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UrtheCast: Small cap has huge potential, volatility

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Investors looking to space as the next frontier for multimedia content are placing their bets on high-definition camera company UrtheCast Corp.

The stock has soared 40 per cent since the company went public seven months ago, with a plan to sell pictures and video taken from the Russian segment of the International Space Station.

While it has been a bumpy ride for shareholders so far, including a huge drop last month when the space station initially had trouble connecting the cameras, analysts have high hopes for the Vancouver-based company.

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"For investors that want to capitalize on the commercialization of space early in its life cycle, this is a stock that you can do that with," said Canaccord Genuity analyst Kevin Wright.

UrtheCast has developed two high-definition cameras, valued together at $17-million, and has a barter-style partnership with companies behind the Russian Space Agency. The 10-year deal sees Russia launch, install and maintain the cameras in exchange for images of its own country, while UrtheCast has rights to the rest of the world.

Chief executive Scott Larson said the company will sell the images to governments and companies looking for pictures of Earth from space, and process and stream them over the Internet in "near real time," which can be within a few hours.

So far, the company has distribution agreements valued at $21-million annually, but won't name its clients other than to say they include resource departments in governments and large companies that want images of their properties and media.

All three analysts covering the stock are recommending it as a "buy," with price targets reaching as high as $6.

"This is a company with high operating leverage and a good sales pipeline," says Canaccord's Mr. Wright, who has a $3.50 price target.

UrtheCast closed up 5.1 per cent at $2.49 on the Toronto Stock Exchange on Tuesday after the company confirmed the second attempt to install the cameras on the space station was successful.

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The first try in late December failed due to a problem with a cable on board the space station, which sent the stock down 20 per cent in a single day.

The shares have since recovered, but remain volatile. On Monday, when the spacewalk to install the cameras was being streamed live, the stock bounced between a low of $1.87 and its all-time high of $2.82, according to TSX data.

Some investors are willing to stomach the swings, believing UrtheCast could be a potential takeover target by companies such as Google Inc. that are continuously looking to boost their content.

Clarus Securities Inc. analyst Eyal Ofir said UrtheCast is entering a large market with huge growth potential. It has products that are also complementary to other technologies that exist today, and at a lower cost.

"The market is nowhere near saturated," he said. "It can create new commercial demand that wasn't there before, for example, in the media sector."

Mr. Ofir raised his price target to $5 from $4 on Tuesday, citing the successful camera installation as a "milestone" and forecast that revenue will grow from about $12-million starting later this year to about $93-million in 2016.

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Cormark Securities Inc. has a $6 target on the stock, citing in a note Tuesday the revenue potential as a "catalyst to the stock."

Some of UrtheCast's largest competitors include satellite-image provider DigitalGlobe Inc., which has gained about 25 per cent since UrtheCast went public in late June, and Astrium, which is a division of EADS NV, now know as Airbus Group. Smaller rivals include Planet Labs and Skybox Imaging, which aren't public.

Robert McWhirter, president and portfolio manager at Selective Asset Management Inc., owns a small number of UrtheCast shares and is waiting for more results before deciding whether to increase his holdings.

Part of his hesitation is the overall pessimism in the markets. He's also looking at the stock from a technical analysis perspective and says he's waiting for the stock to "squirt through the old highs on significant volume and hold those levels."

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About the Author

Brenda Bouw is a freelance writer and editor based in Vancouver. She has more than 20 years of experience as a business reporter, including at The Globe and Mail, The Canadian Press, the Financial Post and was executive producer at BNN (formerly ROBTv). Brenda was also part of the Globe and Mail reporting team that won the 2010 National Newspaper Award for business journalism. More


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