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25 Oct 18. Will increased defense spending lead to more industry mergers? Following a record year for mergers and acquisitions in the aerospace and defense industry, activity in the sector is strong, despite a fall from last year’s cloud-nine highs, according to a report from PricewaterhouseCoopers. The value of 2018 industry deals to date is $30.3bn, nearly half the value at the same time last year, but still 48 percent above the $21.3bn, 10-year annual deal average, the PwC report said. Deal volume and average deal size are both down from this time last year, 18 and 41 percent respectively, to 290 deals, averaging $197.1m. Some of this disparity can be accounted for by the lack of a monster, blockbuster deal like United Technologies Corporation’s acquisition of Rockwell Collins for $30bn last September. Unlike last year’s four “Megadeals” ($5bn-plus), only General Dynamics’ acquisition of CSRA qualifies so far in 2018. Despite the lack of any high-value transactions in the third quarter, one notable move is Boeing’s announced agreement to acquire 80 percent of Embraer’s commercial business for $3.8bn, the PwC report emphasized.
The report noted that a higher focus on information technology infrastructure, cybersecurity, cloud computing and C4ISR is pushing a number of nontraditional and financial buyers to target diversified IT service organizations. The report attributes decreased merger and acquisition activity in the sector to “a slowdown in new orders for aerospace [original equipment manufacturers] and the absence of a significant number of large transactions.” This relatively tame level of activity may be expected to increase as industry becomes “driven by an increased focus on emerging technologies, intensified competition and [a] rise in government spending to modernize the IT infrastructure,” said Bob Long, U.S. aerospace and defense deals leader for PwC.
Regional trends remained consistent with previous years’ activity, with North America-based firms remaining the most active acquirer. In the last quarter, companies there contribute 80 percent of deal value and 31 percent of deal volume, the report said. The report also identified the Asia-Pacific region as an important area in future commercial aerospace transactions due to fleet expansion and continued capital inflows to aircraft leasing. (Source: Defense News)
25 Oct 18. Raytheon beats profit estimates, raises full-year forecast. Defense contractor Raytheon Co (RTN.N) beat analysts’ estimates for third-quarter profit on Thursday and raised its full-year forecast, helped by sales of Patriot missile defense systems and cybersecurity services.
Raytheon and other U.S. weapons makers are expected to gain from higher defense spending under U.S. President Donald Trump’s administration and stronger global demand for fighter jets and missiles.
Chief Financial Officer Toby O’Brien told Reuters in an interview on Thursday that 2019 sales are expected to grow by 6 percent to 8 percent. Wall Street analysts are expecting 6 percent, according to Refinitiv data.
Still, shares fell modestly in morning trading after the company said 2019 profit margins would be similar to 2018. During the third quarter, O’Brien told Reuters the company had a negative 0.8 percent tax rate because of one-time research and development credits and planned pension fund contributions.
He said the tax rate for the year would be about 10.5 percent, with next year’s tax rate in the range of 17 percent to 19 percent.
During an earnings conference call with analysts, O’Brien said Raytheon could look at “options” for its commercial cybersecurity unit, Forcepoint. The unit has struggled to be profitable.
“All options are out there that we will consider at the right time,” O’Brien told Wall Street analysts.
In August, Jefferies analyst Sheila Kahyaoglu wrote that a potential spinoff of the Forcepoint unit could be valued at $3.6bn.
Sales at Raytheon’s missile systems unit, its biggest by revenue, rose 7 percent to $2.08bn in the third quarter.
However, operating margin for the unit — which makes weapons including medium-range air-to-air missiles, Paveway laser-guided bombs and SM-3 anti-ballistic missiles — fell by 2.1 percentage points to 12.3 percent.
Sales at the company’s intelligence, information and services business, its second biggest, rose 13 percent to $1.74bn, boosted by higher revenue from various programs, including DOMino, which provides cybersecurity support to the U.S Department of Homeland Security.
Operating margin for the unit increased by 1.3 percentage point to 8.6 percent.
O’Brien told analysts Saudi Arabia accounted for 5 percent of revenue so far this year. Next year, Saudi business was expected to remain similar, including the expected award for TPY-2 radars for the new Saudi THAAD missile defense system.
The Trump administration and the U.S. defense industry are working to save deals in the much-touted $110bn arms package for Saudi Arabia as concerns rise about the role of the kingdom’s leadership in the death of a prominent critic.
The Waltham, Massachusetts-based company now expects 2018 earnings from continuing operations of $10.01 to $10.11 per share, up from its previous forecast of $9.77 to $9.97.
Raytheon also forecast annual sales between $27bn and $27.3bn, higher than its prior expectation of $26.7bn to $27.2bn.
Income from continuing operations attributable to the company rose 12.4 percent to $644m, or $2.25 per share, in the third quarter, beating Refinitiv estimates of $1.98. Overall sales rose 8.3 percent to $6.81bn, topping estimates for $6.70bn. Raytheon’s order backlog increased by 13 percent in the quarter to $41.6bn. (Source: Reuters)
24 Oct 18. Scisys – Exploit a mispriced Brexit. It’s not often that a company doubles half-year operating profits, reiterates guidance for the full year and its chief executive boasts that the business is “in a really good place” only to find that a month later the share price has been marked down by 25 per cent. However, the indiscriminate selling we have seen across the market in the past month has meant that good companies as well as bad have been marked down. In the case of Scisys (SSY:145p), a supplier of bespoke software systems to the media, space, defence and commercial sectors, this is an outstanding repeat buying opportunity.
For starters, following last month’s financial results, analysts at house broker finnCap tweaked their estimates up yet again and expects Scisys to deliver 2018 pre-tax profits a fifth higher at £4.6m on revenues of £57m to produce adjusted EPS of 12.1p. On this basis, the shares are rated on only 12 times likely earnings for the full year, a rating that completely ignores the important point that the £97m order book will be boosted by a “strong pipeline of prospects [to be converted in the coming weeks and months]”, according to finance director Chris Cheetham. This adds weight to finnCap’s expectations that Scisys can boost pre-tax profits to £5.3m and lift EPS to 14p next year. On that basis, the shares are rated on a miserly 2019 forward PE ratio of 10.
As I noted last month, the company’s space division is flying, having secured a key €3.9m (£3.5m) contract with Airbus, the prime contractor to the European Space Agency (ESA) and the European GNSS Agency, for developing EGNOS V3, Europe’s regional satellite-based augmentation system, which improves the performance of global navigation satellite systems, such as GPS and Galileo. The division has also secured contract extensions for work for the EU-funded Galileo programme, and is delivering on a €18m programme of work on Germany’s flagship Heinrich Hertz satellite mission, the majority of revenue from which will be booked between 2018 and 2021.
Bearing in mind the nature of these contracts, the directors have put into action a contingency plan to enable the business to continue work on EU-funded projects post Brexit without adversely affecting impacting the ability of Scisys to continue contributing to space programmes funded by the European Space Agency, the UK Space Agency and other commercial operators. To do so, the company is in the process of re-domiciling to Dublin. It has been chosen due to the similarity in legal structure, and more importantly to give Scisys continued access for the participation in EU-funded projects while at the same time retaining UK sovereignty for the purposes of UK programmes and UK tax residency. This gives the company the best of all worlds.
Shareholders are being sent a circular to approve the plan at the end of this week which will see the company maintain its Aim listing, but under a new corporate structure. It clearly makes sense to approve the plan in order to protect shareholder value. Importantly, I fully expect Scisys’s share price to recover the losses incurred since last month’s half-year results once the scheme becomes effective at the end of next month, and the penny drops with investors that the company will actually be a winner to emerge from Brexit.
Earnings growth and cash generation significantly undervalued
There is a lot to like about this company not least of which is its mightily impressive cash generation: net debt has been slashed from £9m to £3.3m in the past 12 months while at the same time the board have maintained a progressive dividend policy that has seen the payout hiked by at least 10 per cent a year since 2013. Analysts expect a payout of 2.4p this year.
It’s not just the space division that’s performing robustly, either. Scisys’s enterprise and defence arm has been buoyed by a raft of contracts including one with Vodafone (for developing a dashboard and reporting tool for the 111 non-emergency number), and recently landed a £2m award with Transport for London’s Future Bus Systems programme (to provide software design for timetabling and scheduling).
Furthermore, by combining Munich-based Annova Systems, a supplier of software-based editorial solutions to major European newsrooms including the BBC [acquired by Scisys at the end of 2016] with Scisys’s media and broadcast (M&B) unit, there should be scope to generate additional cross-selling opportunities and revenue synergies. I understand that German media group MDR, French commercial broadcaster RTL and the BBC all have contracts already with both divisions.
So, having first advised buying Scisys’s shares a year ago at 102p (‘Tune into a media play’, 11 Oct 2017), after which they hit a high of 199p at the end of July this year, I feel that the de-rating since last month’s half-year results (‘Scisys in a really good place’, 20 Sep 2018) is massively overdone.
Interestingly, the share price, at 145p on the offer, is close to the June 2018 low of 141p and very heavily oversold. For good measure, there is positive divergence on the chart, too, with the reading on the 14-day relative strength indicator (RSI) at the share price low made on 17 October higher than at the previous low on 11 October. That suggests to me that not only should a tradable rally be forthcoming shortly, but far more to boot. Buy.(Source: Investors Chronicle)
24 Oct 18. US defence contractor Northrop Grumman lifts 2018 profit forecast. Stronger outlook comes as military equipment maker sees wider profit margins. Northrop Grumman on Wednesday lifted its full year profit outlook after the US defence group, which makes everything from autonomous aircraft to radar systems, posted sales rises last quarter in two of its biggest divisions. The Virginia-based company that derives the bulk of its business from contracts with the US government has significantly increased its profit outlook after previously boosting it in July of this year. It now sees earnings per diluted share of between $18.75 and $19, up from $16.60 to $16.85. Analysts had forecast $16.94, according to a FactSet survey. Northrop held steady its estimate for $30bn in 2018 revenues, but said it now expects operating profit margin in the mid-12 per cent range — an improvement from the high 11-percent forecast from July. Net interest expense is expected to be $500m, down from $520m previously, despite a rise in global interest rates. The group’s California-headquartered Aerospace Systems division, which is developing the next-generation long-range US bomber, logged a 5 per cent rise in third-quarter profits to $3.28bn. Mission Systems, which makes sensors, radar and other technology used by the military and intelligence communities, increased sales by 3 per cent to $2.91bn. Technology Services lagged behind, with revenues sinking 12 per cent to $1.04bn. Overall revenues jumped to $8.09bn, from $6.57bn during the same three-month period in 2017, slightly ahead of Wall Street estimates of $8bn. The figure was polished by revenues from Orbital, the specialist aviation and space contractor that Northrop bought in a $9.2bn deal this summer. The division, which has since been rebranded Innovation Systems, generated sales of $1.42bn. “Our third-quarter results demonstrated solid growth and strong performance from our operations, including the first full quarter of Innovation Systems, as we continue to position the company for long-term profitable growth,” said Wes Bush, chairman and chief executive officer of Northrop Grumman. Net profits climbed to $1.1bn, or $6.54 per diluted share, in the third quarter from $643m, or $3.67 per share, in the same quarter in 2017. Shares rose by just over 1 per cent in pre-market action in New York. They were down 0.91 per cent for the year to date as of Tuesday’s close, significantly worse than the S&P aerospace and defence index, which is up 5.4 per cent in 2018. (Source: FT.com)
23 Oct 18. Fincantieri and Naval Group detail their Alliance with support of the French and Italian governments. At the 34th Franco-Italian Summit held in Lyon on 27 September 2017, the French and Italian governments announced their intention to facilitate the creation of a more efficient and competitive European shipbuilding industry and to reinforce their military naval cooperation by initiating discussions with a view to establish an industrial Alliance between Fincantieri and Naval Group. Fincantieri and Naval Group worked intensively since this date and submitted their proposal for such an Alliance in July 2018 to the competent French and Italian Ministers, encompassing an industrial project and its envisaged roadmap, along with a description of the key initiatives, which they propose to launch rapidly.
Acknowledging the declaration of support by the French and Italian governments, and subject to each company’s Boards of Directors’ approval, Fincantieri and Naval Group are ready to concretely launch the Alliance in particular with the aim of setting forth the terms and conditions for the incorporation of a 50/50 joint venture. The establishment of this JV represents a first step towards the creation of the Alliance.
Through this joint venture, Fincantieri and Naval Group intend:
- To jointly prepare winning offers for binational programs and export market;
- To foster a more efficient supply policy (cross-sourcing, best value for money, scale effect, etc.);
- To jointly conduct selected research and innovation activities aiming at providing operational superiority to customers;
- To encourage cross-fertilization between the two companies, with sharing of testing facilities/tools and expertise networks.
As of today, Naval Group and Fincantieri have already engaged in a common industrial collaboration to provide the French Navy with four logistic support ships (LSS), based on the design of the Italian Vulcano LSS. Furthermore, as of 2019 and with the support of both Ministries of Defense, Naval Group and Fincantieri contemplate to present a common offer for the first studies for the Mid-Life Upgrade of the French and Italian Horizon-class destroyers with a common Combat Management System (CMS).
A Government-to-Government Agreement would be needed to ensure the protection of sovereign assets, a fluid collaboration between the French and Italian teams and encourage further coherence of the National assistance programs, which provide a framework and support export sales.
Fincantieri and Naval Group consider that this Alliance represents a great opportunity for both groups and their eco-systems, by enhancing their ability to better serve the Italian and French navies, to capture new export contracts, to increase research funding and, ultimately, improve the competitiveness of both French and Italian naval sectors.
23 Oct 18. Lockheed Martin raises earnings guidance after strong third-quarter. Lockheed Martin raised full-year earnings guidance as it reported stronger than expected third-quarter earnings, partly due to rising production of the F-35 fighter plane. The defence contractor reported net sales of $14.3bn for the quarter ended September 30, up from $12.3bn for the year earlier period. The company forecast full year sales of $53bn, at the upper end of guidance given at the end of July for sales of between $51.6bn-$53.1bn. Earnings per shares for the period came in at $5.14, up from $3.32 for the year earlier period and well above market expectations. “Our team achieved another quarter of strong growth leading us to improve our expectations for our full-year financial results,” said Lockheed Martin chairman, president and chief executive Marillyn Hewson. The company raised its full year forecast for diluted earnings to $17.50 per share, up from July’s guidance of between $16.75-$17.05. “The preliminary outlook for 2019 assumes the US Government continues to support and fund the corporation’s key programs. Changes in circumstances may require the corporation to revise its assumptions, which could materially change its current estimate of 2019 net sales, operating margin and cash flows,” the company said in a statement. The US defence industry could risk losing large contracts with Saudi Arabia in the furore over the killing of journalist Adnan Khashoggi. However, analyst Jim Corridore, of CFRA research, said in a note before Lockheed’s earnings that “there exists the chance for contracts to be cancelled, but we see the most likely scenario as a push out in timing of deals in place and a moratorium on new deals until the current geopolitical firestorm becomes more manageable.” (Source: FT.com)
23 Oct 18. Caterpillar knocked back by concerns over rising tariff-related costs. Caterpillar reports third quarter earnings. Concerns over rising input costs as a result of the Trump administration’s tariffs overshadowed a bump up in earnings outlook and a better than expected set of third-quarter results from industrial bellwether Caterpillar. Shares in the world’s biggest earthmoving equipment maker tumbled nearly 7 per cent in pre-market trading on Tuesday as management detailed the costs from the ongoing trade war between Beijing and Washington. Caterpillar said the trade dispute, which has pushed up steel and aluminium prices and prompted retaliatory action from trading partners, resulted in $40m in extra costs for materials during the third quarter. “Manufacturing costs were higher due to increased material and freight costs,” it said in a statement. “Material costs were higher primarily due to increases in steel prices and tariffs.” Caterpillar said cost increases were more than offset by higher prices for its products and aggressive cost cutting during the third quarter, however. It added that it now expects the impact of tariffs to come at the low end of a previously provided range of $100m-$200m for the second half of this year. Still, the comments on higher costs — coming just days after Honeywell flagged potential costs in the “hundreds of millions of dollars” from higher Chinese and US tariffs — further rattled investors, who were already on edge over the prospect of slowing growth in China. For the three months to the end of September, Caterpillar took in $13.5bn in revenues, an 18 per cent rise from the prior year period and well ahead of the $13.2bn that the market was expecting. Sales in its three bigges units — construction, resource, and energy & transportation — all grew strongly, clocking in gains of 16 per cent, 35 per cent and 15 per cent respectively. Net income was $1.7bn, or $2.88 per diluted share, also topping expectations for $2.72 a share. In a sign of its ability to offset higher input costs, Caterpillar also nudged up its outlook for the year. It sees earnings per share for 2018 at $10.65-$11.65, up from the $10.50-$11.50 range it gave just three months ago. Shares in Caterpillar have been on something of a rollercoaster ride this year. Having risen sharply at the start of the year on signs of renewed sales growth following several years of weak demand, the stock was knocked back this summer by trade concerns. It has lost more than 18 per cent of its market value so far in 2018, with the bulk of that incurred since the start of October. (Source: FT.com)
22 Oct 18. United Technologies ups profit outlook on air travel boom. United Technologies raised its full-year earnings guidance for the third time this year as it reported higher than expected third-quarter earnings on strong aircraft and equipment demand. The company, which provides high technology products like elevators and aircraft engines to the aerospace and building industries, reported adjusted earnings per share for the quarter ended September 30 of $1.93, up 12 per cent on the year earlier period and well above market expectations of $1.81. United Technologies raised full year adjusted earnings guidance to $7.20 to $7.30 per share, up from its $7.10 to 7.25 per share forecast in July and an April forecast of $6.95 to $7.15. The company also raised the low end of its 2018 sales outlook to $64.0bn to $64.5bn up from $63.5bn to $64.5bn, on an improved organic growth outlook of 6 per cent, up from 5 to 6 per cent previously forecast. “Organic sales growth of 8 per cent is further proof that our investments in innovation are paying off across all of our businesses,” said chairman and chief executive Gregory Hayes. “We are well positioned to close out the year as we continue to execute on our strategic priorities. The acquisition of Rockwell Collins, once complete, will further strengthen our position as a premier systems supplier to the aerospace industry.” Third quarter sales of $16.5bn were up 10 per cent over the year earlier period, including 8 points of organic sales growth, the company said in a statement. Shares in the company were up 1 per cent in pre market trading. (Source: FT.com)
22 Oct 18. Applied Insight Acquires Mission IT Firm Organizational Strategies Inc.. Applied Insight, a market leader in solving complex technology challenges for federal government customers and backed by The Acacia Group, announced today its acquisition of Organizational Strategies Inc., a leading provider of analytics, mission IT, and intelligence, surveillance and reconnaissance services to government and commercial customers.
Applied Insight is building an agile mid-market business with the ability to navigate customers to better enabling technologies for collaboration and decision-making, combining mission intimacy with a wide reach across leading-edge capabilities and approaches. The acquisition of OSI is the latest advance in that strategy.
“By bringing AI and OSI together, we’re creating an exciting and powerful coupling that we believe customers throughout government will find compelling,” said Gavin Long, Applied Insight CEO and managing partner of The Acacia Group. “This is an important development in our strategy to create a company that works seamlessly at all levels of the most complex and sensitive mission environments ― a company that can build the systems infrastructure customers need, manage their mission-critical technologies, handle as much data as their mission requires and deliver insights that contribute to better decisions.”
By combining advanced analytics, cyber, cloud and sensor capabilities with their collective mission understanding, AI and OSI will be well-positioned to deliver solutions that are precisely on point in specific customer contexts, innovating and adapting as needed.
“Whatever we do, we start with the mission and shape capabilities around it, using our reach across a broad range of niche and differentiated technologies,” added Long. “The team at OSI shares that approach. That’s why they’re such a good fit for us. They understand what their customers need to achieve, and they design their solutions accordingly. It’s refreshing to be working with such like-minded people. We’re delighted to be enabling their vision for the business and are looking forward to having them on board.”
Founded in 1996 and based in McLean, Virginia, OSI has built a strong reputation across the U.S. national security community for its innovative mission-focused capabilities. It has a 20-year track record on major ISR programs with the Department of Defense and has supported the Department of Homeland Security since its establishment in 2002. With a team of approximately 100 highly skilled technology and program specialists, the company provides comprehensive mission IT, sensor, software and systems engineering, and data analytics services through a diverse prime contract base.
In the coming months, the leadership of AI and OSI will be working to ensure close collaboration on solution design and business development while investing in a support infrastructure that continues to enable the exemplary customer service for which both businesses are renowned.
About Applied Insight
Applied Insight is a leading technology solutions provider supporting the Federal Government with the strongest mission focus. Our solutions empower people to collaborate more effectively in delivering services vital to our nation. Our unique approach to information technology considers people first leaving no stone unturned when solving our customers’ technology challenges. We make it our job to understand our customer’s mission and the user’s reality right from the start, combining technology and process to deliver what customers really need to succeed..
About Organizational Strategies, Inc.
Since 1996, Organizational Strategies Inc. has been delivering innovative and technologically advanced solutions and services to U.S. federal government customers. Adopting our customers’ goals as our own, our experience in information technology, engineering, analysis, program and quality management, and human performance enables us to deliver comprehensive solutions tailored to the mission. (Source: BUSINESS WIRE)
22 Oct 18. Defence minister halts Israel Aerospace IPO citing security fears. Israel’s defence minister has ordered a halt to preparations for an initial public offering of Israel Aerospace Industries (IAI) over fears of possible security breaches, the Israeli business daily Globes reported on Monday. State-owned IAI was considering offering a minority stake in the company but Defence Minister Avigdor Lieberman had ordered a halt to preparations for the IPO because officials in his department had expressed concerns that outside investors might become privy to highly classified information, the report said.
It added that the freeze would remain in place at least until senior Defence Ministry officials complete a detailed report on the implications and possible risks if IAI shares were to be issued to the public.
IAI’s Chief Financial Officer Eyal Younian told Reuters in March last year that to help finance acquisitions the government should move ahead soon with plans to sell a 20 percent stake in the company on the Tel Aviv Stock Exchange. (Source: Google/www.nasdaq.com)
23 Oct 18. Acquisitions and deals signal start to South Australian defence build up. A flurry of defence deals have been signed at Euronaval 2018 in anticipation of the start of major naval shipbuilding in Adelaide. French engineering firm Groupe FIVA announced in Paris today that it would acquire Cadgile, the largest independent CAD drafting specialist in South Australia. Groupe FIVA, based in Cherbourg and a partner with Naval Group France, which is building the next generation of Australian submarines, will work with Cadgile’s staff to develop engineering services for the defence, energy and environment sectors in Australia. The announcement comes after Groupe FIVA, which already has established an office in South Australia, signed a collaboration agreement with ASC to work on current and future naval programs in Australia and France.
ASC, based in Adelaide, South Australia, also agreed to collaborate with Endel Engie, a long-term partner of Naval Group, to create joint business opportunities on Australia’s $50bn Future Submarine program.
Spanish company Detegasa signed on with South Australia’s SAGE Automation to expand its through-life-support capabilities for the Royal Australian Navy surface ship by providing in-country support for Detegasa equipment on-board LHD, DDG and future AOR vessels.
SAGE general manager for defence Paul Johnson said the deal opened opportunities for Detegasa to manufacture equipment in Australia for future programs, including the Hunter class Future Frigates.
“We see this agreement and partnership with Detegasa as a game changer for our TLS delivery. We very much look forward to working with Detegasa to bring value to the Defence support managing contractors and Navy assets,” Johnson said.
South Australian advanced manufacturing company Redarc Electronics and local manufacturer Rowlands Metalworks formalised a MOU with German naval C2 and navigation system integrator Raytheon Anschütz to partner for future Australian naval projects, including the Hunter class Future Frigates.
The Team Defence Australia stand at Euronaval has 18 South Australian companies and four local universities and education institutes.
Defence SA chief executive Richard Price said South Australian businesses made up almost half the Australian contingent.
“It’s great to see South Australian defence companies taking a proactive approach to forming strategic partnerships with international defence companies.
South Australia is pivotal in Australia’s plans to regenerate the Royal Australian Navy with new submarines, frigates and offshore patrol vessels. The ships will be built at the Osborne Naval Shipyard in Adelaide, which is undergoing a $500m upgrade, and is currently the base for work on Australia’s Air Warfare Destroyers and Collins class submarines.
The South Australian government last week opened a Defence Landing Pad in Adelaide to attract more international defence companies to set up in South Australia. (Source: theleadsouthaustralia.com.au)
22 Oct 18. Facebook looking to acquire cybersecurity firm, according to The Information. Questions linger about what Facebook would gain by taking over a cybersecurity firm, argue Oppenheimer analysts
In the wake of its recent massive security breach, Facebook Inc (NASDAQ:FB) is looking to acquire a cybersecurity firm before the end of the year in a bid to protect itself and its users, per a report in The Information. Facebook has reportedly contacted a number of cybersecurity firms about a possible acquisition, according to sources cited in the story. The move to bolster its security comes weeks after the social media giant reported that data for as many as 30 million of its users had been hacked as part of a giant security breach.
“Whereas no specific target (large or small, private or public) has been named or identified, it would appear that Facebook’s recent sizeable network breach (30m users impacted) has elevated concerns internally and externally,” wrote Shaul Eyal and Tanner Hoban, Oppenheimer analysts in a note to investors.
But questions linger about what Facebook would gain by taking over a cybersecurity firm. And Oppenheimer’s Eyal and Hoban point out that past security related transactions such as Google’s $625m acquisition of Postini back in 2007 haven’t been “characterized as overly successful (to put it mildly)”.
“Does Facebook wish to provide its users with an elevated level of security? Is the potential transaction being driven by the board of directors, under some pressure? Does Facebook wish to become a security player?” are some of Eyal and Hoban’s immediate questions in response to the news.
On the list of potential takeover targets are Palo Alto Networks (NYSE:PANW), Fortinet (NASDAQ:FTNT) and Check Point Software Technologies (NASDAQ:CHKP), which could all bolster the security of Facebook’s platform, according to Eyal and Hoban. Other names in the frame include Cyberark Software (NASDAQ:CYBR), Sailpoint Technologies Holdings Inc (NYSE:SAIL) and Okta (NASDAQ:OKTA) as these companies could address the “heightened importance of identity”.
Potential acquisition targets might have the “upper-hand” when it comes to valuations in the competitive cyber-security sector, point out Eyal and Hoban. And the solutions to Facebook’s security breach could also be addressed by a “handful of vendors offering various levels of platforms,” they say. (Source: proactiveinvestors.co.uk)
22 Oct 18. Lincoln-based Inzpire Limited (Inzpire) has announced today, Monday 22 October, that QinetiQ Group plc (QinetiQ) has agreed to become a majority investor in the company, with an 85% share ownership (with the agreement to acquire the remaining 15% after two years). The two founders of Inzpire – Mr Hugh Griffiths and Mr Mark Boyes – will continue in their roles as Chief Executive Officer and Chief Technology Officer respectively, with a view to driving continued growth both nationally and internationally, enhanced by the backing and support of QinetiQ.
QinetiQ offers excellent long-term prospects for Inzpire, endorses Inzpire’s vision of becoming the most trusted and respected defence company in the world and is fully supportive of Inzpire’s desire to retain operational independence. Inzpire’s service delivery will continue in its current guise, with no impact on current contractual obligations or change to the award-winning culture and ethos of the business.
With support from QinetiQ, Inzpire have an exciting opportunity to expand its product and service offerings to a wider international audience, taking advantage of improved financial investment and well established distribution channels around the world. The companies will work in partnership together to exploit operational synergies spanning areas including Mission Data, Human Factors, Simulation, Test and Evaluation, Mission Systems and Flight Operations.
Inzpire’s CEO, Mr Hugh Griffiths, said: “QinetiQ has been chosen as Inzpire’s new majority investor because they offer excellent opportunities for both our business and our people. QinetiQ really understands what makes Inzpire special and is fully committed to preserving and protecting our employees, culture, values and ethos. Our brand and identity, which we have worked so hard to establish as a disruptive SME over the last 13 years, will be retained. This investment is excellent news for us and will benefit Inzpire in a number of tangible ways, allowing us to expand the products and services that our highly experienced team already deliver to our customers”.
Mr Steve Wadey, QinetiQ CEO, said: “Over the past 13 years, Inzpire has become one of the most trusted names in UK defence. This trust is built on their rigorous customer focus, positive culture and their peoples’ extensive experience. Being deeply embedded with their customers, Inzpire provides training and services that are critical to maintaining and building defence capability. Our investment enhances our overall offer in defence operational training and mission systems, both in the UK and internationally. Defence operational training represents an area of significant growth as customers around the world increasingly recognise the need to enhance their training capabilities cost effectively. The combination of Inzpire and QinetiQ’s capabilities, complemented by our previous acquisitions, creates a leading provider of critical defence training.”
19 Oct 18. Embraer’s backlog hits five-year low as sales slump. The value of firm orders for Embraer SA’s (EMBR3.SA) planes fell to its lowest point in more than five years, the company said on Friday, on a canceled JetBlue Airways Corp (JBLU.O) order and doubts about a new plane aimed at the U.S. regional jet market. Embraer’s backlog, a gauge of future revenue, fell to $13.6bn at the end of September, according to a securities filing. The indicator fell from $17.4 bn in June and $18.8bn a year ago, hitting its lowest level since March 2013. Deliveries of commercial planes also fell sharply in the third quarter to 15 commercial aircraft, compared to 25 a year earlier. Deliveries of private jets rose to 24 aircraft, from 20 planes a year before. Embraer shares slipped nearly 1 percent in early trading, while the benchmark Bovespa stock index .BVSP rose over 1 percent. The company said its backlog fell largely due to the removal of two orders. JetBlue canceled an order of 24 planes after announcing in July that it would use Airbus jets to replace its aging Embraer fleet.
Embraer also said it had dropped a 100-plane order from Skywest Inc (SKYW.O) from the backlog due to uncertainty about whether pilots will agree to fly its E175-E2 for U.S. regional carriers. Sales of Embraer’s commercial jet have faced headwinds this year as it transitions to a new line-up and starts competing with Airbus SE (AIR.PA).
Embraer is in the process of selling 80 percent of its commercial jet division to Boeing Co (BA.N). Its next-generation E-Jets compete in the market for passenger jets with just over 100 seats against the CSeries line-up designed by Bombardier Inc (BBDb.TO) and recently acquired by Airbus. Boeing and Embraer’s commercial aviation partnership, which would consolidate a global passenger jet duopoly, still requires the approval of shareholders and authorities in Brazil and other major aviation markets. Once those hurdles are cleared, the challenge for Embraer will be turning around its remaining executive and defence divisions, both of which are currently lossmakers. Embraer did not report how much of its backlog is due to commercial plane orders or private jet orders. (Source: Reuters)
19 Oct 18. Honeywell says China growth slowing, tariffs to squeeze margins. Honeywell (HON.N) said on Friday it was seeing slower growth in China and that trade tariffs would squeeze margins and potentially cost it “hundreds of millions” of dollars in 2019. Like most U.S. industrial companies, Honeywell is taking a hit from the ongoing trade war between Beijing and Washington, while China’s economy shows signs of slowing. Shares of the company, which makes everything from aircraft engines to catalysts used in petroleum refining, rose earlier in the day after better-than-expected quarterly results, but pared most of those gains by midday.
“We grew the Chinese market but not at the double-digit pace that we saw earlier in the year. So that’s probably my number one area to watch,” said Chief Executive Officer Darius Adamczyk. “As I look into 2019 … I think the U.S. is going to be a very robust market again.”
Honeywell also said it expected to see some pressure on its margins next year when additional tariffs on Chinese exports could go into effect, raising the company’s costs in “hundreds of millions” of dollars from “tens of millions” in 2018.
U.S. companies are putting in place measures, ranging from raising prices on products to increasing sourcing from countries other than China, to cushion the blow from escalating trade tensions.
“The hill gets steeper,” Honeywell’s Chief Financial Officer Greg Lewis said.
Honeywell lifted its full-year forecasts for cash flow and margins as it rode a boom in e-commerce driven warehouse investment and aircraft production.
The company has benefited from a rise in global travel that has driven record orders for jets, leading to robust demand for its avionics, braking systems and other aircraft parts.
Sales at the aviation unit, the company’s biggest business, rose 10 percent to $4.03bn. Margins expanded by 80 basis points to 22.1 percent in the third quarter ended Sept. 30.
The company has also taken advantage of a boom in e-commerce as it supplies warehouse automation equipment and software to customers such as Amazon.com.
Sales in safety and productivity solutions unit, which houses the warehouse automation business, climbed 11 percent to $1.58bn, while margins jumped 150 basis points to 16.6 percent.
Excluding items, Honeywell earned $2.03 per share, beating analysts’ average estimate of $1.99 per share, according to Refinitiv data.
The company’s revenue rose 6.3 percent to $10.76bn, topping the consensus of $10.75bn. Excluding the divestiture of some businesses, Honeywell said its full-year earnings will be in a range of $7.95 to $8.00 per share. (Source: Reuters)
19 Oct 18. Oil prices and air travel help Honeywell continue winning streak. Honeywell continued its winning streak during the third quarter as higher oil prices and strong global demand for air travel helped spur demand for its services and propel earnings above analysts estimates. Shares in the industrial conglomerate, which makes everything from jet engines to products used in crude oil refining, rose 3.2 per cent in pre-market trading as the company also issued new guidance to reflect the spin-offs of its home and transportation businesses. For the three months to end of September, net sales at Honeywell rose 6.3 per cent to $10.76bn, topping the $10.75bn that Wall Street was expecting. Like-for-like sales were up 7 per cent — with the gauge rising across all four of its divisions during the period. Growth was once again driven by the aerospace business, which is benefiting from higher US military spending, as well as greater demand for spare parts and maintenance from the airline industry. The division, Honeywell’s largest, saw revenue rise 10 per cent to $4.03bn during the period. The company’s performance materials and technologies division, which makes products used by the oil and gas sector, also turned in a solid quarter. Sales rose 3 per cent to $2.64bn thanks to the sharp rally in oil prices that briefly pushed Brent crude to fresh four-year highs this month. Its remaining two divisions — home and building technology and safety and productivity solutions — notched up sales gains of 2 per cent and 11 per cent respectively. Net income attributable to Honeywell came in at $2.33bn, up from the $1.34bn reported in the prior year period. Adjusted earnings per share was $2.03, ahead of the $1.99 a share the market had forecast. The company also issued new full-year guidance to take into account the dilution from the spin-off of its transportation system business Garrett Motion and Resideo Technologies, its connected home technology business. Honeywell now expects to earn between $7.95 and $8 a share, compared to its previous range of $8.05 to $8.15 a share. Sales are now projected to be between $41.7bn and $41.8bn, down from its previous guidance of $43.1bn to $43.6bn. Organic sales growth is seen at 6 per cent, compared with its prior guidance of between 5 and 6 per cent. (Source: FT.com)
19 Oct 18. QinetiQ buys EIS Aircraft Operations for airborne training services. QinetiQ Group has successfully completed the acquisition of EIS Aircraft Operations for a total cost of €70m on a cash-free, debt-free basis. The acquisition concluded after QinetiQ received regulatory and legal approval for the transaction. Aircraft Operations is a Germany-based company that is focused on providing advanced airborne training services, in addition to supplying lightweight cabin interior products and a wide range of composites and specialised thermoplastics solutions. The company remains committed to delivering threat representation and operational readiness for different military customers.
Aircraft Operations offers airborne training services using a highly cost-effective fleet of 14 leased Pilatus PC-9 and Pilatus PC-12 aircraft, which are operated by a team of 20 pilots.
The acquisition will provide QinetiQ with a number of strategic benefits, including strengthening capability integration, threat representation and operational readiness offering while enabling the company to speed up its international growth. The definitive agreement for the purchase was reached between the two companies in April. Following the acquisition, Aircraft Operations will continue to be led by its existing management team and will form a part of QinetiQ’s international business unit. It will be reported within QinetiQ’s Europe, Middle East and Africa (EMEA) services division. (Source: airforce-technology.com)
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