23 May 19. Sophos beats expectations. Shares in cyber security group Sophos (SOPH) climbed 14 per cent on release of a better-than-expected set of full-year numbers. Revenues beat consensus estimates (per Bloomberg) of $696m, underpinned by a double-digit rise in subscription sales. Billings were flat at constant currencies – hardly inspiring, but still an improvement on the “modest decline” anticipated within January’s third-quarter update. A year ago, Sophos enjoyed a step up in demand in the wake of the ‘WannaCry’ ransomware attack and the launch of its ‘Intercept X’ product. But it has since seen “a return to more traditional levels of cross-sell activity”, leading to a net renewal rate of 124 per cent – down from 140 per cent. It has also undergone a “mix shift” in billings, with growth in smaller customers buoyed by managed service provider (MSP) monthly billings, and fewer big transactions.
Such momentum among MSPs has contributed to Sophos’s new approach to guidance – now focusing on revenues and adjusted operating profit, while billings are “becoming less indicative of the medium-term growth in its business”.
Consensus forecasts are for adjusted EPS of 15ȼ for the September 2020 year-end, against 13.9ȼ in FY2019.
IC View
Deferred revenues of $742m offer improved top-line visibility, with $429m due for recognition in less than one year. Comparatives should ease, and the cybersecurity market looks attractive, with its worth estimated at around $46bn. But – as (albeit bullish) broker Stifel notes – the “shares will be in purgatory until it proves that it is not ex-growth”. While uncertainty hangs in the air, we wouldn’t hold the shares. Sell.
Last IC View: Sell, 295.4p, 4 Apr 2019. (Source: Investors Chronicle)
22 May 19. Australia’s DEWC acquires local firm to boost EW capability. DEWC Systems, a specialist in electronic warfare (EW) technologies based in South Australia, has acquired local company Associated Electronic Services (AES), which is involved in software development, electronics, and engineering for defence and aerospace. In announcing the acquisition, Defence SA, a South Australia government agency, said the acquisition will support DEWC Systems’ efforts to commercialise its research and development activity in defence and space sectors. Terms of the transaction were not revealed.
Ian Spencer, director of DEWC Systems, said, “In acquiring AES, DEWC Systems is able to combine DEWC pedigree in electronic warfare operations and engineering with AES’ legacy in advanced electronic engineering, miniaturised design, prototyping, and manufacturing.” (Source: Google/ IHS Jane’s)
23 May 19. QinetiQ Group (QQ.) said a one-third increase in orders drove its full-year revenue and operational growth, as it predicts “mid-single digit” revenue growth for 2020. Underlying basic earnings per share increased by 2 per cent to 19.7p over the period, benefiting from the higher underlying profit after tax, while adjusted pre-tax profit increased by 2 per cent to £124m. Comparative profit performance took a hit from a £22.7m gain recorded the year prior due to the sale of property and other investments. The defence contractor proposed a 4.5p final dividend, up 7.1 per cent from 4.2p a year earlier. For the full year, the dividend rose 4.8 per cent to 6.6p from 6.3p the year before. Buy. (Source: Investors Chronicle)
23 May 19. SAS better placed to deal with cash challenges as launch plans progress. Australian space company Sky and Space Global (SAS) appears to be in a better position to deal with immediate cash flow problems. In recent announcements, SAS said it has gained an unsecured US$1.1 m convertible loan agreement with independent, third-party Israeli finance provider Telefox.
“Funds from the loan will be used to provide working capital and allow SAS to finalise discussions around a new funding package to support the company achieving its goals,” SAS said.
The loan matures in a year. SAS has also confirmed the issue of 58,571,566 shares and 58,571,566 options, exercisable at five cents each to participants of the priority offer.
Gross proceeds would be $1,757,151 at the price of three cents per share.
These 329,075,133 options were to be suspended from quotation, pending SAS being reinstated to official quotation on the Australian Securities Exchange.
SAS, based in Perth, is well advanced in plans for what it calls the Pearls constellation of as many as 200 nanosatellites in equatorial orbit, providing low cost communications, data and internet services for markets in Africa, South America and Asia.
Under the 6U agreement with Danish satellite builder GomSpace, there will be an additional constellation in high inclination orbits, allowing full global coverage, including Australia, Russia, China, South Africa, Argentina and Canada.
The first launch is planned for early next year.
SAS has faced its share of challenges, including cash flow problems and loss of two board members, who are still to be replaced.
The company has substantially reduced operating costs, saving $2 m per year. Company founders and directors took a 50 per cent pay cut to set a personal example and invested $300,000 of their own funds in the company. (Source: Space Connect)
23 May 19. Serco shares jump on profit boost from $225m U.S. naval supplier deal. British outsourcer Serco on Thursday said it would buy U.S. engineering firm Alion’s naval systems unit for $225m to expand in the fast-growing segment of supplies to the U.S. Navy, sending its shares higher. It said the acquisition of Alion’s Naval Systems Business Unit would boost earnings from 2020, prompting Serco’s shares to rise 9%.
“We are adding to our engineering and design expertise on ships, which is about doubling the size of the business we do with the U.S. Navy, which is probably the fastest-growing segment of our global portfolio of government business,” CEO Rupert Soames told Reuters in a telephone interview.
NSBU would boost U.S. revenue as a proportion of group revenue to 26% from 20%. The deal does not change the timing of when dividends will be reinstated but was “helpful”, Soames said. Dividends were suspended in 2014 as part of a restructuring.
Serco, which provides services across defense, security, health and transport, has focused on winning public business abroad and cutting costs to weather a slowdown in UK outsourcing, partly caused by Brexit uncertainty.
From its first full year of ownership in 2020, NSBU is expected to contribute revenue of about $370m, EBITDA of $28 m and underlying trading profit of $20m.
That meant a 7% to 9% increase in the market consensus for underlying earnings per share, Serco said.
Serco is placing 130m pounds in new shares to fund the deal, but maintaining its debt and leverage forecasts. (Source: Reuters)
Investors Chronicle Comment: Serco (SRP) has announced the $225m (£178m) acquisition of the Naval Systems Business Unit (NSBU), a leading provider of ship and submarine design and engineering services to the US Navy, US Army and Royal Canadian Navy. NSBU has an order book of around $600m and a new business pipeline of over $2bn. It is expected to contribute around $370m of revenue and $27m of EBITDA in 2020, the first full year of ownership. The group’s net debt for FY2019 is now expected to increase to £250m (versus the £200n previously anticipated) and leverage to around 1.5 times on a pro forma basis. Shares were up almost 9 per cent in early trading.
21 May 19. Crane Co. Announces All-Cash Proposal to Acquire CIRCOR at a Significant Premium.
- All-cash proposal represents a 47% premium over the market close yesterday, and 37% and 51% premiums over the three- and six-month volume weighted average share prices, respectively
- Provides a superior alternative to CIRCOR’s prospects as a standalone company
- Provides certainty of value for CIRCOR shareholders
Crane Co. (NYSE: CR), a diversified manufacturer of highly engineered industrial products, today announced that it has submitted a proposal to the Board of Directors of CIRCOR International, Inc. (NYSE: CIR) or “CIRCOR,” to acquire CIRCOR for $45 per share in cash. The proposal represents a 47% premium over yesterday’s closing price and a 37% and 51% premium over a three- and six-month volume weighted average share price, respectively. This reflects an enterprise value of approximately $1.7 billion at a multiple of approximately 13.5x the last 12-month adjusted EBITDA.
Crane Co. proposed the all-cash transaction to CIRCOR’s President and CEO Scott Buckhout on April 30, 2019, the terms of which were confirmed by a letter to the CIRCOR Board of Directors. On May 13, the CIRCOR Board summarily rejected Crane Co.’s proposal with no offer of discussions or due diligence.
“While we had hoped to complete a transaction privately, the Board’s rejection of our proposal without comment or discussion led to our decision to make our proposal known to CIRCOR shareholders so they can express their views directly to the CIRCOR Board,” said Max Mitchell, Crane Co. President and Chief Executive Officer. “Our proposal provides CIRCOR shareholders with attractive value and certainty compared to the continued uncertainty surrounding CIRCOR’s plans to improve operating performance. Based on CIRCOR’s history of underperformance and inability to meet its own financial targets, we believe CIRCOR’s standalone plan is unlikely to generate value comparable to what we are proposing.”
Mr. Mitchell continued, “We believe that this business, which has great brands and products, has been meaningfully undermanaged for years. This has resulted in a persistent decline in CIRCOR’s share price, making it the worst performer of the peers in the S&P Midcap Capital Goods Index since the end of 2013. Based upon the strength of our disciplined operating approach, Crane Co. is well positioned to integrate CIRCOR’s businesses into our focused portfolio, realize operational synergies, and deliver long-term value to Crane shareholders. Combining CIRCOR’s Fluid Handling, Aerospace and Defense assets with Crane’s portfolio of leading brands would create a stronger competitor with additional scale and growth potential.”
Crane Co. is highly confident that the proposed transaction could occur expeditiously:
- Transaction will not be subject to a financing contingency.
- Significant resources available to complete confirmatory due diligence.
- Crane and CIRCOR are complementary businesses with no expected regulatory delays.
Advisors
Crane Co. has retained Wells Fargo Securities as its financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP as its legal advisor. (Source: BUSINESS WIRE)
22 May 19. Babcock says profit to fall during ‘challenging’ year ahead. British engineering services group Babcock said on Wednesday it expected revenue and underlying operating profit to fall in 2019/2020 during what it expects to be a “challenging” year. Babcock, whose biggest customer is Britain’s Ministry of Defence, announced flat full year profit before tax of 517.9m pounds in the year to March 2019 on a 4% decline in revenues as a cost-cutting effort helped it withstand a sluggish market as expected. It forecast underlying revenue to be around 4.9bn pounds in 2019/2020 and underlying operating profit of 515m to 535m pounds. (Source: Reuters)
21 May 19. Hanjin resumes share trading, eyes new defence deals. South Korean shipbuilder Hanjin Heavy Industries and Construction (HHIC) resumed trading on the Korean stock exchange on 21 May following a three-month suspension because of capital erosion linked to its ailing subsidiary in the Philippines. The company, which is headquartered in Busan, said it is aiming to achieve “normalisation” by winning deals in core business sectors including naval shipbuilding.
HHIC – already one of South Korea’s most prominent naval constructors – was forced to halt share trading in mid-February after its Philippine shipyard, which was faced with debt of more than USD400m, filed for voluntary rehabilitation. These losses contributed to HHIC’s total deficit of about KRW1.3trn (USD1bn) in 2018, down from losses of KRW278bn a year earlier. (Source: IHS Jane’s)
21 May 19. Sonardyne acquires maritime survey software and construction specialist EIVA. Leading subsea technology and systems provider Sonardyne International Ltd. has acquired maritime software and equipment specialist EIVA A/S. EIVA will join the Sonardyne group of companies while remaining an independent business and brand. EIVA Chief Executive Officer Jeppe Nielsen, who has been CEO since 2011, will remain in post, while Sonardyne’s Investment and Integration Director Stephen Fasham will take on the role of Chairman.
The acquisition of EIVA is the latest step in Sonardyne’s long-term growth strategy, fully supported by the Partridge family, which founded and continues to own the company. “We are committed to a sustainable future for Sonardyne,” says Simon Partridge, Sonardyne’s Strategy Director, “which includes investing in complementary technologies and enterprises that supplement our core expertise in underwater communications, navigation, monitoring and imaging systems.”
EIVA has more than 40 years’ experience in the development and delivery of software and hardware solutions to offshore and shallow water engineering and survey organisations and is increasingly supporting customers with their requirements for higher levels of automation and remote and unmanned operations through its NaviSuite software. The company employs more than 75 people with headquarters in Denmark.
Sonardyne and EIVA share a common goal of improving marine operation efficiency, enabling further automation, using embedded intelligence and remote operability.
“EIVA and Sonardyne share many of the same corporate values including long-term commitment and focus towards customers, partners and employees,” says Sonardyne Managing Director John Ramsden. “We see great potential in the EIVA product lines as well as synergies between the companies leading to new offerings. Sonardyne has the ability and willingness to accelerate the growth of the company. We are happy to see that the entire EIVA management team has chosen to stay on board to work with us into the future.”
“EIVA has experienced significant growth and profitability in the last several years,” says Jeppe Nielsen. “With a strong market position and unexplored potential, we felt the time was right to secure a new ownership structure for EIVA that allows the continuing management team to take the company to the next level. Sonardyne is an ideal match, culturally, technically and market wise, and we are confident that Sonardyne’s ownership will contribute positively to the future growth of EIVA and add value to our customers.”
Stephen Fasham, Sonardyne’s Investment and Integration Director, and now Chairman at EIVA, said: “EIVA’s day-to-day business activities are very much aligned with our own, including the drive towards remote operations and use of artificial intelligence. They are a crucial piece of the marine data and autonomy jigsaw, which fits very well within our group and will enable us to jointly provide our customers with even greater benefits.”
The terms of the acquisition, which was for EIVA A/S and its parent company EIVA Holdings A/S, were not disclosed.
17 May 19. Italy will not allow break-up of Piaggio Aerospace: deputy PM. Italy’s government will not allow a break-up of aircraft maker Piaggio Aerospace, which was placed under special administration last year, Deputy Prime Minister Luigi Di Maio said on Friday.
Piaggio Aerospace needs to find a buyer for the whole business or one of its two units – engines and aircraft, each of which includes both production and maintenance activities. Italian defence group Leonardo said on Thursday it had expressed an interest in Piaggio Aerospace’s engine and aircraft maintenance activities.
“What I don’t want is a break-up of this company,” Di Maio said, adding, however, he was not opposing Leonardo’s proposal.
Piaggio Aerospace’s extraordinary commissioner last month called for non-binding expressions of interest by May 15. Piaggio Aerospace has received 39 non-binding expressions of interest from potential buyers, a source close to the matter told Reuters on Friday, 26 of which were for the entire company. (Source: Reuters)
17 May 19. HPE acquires supercomputer maker Cray in $1.3bn deal. Hewlett Packard Enterprise is acquiring supercomputer maker Cray in a deal valued at about $1.3bn as it looks to better compete against rival IBM for a slice of the fast-growing market for data analytics and management services. HPE — the enterprise technology business that was split off from HP’s PCs and printers unit — will be paying $35 a share for Cray — a 17.4 per cent premium to the latter’s closing price on Thursday. The explosion of data volume is driving a need for computers and services that can process and handle these massive data sets and workloads. HPE said it expects the deal to strengthen its ability to sell supercomputing products to the government, academia and corporate clients. “Answers to some of society’s most pressing challenges are buried in massive amounts of data,” said HPE chief executive Antonio Neri. “Only by processing and analyzing this data will we be able to unlock the answers to critical challenges across medicine, climate change, space and more.” Seattle-based Cray is a leading maker of supercomputing systems, with about 1,300 worldwide. It made $456m in revenue in its last fiscal year, a 16 per cent increase from the prior year. HPE said it expects the deal — which will close by the end of January 2020 — to “deliver significant cost synergies”. “This is an amazing opportunity to bring together Cray’s leading-edge technology and HPE’s wide reach and deep product portfolio, providing customers of all sizes with integrated solutions and unique supercomputing technology to address the full spectrum of their data-intensive needs,” said Peter Ungaro, Cray’s chief executive. (Source: FT.com)
17 May 19. Skyborne Technologies Raises $2.5m Series A Funding. Skyborne Technologies has announced the completion of Series A capital raise of US$2.45m. The funds will support the growth and continued development of the lightest armed micro tactical UAV, targeting the defence and law enforcement market. The capital raised is from a private institutional investor based in Abu Dhabi, UAE who seeks opportunities with tech start-ups in the early stages of growth. Skyborne’s existing shareholders welcome the new investor as a shareholder and investor board member. The investment will grow the company over the next 24 months to further develop and mature the target and firing weapon system on Skyborne’s Cerberus GL UAV that will lead to commercialisation.
The US$ 2.45m Series A capital raised will be used as much needed working capital to develop Skyborne’s bespoke targeting and firing control system. The funds will support the expansion of the team from 3 to 10 full time employees, securing a commercial premise (mixed office and workshop) and procurement of hardware for the development and testing of the integrated system.
The investment establishes an aggressive tech development timeline to get Cerberus GL to market. Within 6 months a live firing demonstration will be performed to demonstrate the capabilities of Cerberus GL. The following 18 months will allow Skyborne to refine the platform for commercialisation efforts in anticipation for customer trials and sales.
The investment is the largest amount of capital the company has raised to date and is an important milestone. The success is off the back of the 12-month Queensland State Government Advance QLD Ignite Ideas Fund awarded to the company to design and assemble 2 flying prototypes of the Cerberus GL.
The recent investment into the Queensland economy has ensured Queensland’s defence industry strengthen and allows SMEs, like Skyborne Technologies, to participate and innovative hardware products. The investment has also created additional jobs in the QLD economy, which is one of the key goals for the state government. The Australian Government’s 2016 Defence White Paper and Integrated Investment Program projected an increase in defence spend over the decade to 2025-26 to close to AU$450bn. (Source: UAS VISION)
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