m - Global coverage capex 2023: 90 satellites for $780m - Capacity capex 2023: 58 satellites for $531m - Capacity capex 2028: 168 satellites for $1,620m That represents a total capex base of $3.3bn. Since the life-expectancy of the satellites is 10 years, it means a normalised/recurring annual capex of $330m for the satellite fleet alone. A critical element in modelling future capex is to understand that the capacity of a satellite/fleet: capacity is finite and to increase it the company needs to add new satellites. The company has given very little information on the capacity of its satellites. However, based on the company’s financial and fleet forecasts, we can try to derive it. We can assume that by 2027-28, when AST SM plans to add 168 new satellites, this is driven by the fact that it believes it will need to add capacity to address growing demand due to: 1/rising data usage of its existing customer base (a feature of the telecom industry as new applications drive more usage; and 2/a growing customer base. 12 July 2021 20 Barclays | AST SpaceMobile Inc Based on a number of assumptions, we estimate that each satellite could potentially produce c.1,200Gbps of capacity. This would make them as powerful as the ViaSat 3 satellites. Obviously some of our assumptions could be off by a large degree: - The provisioning ratio could be as high as 250 in some GEO fixed residential broadband satellites. However, we assume that use of mobile devices is more frequent during the day and the need to have seamless communication for voice means that the provisioning should be lower to ensure quality. - The billable capacity is typically 10% for LEO constellations, but here we assume 30% as each of the satellites will cover a much broader area than other LEO constellations, given their large size. As an example, if we used only 10% usable capacity (in line with other LEO constellations) but a provision ratio of 200, the implied capacity of each satellite would be 1.8Tbps. Again, producing a satellite with a capacity of 1.2Tbps (if our estimates are correct) for $10m a piece would be much more efficient than any other constellation to date. FIGURE 23 Potential capacity of the fleet Region Subscribers Speed Provisioning Capacity used Satellites Capacity used per sat. Usable Capacity per sat. In 000s In Mps ratio In Gbps # In Gbps capacity In Gbps Equatorial 146,000 5 100 7,417 20 371 30% 1,236 Global 366,000 15 100 54,900 148 371 30% 1,236 Source: Company data, Barclays Research However, implicitly our assumptions are much more conservative: we assume that the company still launches another 168 satellites by 2028 despite forecasting a number of subscribers by then that is c.50% lower than management targets. So that means that we implicitly assume that the satellites are actually 50% less efficient than shown in the table above – i.e. they ‘only’ produce c.600Gbps per satellite. Funding: We estimate the company will need to raise around $1.5bn Management’s financial estimates point to a cumulative unlevered FCF outflow of $1,654m between 2021 and 2023. The company had a total net cash position of c.$550m that came from the SPAC NPA, a capital increase and cash that was sitting in AST SM before the merger with the SPAC, implying a need for c.$1.1bn. Our estimates are more conservative on EBITDA growth, and, as such, we identify a need to raise around $1.5bn. This could be done through a mix of vendor financing, high-yield debt (we assume a 10% cost of debt) and equity. For the latter, we note that there 17.6m warrants with an exercise price of $11.5 that could bring c.$200m of equity. We expect the company to be FCF-positive by 2024 (assuming there are no delays in the construction and/or launch of satellites). 12 July 2021 21 Barclays | AST SpaceMobile Inc FIGURE 24 AST SM: Revenue and EBITDA modelling (USDm, except where mentioned) Main drivers 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Equatorial Subscribers - 000s 0 10,000 20,000 30,000 50,000 60,000 80,000 90,000 110,000 Subscribers average - 000s 0 5,000 15,000 25,000 40,000 55,000 70,000 85,000 100,000 % population 0.0% 0.3% 0.9% 1.5% 2.3% 3.2% 4.0% 4.8% 5.6% Net adds - 000s 0 5,000 10,000 10,000 15,000 15,000 15,000 15,000 15,000 ARPU - USD 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 yoy change - % 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Revenues w/ avg subs 60 180 300 480 660 840 1,020 1,200 yoy change - % 200.0% 66.7% 60.0% 37.5% 27.3% 21.4% 17.6% Global Subscribers - 000s 0 8,000 20,000 48,000 80,000 108,000 140,000 168,000 200,000 Subscribers average - 000s 0 4,000 14,000 34,000 64,000 94,000 124,000 154,000 184,000 % population 0.0% 0.1% 0.3% 0.8% 1.4% 2.1% 2.8% 3.4% 4.1% Net adds - 000s 0 4,000 10,000 20,000 30,000 30,000 30,000 30,000 30,000 ARPU - USD 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 yoy change - % 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Revenues w/ avg subs 96 336 816 1,536 2,256 2,976 3,696 4,416 yoy change - % 250.0% 142.9% 88.2% 46.9% 31.9% 24.2% 19.5% Total % penetration 0% 0% 0% 1% 1% 2% 3% 4% 4% 5% Subscribers - 000s 0 18,000 40,000 78,000 130,000 168,000 220,000 258,000 310,000 Subscribers average - 000s 0 0 9,000 29,000 59,000 104,000 149,000 194,000 239,000 284,000 ARPU - USD 1.44 1.48 1.58 1.62 1.63 1.64 1.64 1.65 Revenues w/ avg subs 4 5 156 516 1,116 2,016 2,916 3,816 4,716 5,616 yoy change - % 230.8% 116.3% 80.6% 44.6% 30.9% 23.6% 19.1% Operating expenses 50 60 70 80 90 100 110 120 130 140 yoy change - % 20.0% 16.7% 14.3% 12.5% 11.1% 10.0% 9.1% 8.3% 7.7% EBITDA -46 -55 86 436 1,026 1,916 2,806 3,696 4,586 5,476 yoy change - % -256.4% 407.0% 135.3% 86.7% 46.5% 31.7% 24.1% 19.4% - - margin - % 1150.0% 1100.0% 55.1% 84.5% 91.9% 95.0% 96.2% 96.9% 97.2% 97.5% Source: Company data, Barclays Research estimates 12 July 2021 22 Barclays | AST SpaceMobile Inc FIGURE 25 AST SM: Capex modelling (USDm, except where mentioned) Capex model 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E Equatorial Satellites - 1st batch 0 7 20 20 20 20 20 20 20 20 20 Capex per satellite 14 14 14 14 14 14 14 14 14 14 14 Total satellite capex 0 103 174 3 Lifetime 1 2 3 4 5 6 7 8 9 10 Equatorial satellites 0 7 20 20 20 20 20 20 20 20 20 Equatorial capex 0 103 174 3 0 0 0 0 0 0 0 Global + Capacity Satellites - 2nd batch 1 45 45 45 45 45 45 45 45 45 Capex per satellite 10 10 10 10 10 10 10 10 10 10 Total satellite capex 10 440 0 Lifetime 1 2 3 4 5 6 7 8 9 10 Satellites - 3rd batch 5 45 45 45 45 45 45 45 45 Capex per satellite 10 10 10 10 10 10 10 10 10 Total satellite capex 50 400 0 Lifetime 1 2 3 4 5 6 7 8 9 Satellites - 4th batch 58 58 58 58 58 58 58 58 Capex per satellite 10 10 10 10 10 10 10 10 Total satellite capex 580 0 0 Lifetime 1 2 3 4 5 6 7 8 Global satellites 0 1 50 148 148 148 148 148 148 148 148 Global capex 0 10 490 980 0 0 0 0 0 0 0 Capacity Equ + Global Satellites - 5th batch 9 76 168 168 168 Capex per satellite 10 10 10 10 10 Total satellite capex 85 672 923 Lifetime 1 2 3 4 5 Other capex 0 105 50 50 50 0 0 0 0 0 0 o/w Tangible (BW3) 105 50 50 50 o/w Intangible Total satellites 0 8 70 168 168 168 177 244 336 336 336 Total capex 0 218 714 1,034 50 0 85 672 923 0 0 Source: Company data, Barclays Research estimates 12 July 2021 23 Barclays | AST SpaceMobile Inc Financial estimates FIGURE 26 AST SM: P&L In $ m 2020 2021E 2022E 2023E 2024E 2025E Revenue 0 4 5 156 516 1,116 Opex -1 -50 -60 -70 -80 -90 EBITDA -1 -46 -55 86 436 1,026 D&A 0 -22 -93 -197 -202 -202 EBIT -1 -68 -148 -111 235 825 Changes in fair value of warrant liabilities 0 2 0 0 0 0 Interest and dividend income 1 0 0 0 0 0 Other 0 0 0 0 0 0 Intererst expenses 0 0 -25 -100 -125 -75 PBT 0 -66 -173 -211 110 750 Income taxes -0 16 43 53 -27 -187 Tax rate (%) 46% 25% 25% 25% 25% 25% Net Income 0 -49 -130 -158 82 562 Income attributable to common stock subject to -1 0 0 0 0 0 redemption Adjusted net income -1 -49 -130 -158 82 562 Basic EPS -0.1 -0.3 -0.7 -0.9 0.5 3.1 Diluted EPS -0.1 -0.3 -0.7 -0.9 0.5 3.1 Source: Company data, Barclays Research estimates FIGURE 27 AST SM: Cash flow statement in $ m 2020 2021E 2022E 2023E 2024E 2025E EBITDA -1 -46 -55 86 436 1,026 WCR change 0 0 0 0 0 0 Cash tax -0 0 0 0 -27 -187 Cash interest 0 0 -25 -100 -125 -75 Others 0 12 0 0 0 0 Operating activity -1 -34 -80 -14 284 764 Interest withdrawn for tax payments 1 0 0 0 0 0 Capex 0 -218 -714 -1,034 -50 0 Others 0 -39 0 0 0 0 Investing activity 1 -257 -714 -1,034 -50 0 Proceeds from Investors due to PIPE Financing 0 50 0 0 0 0 Proceeds from promissory note - related party 0 1 0 0 0 0 Debt issuance 0 0 500 1,000 0 0 Debt repayment 0 0 0 0 -500 -500 Common Shares 0 230 0 0 0 0 Others 0 232 0 0 0 0 Financing activity 0 513 500 1,000 -500 -500 Net change in cash -0 222 -294 -48 -266 264 Net debt 0 -222 572 1,619 1,385 622 FCF -0 -291 -794 -1,048 234 764 Source: Company data, Barclays Research estimates 12 July 2021 24 Barclays | AST SpaceMobile Inc Valuation: DCF and market multiples We use two methodologies to value the stock: - A DCF model - A target EV/NOPAT multiple by 2024 DCF: Using a high WACC for our central scenario We use DCF models to derive our PTs for satellite stocks and would highlight a few points to consider: 1. Terminal year – ideally the DCF should stop at the mid-point of the satellite fleet’s life-cycle and terminal capex should be ‘normalised’ capex. Essentially, our DCF models account for one renewal cycle and stop at the mid-point of the next fleet’s expected life-time. 2. Satellite is not a utility-type business – there are material technology evolutions and hence risks/opportunities. As such, we use unlevered betas of above 1.0x. We use 1.45x for ViaSat and 1.25x for Iridium and get to WACCs of 10% and 8%, respectively – higher than the WACCs typically used for utilities/concessions (generally less than 6%). In the case of AST SM, the project is still literally on the ground, hence the technology is not fully proven and there are still uncertainties with regards to the regulation. Therefore, we believe a very high WACC should be used. We note the company is actually using a 20% WACC in its presentations when it discusses valuation. We consider this to be reasonable, and show our workings in the table below. FIGURE 28 WACC Cost of debt 7.50% Risk free rate 2.00% Corporate spread 8.00% Tax rate 25.00% Cost of equity 26.2% Risk free 2.00% Unlevered Beta 100% Levered Beta 137% Equity risk premium 18% Leverage 33% WACC 20% Terminal growth rate 2.0% Terminal multiple 5.5 Source: Barclays Research estimates Based our assumptions, a 20% WACC and 2% terminal growth, we arrive at a $37.5 valuation. This implies material upside potential from the current share despite being based on estimates that are materially more conservative than those of the company: - Our subscriber estimate by 2030 is more than 50% lower than management’s target, at 310m vs 690m. Our ARPU estimate by 2030 is 25% lower than management’s target, at $1.65 vs $2.7. - Our capex estimate is $3.7bn vs management’s target of $3.3bn despite our lower subscriber estimates. This is also quite conservative since the 168 satellites launched 12 July 2021 25 Barclays | AST SpaceMobile Inc between 2026 and 2028e are designed to increase capacity of the fleet but if (as we forecast) the number of subscribers by 2030 is 310m instead of 690m, there would probably be no need for this extra capacity at that time. FIGURE 29 DCF DCF and valuation 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 20230E 2031E EBITDA 0 -46 -55 86 436 1,026 1,916 2,806 3,696 4,586 5,476 6,362 Other 0 0 0 0 0 0 0 0 0 0 0 0 D&A 0 -22 -93 -197 -202 -202 -210 -277 -370 -370 -370 -281 EBIT 0 -68 -148 -111 235 825 1,706 2,529 3,327 4,217 5,107 6,081 Tax 0 0 0 0 -59 -206 -427 -632 -832 -1,054 -1,277 -1,520 Tax rate 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% NOPAT 0 -68 -148 -111 176 618 1,280 1,897 2,495 3,162 3,830 4,561 minus capex 0 -218 -714 -1,034 -50 0 -85 -672 -923 0 0 -296 D&A 0 22 93 197 202 202 210 277 370 370 370 281 Working capital 0 0 0 0 0 0 0 0 0 0 0 0 CF for discounting 0 -264 -769 -948 327 820 1,405 1,502 1,941 3,532 4,199 4,546 Discount factor 83.3% 69.4% 57.8% 48.2% 40.1% 33.4% 27.9% 23.2% 19.3% 16.1% Discounted CF -640 -658 189 395 564 502 541 820 812 732 Value of explicit cash flows 2,525 38% Terminal value from 2031E 4,062 62% EV 6,587 Net Debt - YE 2021E -222 Equity 6,809 Value per share - USD 37.5 Source: Barclays Research estimates We run some sensitivities around ARPU/subs and WACC/terminal growth, this gives us ranges of $6-$85 and $14-$169, respectively. FIGURE 30 FIGURE 31 DCF sensitivity to ARPU/subscribers DCF sensitivity to WACC to g rate Share price ($) YE 2030E Subscribers - m Share price ($) WACC 210 260 310 360 410 10.0% 15.0% 20.0% 25.0% 30.0% 0.83 6 10 13 17 21 1.00% 139 66 36 22 14 1.24 14 20 26 31 37 Terminal g rate 1.50% 145 68 37 22 14 ARPU 1.65 22 30 38 45 53 2.00% 152 69 38 22 14 2.06 30 40 50 59 69 2.50% 160 71 38 23 14 2.48 39 50 62 74 85 3.00% 169 73 39 23 14 Source: Barclays Research estimates Source: Barclays Research estimates 12 July 2021 26 Barclays | AST SpaceMobile Inc Market multiples: we prefer EV/NOPAT to EV/EBITDA or EV/OpFCF With satellite companies having high capital intensity (30% capex to sales) and lumpy capex, we generally think that EV/EBITDA multiples and even FCF multiples can be misleading compared with other sectors and among operators. The best proof of the inadequacy of these multiples, in our view, is the large range of EV/EBITDA and EV/OpFCF multiples in evidence across the sector. P/E is actually not a bad metric as the D&A will give a fairer representation of normalised levels of capex for the business at a given time. EV/EBIT or EV/NOPAT are other metrics that we believe make sense. FIGURE 32 EV/EBITDA and EV/OpFCF of listed satellite stocks X 35 30 25 20 15 10 5 0 EV/EBITDA EV/OpFCF Echostar Eutelsat Iridium JSAT Orbcomm SES Viasat Source: Barclays Research (for Eutelsat, Iridium, SES, ViaSat), Bloomberg consensus (for others) FIGURE 33 EV/NOPAT of listed satellite stocks Eutelsat SES Iridium ViaSat Echostar AVG 2021e 16.7 13.8 130.1 NM 23.8 46.1 2022e 18.3 13.1 76.5 NM NA 35.9 2023e 16.9 15.8 50.4 65.7 NA 37.2 2024e 16.7 10.4 31.2 26.1 NA 21.1 Average Source: Barclays Research (for Eutelsat, Iridium, SES, ViaSat), Bloomberg consensus (for Echostar) Based on these multiples, we derive a potential valuation range for AST SM based on its 2024e NOPAT that we discount when used for years before 2024. This gives us a valuation range of $13-27 per share and an average of $20. FIGURE 34 AST SM: EV/NOPAT-based valuation 2024e NOPAT Discounted AST SM - EV - AST SM - Equity Value per Year - $m Multiple back $m - $m share - $ 2021e 176 46.1 73% 4,689 4,911 27 2022e 176 35.9 44% 4,389 3,817 21 2023e 176 37.2 20% 5,450 3,831 21 2024e 176 21.1 0% 3,710 2,325 13 Average 3,721 20 Source: Barclays Research estimates 12 July 2021 27 Barclays | AST SpaceMobile Inc We set our PT at $29, based on the average of our central case DCF valuation ($37.5) and the average our peer-based 2021-24e EV/NOPAT valuations ($20). We show below the stock’s current trading multiples and the multiples implied by our price target. FIGURE 35 AST SM: Valuation multiples at current price 2021E 2022E 2023E 2024E 2025E P/E (x) (46.0) (17.5) (14.4) 27.6 4.0 EFCF yield (%) -10.4% -33.1% -43.8% 10.3% 33.6% Dividend yield (%) 0.0% 0.0% 0.0% 0.0% 0.0% TSR yield (%) 0.0% 0.0% 0.0% 0.0% 0.0% EV/EBITDA (44.5) (51.7) 45.2 8.4 2.8 EV/OpFCF (7.8) (3.7) (4.1) 9.5 2.8 Unlevered FCF yield (%) -11.5% -25.8% -23.7% 9.0% 28.4% Source: Barclays Research estimates FIGURE 36 AST SM: Valuation multiples at price target 2021E 2022E 2023E 2024E 2025E P/E (x) (106.7) (40.5) (33.3) 64.1 9.4 EFCF yield (%) -4.5% -14.3% -18.9% 4.4% 14.5% Dividend yield (%) 0.0% 0.0% 0.0% 0.0% 0.0% TSR yield (%) 0.0% 0.0% 0.0% 0.0% 0.0% EV/EBITDA (109.6) (106.1) 80.0 15.3 5.7 EV/OpFCF (19.1) (7.6) (7.3) 17.2 5.7 Unlevered FCF yield (%) -4.7% -12.5% -13.4% 4.9% 13.9% Source: Barclays Research estimates Risks to our price target Early-stage company with limited operating history and no revenues Technology to connect satellite to mobile handset still unproven on a large scale Execution risk on building, launching and deploying the satellites No spectrum ownership Regulators may not approve the use of mobile terrestrial spectrum for satellite Competitors may challenge the use of mobile terrestrial spectrum for satellite Funding risk: At this stage the business plan is not fully funded CEO owns 88% of the voting rights through ownership of Class C shares (10x voting rights) Delays in building and launching fleet are very common in the sector 12 July 2021 28 Barclays | AST SpaceMobile Inc APPENDIX I: Satellite 101 and acronym-busting The commercial satellite industry was born in the late 1970s. Initially, satellites were launched and owned by government agencies and telecom operators; these operators were then privatised. Other operators (SES, Iridium, Globalstar, etc.) were created by private investors. Satellites are allowed to operate at specific orbital positions and frequencies. These are assigned by the ITU (UNO telecom agency) in coordination with national regulations. FIGURE 37 Main satellite orbital positions Source: Barclays Research There are three main orbits for satellites:  The most important one is the Geostationary orbit (GEO), which is 35,700km above the earth. There are around 300 satellites in GEO orbit. Satellites are fixed – i.e. they always cover the same area of the earth. One satellite can cover up to one-third of the earth using C band or L band or spectrum (for more details on Spectrum, see Appendix II).  The Middle Earth Orbit (MEO) and the Low Earth Orbit (LEO) are the other two main orbits for commercial satellites (also called Non Geo Stationary Orbit or NGSO). The advantage of these positions is that, since they are closer to earth (respectively from 2,000km to 35,700m and from c.500km to 2,000km), they have lower latency than GEO orbits. This can be an advantage for voice applications. However, because the satellites orbit around the earth, a fleet is needed to achieve continuous coverage. Also antennas in some cases need to be mobile and there is a need for more ground stations (unless there are Inter Satellite Links), which makes these constellations more complex and costly to operate. The other important distinction in the industry is the market segment that is targeted:  The Fixed Satellite Services (FSS) industry operates on C, Ku and Ka bands and broadcasts its signal to antennas that are fixed and pointed toward the satellite. SES, Intelsat, Eutelsat and Telesat are the main players and together control c.60% of the market.  The Mobile Satellite Services industry (MSS) has historically used lower frequencies (S and L band) and broadcasts to customers’ antennas that are on the move – e.g. on planes, ships or mobile handsets. Inmarsat is the largest MSS operator with a c.60% share of the wholesale MSS market, based on an estimated USD1.3bn size of the market (source: Euroconsult). MSS can operate on a GEO orbit (Inmarsat) but broadcast to mobile 12 July 2021 29 Barclays | AST SpaceMobile Inc antennas (boats, trucks, mobile handsets). Alternatively, they operate on MEO or LEO orbits with a constellation (Iridium, Globalstar). The table below shows the historical split between these two axes (orbital position and services). FIGURE 38 Satellite industry segments – How it was Mobile Satellite Services (MSS) Fixed Satellite Services (FSS) GEO Orbit Inmarsat SES Thuraya Intelsat Eutelsat MEO or LEO Orbit Globalstar Iridium O3b Source: Company data, Barclays Research Importantly, the lines are blurring between the FSS and MSS segments: 1. The largest players in each segment are launching new satellite fleets that enable them to tap both segments (O3b from SES, GX from Inmarsat); 2. New constellations such as Starlink or OneWeb are targeting both FSS and MSS applications using Ka-band or Ku band; and 3. Legacy FSS players are repurposing their capacity from the sluggish video market to high-growth opportunities in MSS (in-flight connectivity, maritime). A small industry that has experienced declining revenues The satellite industry generates around $11bn of revenues per year. It has been in decline for more than 5 years due to pricing pressure on both data and video. Volumes, however, are up (number of channels, connected ships/planes/consumers), but the industry has been shaken up by a number of technological evolutions that have affected demand (negative impact of OTT on linear TV) but also led to a material decline in the cost of supply with the so-called High Throughput Satellites (HTS). FIGURE 39 A small industry USDm 2017 2018 2019 2020e FSS 9,514 9,038 8,586 8,157 yoy change -7.0% -5.0% -5.0% -5.0% MSS 1,485 1,545 1,622 1,703 yoy change 3.0% 4.0% 5.0% 5.0% Total FSS + MSS 10,999 10,583 10,208 9,860 HTS 1,091 1,201 1,321 1,453 yoy change 10.0% 10.0% 10.0% 10.0% Total incl. HTS 12,091 11,783 11,529 11,313 yoy change -4.5% -2.5% -2.2% -1.9% Source: NSR, Euroconsult, company data, Barclays Research estimates 12 July 2021 30 Barclays | AST SpaceMobile Inc APPENDIX II: Satellite Spectrum Below is a short description of satellite dedicated spectrum from the European Space Agency website. L-band (1–2 GHz). Global Positioning System (GPS) carriers and also satellite mobile phones, such as Iridium; Inmarsat providing communications at sea, land and air; WorldSpace providing satellite radio. S-band (2–3 GHz). Weather radar, surface ship radar, and some communications satellites, especially those of NASA for communication with ISS and Space Shuttle. In May 2009, Inmarsat and Solaris Mobile (a joint venture between Eutelsat and Astra) were each awarded a 2×15 MHz portion of the S-band by the European Commission. C-band (3–8 GHz). Primarily used for satellite communications, for full-time satellite TV networks or raw satellite feeds. Commonly used in areas that are subject to tropical rainfall, since it is less susceptible to rain fade (rain fade refers primarily to the absorption of a microwave radio frequency (RF) signal by atmospheric rain, snow, or ice) than Ku band (the original Telstar satellite had a transponder operating in this band used to relay the first live transatlantic TV signal in 1962). X-band (8–12 GHz). Primarily used by the military. Used in radar applications including continuous-wave, pulsed, single-polarisation, dual-polarisation, synthetic aperture radar and phased arrays. X-band radar frequency sub-bands are used in civil, military and government institutions for weather monitoring, air traffic control, maritime vessel traffic control, defence tracking and vehicle speed detection for law enforcement. Ku-band (12–18 GHz). Used for satellite communications. In Europe, Ku-band downlink is used from 10.7 GHz to 12.75 GHz for direct broadcast satellite services such as Astra. Ka-band (26–40 GHz). Communications satellites, uplink in either the 27.5 GHz and 31 GHz bands, and high-resolution, close-range targeting radars on military aircraft. FIGURE 40 Satellite spectrum bands Band Spectrum range L band 1 to 2 GHz S band 2 to 3 GHz C band 3 to 8 GHz X band 8 to 12 GHz Ku band 12 to 18 GHz K band 18 to 26.5 GHz Ka band 26.5 to 40 GHz Q band 40 to 50 GHz V band 50 to 80 GHz W band 80 to 90 GHz Source: Barclays Research, ESA 12 July 2021 31 Barclays | AST SpaceMobile Inc Appendix III: GEO Satellites in Space FIGURE 41 Geo satellites Source: Boeing 12 July 2021 32 Barclays | AST SpaceMobile Inc Appendix IV: HTS and VHTS satellites/constellations FIGURE 42 HTS and VHTS satellites Type Satellite Owner Launch Coverage Segment Capacity* Billable capacity** AnikF2 Telestar 2010 N America Broadband 5 5 Legacy HTS IPSTAR-1 Thaicom 2010 Asia Pacific Broadband 45 45 Wildblue 1 Viasat 2011 N America Broadband 30 30 Spaceway 3 Echostar/HNS 2012 N America Broadband 10 10 Hylas 1 Avanti 2012 Europe Telecom 6 6 Ka-Sat Eutelsat 2012 Europe Broadband 90 90 HTS Viasat 1 Viasat 2013-19 N America Broadband 140 140 Yahsat 1B Yahsat 2015 MENA Telecom 30 30 Jupiter 1 (Echostar XVII) Echostar/HNS 2015 N America Broadband 100 100 Hylas 2 Avanti 2015 EMEA Telecom 22 22 Global Xpress (5 satellites) Inmarsat 2015-20 Global Telecom 110 110 Thor 7 (Ka payload) Telenor 2015 EMEA Telecom 8 8 Badr-7 Arabsat 2013-19 EMEA Telecom 48 48 Telstar 12 Vantage (HTS payload) Telesat 2016 EMEA, Americas Telecom na na ETL 36C (HTS pay load) Eutelsat 2016-22 Russia Telecom 12 12 SkyMuster 1 NBN 2016 Australia Broadband 75 75 O3b (20 MEO satellites) SES 2016 Global Telecom 160 160 Jupiter 2 (Echostar XIX) Echostar/HNS 2016 N America Broadband 220 220 EPIC (5.5 satellites) Intelsat 2016-2022 Global Telecom 213 213 Echostar 21 (Terrestar 2) Echostar/HNS 2016 N America Telecom 2 2 SGDC-1 Telebras/Embraer 2016 S America Telecom 80 80 D-1 Star One 2016 S America Telecom 25 25 IPSTAR-2 Thaicom 2016 Asia Pacific Telecom 16 16 Al Yah -3 Yahsat 2017 Africa + Brazil Telecom 50 50 AMOS 6 Spacecom 2017 EMEA Telecom 18 18 SkyMuster 2 NBN 2017 Australia Broadband 135 135 ETL 172B (HTS pay load) Eutelsat 2017 Asia Pacific Telecom 2 2 Viasat 2 Viasat 2017 N America Broadband 270 270 Hylas 3 Avanti 2018 EMEA Telecom 7 7 Hylas 4 Avanti 2018 EMEA Telecom 88 88 ETL 65 West A (HTS payload) Eutelsat 2019 EMEA Telecom 38 38 SES 12,14,15 (HTS payload) SES 2020 Global Telecom 108 108 Telstar 19 Vantage Telesat 2020 Americas Broadband 31 31 Yamal - 601 Gazprom SS 2020 Russia Telecom 30 30 Futura 1, 2 Thuraya 2019-21 Global BB/Telecom na na AsiaSat-10 Asiasat 2019-22 Asia BB/Telecom na na Konnect Eutelsat 2020 MENA BB/Telecom 75 75 Kacific Broadband Satellite KBS 2021 Asia Broadband 60 60 VHTS XTS Panasonic 2021-24 Global Telecom na na OneWeb (648 satellites) UK, Bharti 2022 Global BB/Telecom 6,480 648 O3b mPower (7+4 satellites) SES 2021-23 Global BB/Telecom 1,330 1,330 Konnect VHTS Eutelsat 2022-23 Europe BB/Telecom 500 500 Jupiter 3 (Echostar XIX) Echostar/HNS 2022 EMEA Broadband 500 500 Kepler (140 cubesats) Kepler Communications 2023 Global IOT na na Viasat 3 (3 satellites) Viasat 2023 Global BB/Telecom 3,750 3,750 Telesat LEO (298) Telesat 2021-23 Global BB/Telecom 15,000 1,500 GX 7, 8, 9 Inmarsat 2023-24 Global Telecom 662 662 Starlink (12,000 sats) Space X 2022-28 Global BB/Telecom 240,000 24,000 Kuiper Systems (3,236 sats) Amazon 2023-29 Global BB/Telecom na na Viasat 4 (X satellites) Viasat 2023-24 Global BB/Telecom na na Satria PSN 2023-24 Local BB/Telecom 150 150 AST AST SpaceMobile 2022-28 Global BB/Telecom na na Total - Legacy HTS 90 90 Total - HTS 2,266 2,266 Total - VHTS 273,022 37,690 Existing FSS satellites (1Ghz = 3Gbps) 1,131 1,131 Source: Companies, Space News, Via Satellite, Space Intel, Gunters Space Page 12 July 2021 33 Barclays | AST SpaceMobile Inc APPENDIX V: Main planned LEO constellations FIGURE 43 Main existing and planned LEO constellations Starlink Oneweb Kuiper LighSpeed ETL, Bharti, UK gov, Main investors SpaceX Softbank, Hughes Amazon Telesat Satellites planned 12,000 648 3,236 298 Satellites in orbit to date 1,800 218 0 0 Full launch end (year) 2029 2022 2029 2023 Orbit LEO LEO LEO LEO Commercial service start 2021 End of 2022 Before 2025 2023 Capacity (Gbps) billable** 24,000 1,100 Na 1,500 Capex > $10bn c.$5.5bn** c.$10bn c.$5bn Mobility, IOT, Backhaul, Residencial BB, Mobility, Targeted markets Residencial BB, Mobility PNT IOT, Backhaul, Mobility, IOT, Backhaul Region Global Global Global Global Listing No No Amazon: AMZ US (OW) Loral: LORL US (NR) *** % completed 15% 34% 0% 0% Satellite life expectancy 5 7 5 10 Source: * Assumes 10% of total capacity is billable for LEO unless disclosed otherwise by company ** Total investment but $3.4bn has been written off during Chapter 11 ***LORL owns 66.7% of Telesat Capital and 33.3% of votes. Source: Company data, Barclays Research FIGURE 44 Capacity per month per Mbps: GEO more efficient than LEO in terms of capacity vs capex 70 60 50 40 30 20 10 0 Source: Company data, Barclays Research * Based on total cost of constellation ** Based on post Chapter 11 write down cost of constellation 12 July 2021 34 Barclays | AST SpaceMobile Inc Appendix VI: Sector performance and valuation FIGURE 45 FIGURE 46 5Y stock performance – All players 1Y stock performance – All players 700 600 Viasat Iridium Viasat Iridium 600 Echostar Eutelsat 500 Echostar Eutelsat SES JSAT SES JSAT 500 Orbcomm Globalstar 400 Orbcomm Globalstar 400 AST 300 300 200 200 100 100 0 0 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Source: Bloomberg Source: Bloomberg FIGURE 47 1Y stock performance – All players excluding Globalstar and Orbcomm 250 230 210 190 170 150 130 110 90 70 50 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Viasat Iridium Echostar Eutelsat SES JSAT AST Source: Bloomberg 12 July 2021 35 Barclays | AST SpaceMobile Inc FIGURE 48 KPIs for main listed satellite operators 2021e Echostar Eutelsat Globalstar Iridium JSAT SES Telesat ViaSat Revenues 1,904 1,381 120 601 1,102 2,104 656 2,743 EBITDA 648 1,042 34 367 383 2,223 523 631 Capex 501 331 15 45 114 373 74 879 Satellites 12 39 24 66 19 76 17 4 % Video revenues 0% 61% 0% 0% 30% 61% 50% 0% % Data revenues 100% 38% 100% 100% 70% 38% 47% 100% Presence Americas Global Global Global Asia Global Americas Americas Ticker - class A SATS US ETL FP GSAT US IRDM US 9412 JT SESG FP LORL US VSAT US Shares 43.1 230.5 1,792.0 133.5 297.2 383.5 21.4 72.5 Share price 23.6 9.8 1.6 39.1 405.0 6.7 38.0 48.1 In USDm Mkt Cap 2,139 2,690 2,939 5,214 1,095 3,454 1,175 3,317 Net Debt * 119 2,950 396 1,406 161 2,327 -31 1,660 Other Liabilities 64 -24.99 EV 2,321 5,640 3,335 6,620 1,256 5,781 1,144 4,976 EV/EBITDA 3.6x 5.4x 99.3x 18.0x 3.3x 2.6x Nm 7.9x EV/OpFCF 15.8x 7.9x 174.8x 20.5x 4.7x 3.1x Nm Na *Telesat Canada has entered into an agreement with Loral Space & Communication (Loral) and PSP Investments (its two shareholders) under which Telesat Canada and Loral will become subsidiaries of Telesat Corporation, which will be listed in the NASDAQ. The deal is expected to close in 2021. Loral owns 62.7% of Telesat’s economic rights, but just 32.6% of its voting rights. It has no other assets of relevance. Canada’s PSP Investments, a pension fund, owns 66.6% of the voting rights and 36.7% of the economic rights. Loral is a listed company and consolidates Telesat under the equity method, so its accounts are not representative of the revenue and EBITDA generation of Telesat. We show above the financials of Telesat but the EV of Loral. ** Adjusted for C-Band proceeds Source: Barclays Research (for Eutelsat, Iridium, SES, ViaSat), Bloomberg consensus (for others) 12 July 2021 36 Barclays | AST SpaceMobile Inc ANALYST(S) CERTIFICATION(S): We, Mathieu Robilliard and Maurice Patrick, hereby certify (1) that the views expressed in this research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report. IMPORTANT DISCLOSURES Barclays Research is produced by the Investment Bank of Barclays Bank PLC and its affiliates (collectively and each individually, "Barclays"). All authors contributing to this research report are Research Analysts unless otherwise indicated. 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Sustainalytics’ information and data is subject to conditions available at https://www.sustainalytics.com/legal-disclaimers/ Guide to the Barclays Fundamental Equity Research Rating System: Our coverage analysts use a relative rating system in which they rate stocks as Overweight, Equal Weight or Underweight (see definitions below) relative to other companies covered by the analyst or a team of analysts that are deemed to be in the same industry (the "industry coverage universe"). In addition to the stock rating, we provide industry views which rate the outlook for the industry coverage universe as Positive, Neutral or Negative (see definitions below). A rating system using terms such as buy, hold and sell is not the equivalent of our rating system. Investors should carefully read the entire research report including the definitions of all ratings and not infer its contents from ratings alone. Stock Rating Overweight - The stock is expected to outperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon. Equal Weight - The stock is expected to perform in line with the unweighted expected total return of the industry coverage universe over a 12- month investment horizon. Underweight - The stock is expected to underperform the unweighted expected total return of the industry coverage universe over a 12-month investment horizon. Rating Suspended - The rating and target price have been suspended temporarily due to market events that made coverage impracticable or to comply with applicable regulations and/or firm policies in certain circumstances including where the Investment Bank of Barclays Bank PLC is acting in an advisory capacity in a merger or strategic transaction involving the company. Industry View Positive - industry coverage universe fundamentals/valuations are improving. Neutral - industry coverage universe fundamentals/valuations are steady, neither improving nor deteriorating. Negative - industry coverage universe fundamentals/valuations are deteriorating. Below is the list of companies that constitute the "industry coverage universe": European Telecom Services AST SpaceMobile Inc (ASTS) Bezeq (BEZQ.TA) Bouygues SA (BOUY.PA) BT Group PLC (BT.L) Cellcom Israel Ltd. (CEL.TA) Cellnex Telecom (CLNX.MC) 12 July 2021 38 Barclays | AST SpaceMobile Inc IMPORTANT DISCLOSURES Deutsche Telekom AG (DTEGn.DE) Drillisch (DRIG.DE) Elisa Oyj (ELISA.HE) Euskaltel SA (EKTL.MC) Freenet (FNTGn.DE) Gamma Communications PLC (GAMA.L) Ice Group (ICEG.OL) Iliad SA (ILD.PA) INWIT (INWT.MI) Iridium Communications Inc (IRDM) KPN (KPN.AS) Liberty Global (LBTYA) NFON AG (NFN.DE) NOS (NOS.LS) Orange (ORAN.PA) Orange Belgium (OBEL.BR) OTE (OTEr.AT) Partner Communications Company Ltd. (PTNR.TA) Proximus (PROX.BR) Swisscom (SCMN.S) Tele Columbus AG (TC1n.DE) Tele2 AB (TEL2b.ST) Telecom Italia SpA (TLIT.MI) Telecom Italia-RSP (TLITn.MI) Telefonica Deutschland (O2Dn.DE) Telefonica SA (TEF.MC) Telekom Austria (TELA.VI) Telenet Group Holding NV (TNET.BR) Telenor ASA (TEL.OL) Telia Company AB (TELIA.ST) United Internet (UTDI.DE) Vantage Towers (VTWRn.DE) ViaSat (VSAT) Vodafone Group Plc (VOD.L) Zegona Communications plc (ZEG.L) Distribution of Ratings: Barclays Equity Research has 1701 companies under coverage. 48% have been assigned an Overweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Buy rating; 52% of companies with this rating are investment banking clients of the Firm; 73% of the issuers with this rating have received financial services from the Firm. 35% have been assigned an Equal Weight rating which, for purposes of mandatory regulatory disclosures, is classified as a Hold rating; 43% of companies with this rating are investment banking clients of the Firm; 70% of the issuers with this rating have received financial services from the Firm. 14% have been assigned an Underweight rating which, for purposes of mandatory regulatory disclosures, is classified as a Sell rating; 34% of companies with this rating are investment banking clients of the Firm; 60% of the issuers with this rating have received financial services from the Firm. Guide to the Barclays Research Price Target: Each analyst has a single price target on the stocks that they cover. The price target represents that analyst's expectation of where the stock will trade in the next 12 months. Upside/downside scenarios, where provided, represent potential upside/potential downside to each analyst's price target over the same 12-month period. Top Picks: Barclays Equity Research's "Top Picks" represent the single best alpha-generating investment idea within each industry (as defined by the relevant "industry coverage universe"), taken from among the Overweight-rated stocks within that industry. While analysts may highlight other Overweight- rated stocks in their published research in addition to their Top Pick, there can only be one "Top Pick" for each industry. To view the current list of Top Picks, go to the Top Picks page on Barclays Live (https://live.barcap.com/go/keyword/TopPicks). To see a list of companies that comprise a particular industry coverage universe, please go to https://publicresearch.barclays.com. Types of investment recommendations produced by Barclays Equity Research: In addition to any ratings assigned under Barclays’ formal rating systems, this publication may contain investment recommendations in the form of trade ideas, thematic screens, scorecards or portfolio recommendations that have been produced by analysts within Equity Research. Any such investment recommendations shall remain open until they are subsequently amended, rebalanced or closed in a future research report. Barclays may also re-distribute equity research reports produced by third-party research providers that contain recommendations that differ from and/or conflict with those published by Barclays’ Equity Research Department. Disclosure of other investment recommendations produced by Barclays Equity Research: Barclays Equity Research may have published other investment recommendations in respect of the same securities/instruments recommended in this research report during the preceding 12 months. To view all investment recommendations published by Barclays Equity Research in the preceding 12 months please refer to https://live.barcap.com/go/research/Recommendations. Legal entities involved in producing Barclays Research: Barclays Bank PLC (Barclays, UK) Barclays Capital Inc. (BCI, US) Barclays Bank Ireland PLC, Frankfurt Branch (BBI, Frankfurt) Barclays Bank Ireland PLC, Paris Branch (BBI, Paris) Barclays Bank Ireland PLC, Milan Branch (BBI, Milan) Barclays Securities Japan Limited (BSJL, Japan) 12 July 2021 39 Barclays | AST SpaceMobile Inc IMPORTANT DISCLOSURES Barclays Bank PLC, Hong Kong Branch (Barclays Bank, Hong Kong) Barclays Capital Canada Inc. (BCCI, Canada) Barclays Bank Mexico, S.A. (BBMX, Mexico) Barclays Securities (India) Private Limited (BSIPL, India) Barclays Bank PLC, India Branch (Barclays Bank, India) Barclays Bank PLC, Singapore Branch (Barclays Bank, Singapore) Barclays Bank PLC, DIFC Branch (Barclays Bank, DIFC) 12 July 2021 40