25 Sep 19. Rheinmetall, Voith vie for Volkswagen’s transmissions maker Renk – sources. German auto and defence supplier Rheinmetall (RHMG.DE) and engineering group Voith are vying for transmissions maker Renk (ZARG.F), which Volkswagen (VOWG_p.DE) has put up for sale to free up funds for investment in electric vehicles, people close to the matter said.
The industrials groups are among those expected to submit first-round bids for Renk by a mid-October deadline, they said. The bids could give the company an enterprise value of around 700m euros (619.12m pounds).
Private equity groups KKR, Carlyle and Advent are also among the potential suitors, while defence firm KraussMaffeiWegmann’s interest was expected to be muted, they said, adding that the signing of a deal is not expected before next year.
Voith, Rheinmetall and Carlyle declined to comment while the other potential bidders were not immediately available for comment.
Volkswagen declined to comment on specifics of the deal, saying it was working on a forward-looking solution for Renk in the wider context of developing a growth perspective for the group’s mechanical engineering division.
Renk’s vehicle transmissions unit – which makes transmissions used in tanks and other heavy vehicles – saw sales spike by 23% in the first six months. Its units making standard gears, and gears for ships as well its slide bearings unit saw business decline or stagnate, according to its financial report.
Volkswagen said that it was developing a growth perspective for the group’s mechanical engineering business.
“In this context, we are working on a forward-looking solution for Renk,” a company spokesman said, declining to comment on specifics of the deal.
TOP NOTCH
Renk is benefiting among others from a large order by the British Army for Ajax (GD.N) branded tanks, which are being delivered until 2026.
“The military ops are top notch, the rest is more or less a restructuring case,” one of the people said, adding that the German government was expected to scrutinise the deal to safeguard German defence technology from falling into the wrong hands.
Renk is 76%-owned by Volkswagen’s family ownership holding Porsche SE (PSHG_p.DE), with the rest of the shares widely held. It currently has a market capitalisation of 721m euros.
The company’s large exposure to the defence industry – which it supplies with transmissions for tanks and gear units for navy ships – will make it hard for buyers headquartered outside NATO countries to acquire Renk, the sources said.
In 2018, Renk posted flat earnings before taxes of 62m euros on slightly higher sales of 502m euros, while orders surged 22% to 529m.
While peers such as Rexnord, Timken, Allison and Mitsubishi Heavy trade at 6.5-8.5 times their expected earnings before interest, tax, depreciation and amortization, Renk could be valued at 8-9 times its expected core earnings, one of the people said. (Source: Reuters)
25 Sep 19. Babcock International Group PLC (Babcock or the Group). Babcock, the aerospace and defence company, is issuing the following trading update for the period from 1 April 2019.
Trading update
Trading across the Group is in line with our expectations.
Our Marine sector is performing well with increased activity across our UK warship support business and strong orders across our technology businesses. The Queen Elizabeth Class (QEC) programme is nearing completion with HMS Prince of Wales leaving Rosyth for sea trials while our Type 23 frigate life extension programme continues to progress. In Australia and Canada we continued to make good progress on our submarine and surface ship sustainment programmes. In Land, we are continuing to make good progress across our Defence Support Group (DSG) business and have successfully transitioned to the new CP6 contract in Rail. We have also seen an improvement in our South African business.
In Nuclear, activity levels have increased across defence though the civil nuclear market remains challenging. As expected, the Magnox contract transitioned to the Nuclear Decommissioning Authority at the end of August. In Aviation, we saw the successful start of our new international businesses in Canada and Norway and have made continued progress across our military businesses. While we have seen some delays in the award of new contracts in Aviation, overall bidding activity across the sector has increased.
Contract awards
The Group continued to win work across all sectors in the period, with win rates in line with our targets.
The highlight in the period was our selection as the preferred bidder for the Type 31 general-purpose frigate programme, which will provide the UK with a fleet of five new warships for £1.25bn. The ships will be assembled at Babcock’s Rosyth facility, and involve supply chains throughout the UK. Work will begin immediately following formal contract award later this financial year, with detailed design work to start now and manufacture commencing in 2021 and concluding in 2027.
Expectations for the year
We confirm our full year guidance for revenue, operating profit and free cash flow as set out in May 2019, including the phasing between the first and second halves of the year, especially for cash generation. We expect the first half to reflect the phasing of previously communicated step downs1, the normal seasonality of our business and last year’s phasing of Fomedec equipment sales in our Aviation business.
Refinancing completed
During the period, both Standard & Poor’s and DBRS confirmed the Group’s credit rating of BBB following their annual credit reviews. We renewed our 5-year Revolving Credit Facility of up to £775m and issued €550m (c.£500m) of 8-year bonds expiring in 2027. As already announced, the estimated impact of this is to increase finance costs by around £5m in FY20 and around £7m in FY21 and reduce finance costs by around £2m each year in the years following.
24 Sep 19. Centauri Announces the Acquisition of Kord Technologies. Kord Technologies’ cutting edge capabilities will enable Centauri to deliver a broader range of technology solutions to government customers.
Centauri, a leading provider of high-end engineering, intelligence, cybersecurity, and advanced technology solutions, today announced that it has acquired Kord Technologies, Inc., an integrated defense and aerospace firm based in Huntsville, Alabama. The acquisition strengthens Centauri’s defense technology capabilities and allows the organization to provide a broader range of solutions to customers across the intelligence and defense communities.
“We’re extremely excited to welcome Kord to the Centauri team,” said Dave Dzaran, CEO of Centauri. “Kord shares our commitment to developing industry-leading technology, hiring highly qualified people with deep domain expertise and a strong focus on the customer mission. Through this acquisition, we are better positioned to keep the nation safe from current and emerging threats through innovative solutions across the space, missile defense, cybersecurity, and intelligence domains.”
Kord Technologies was founded in 2008 by Allen and Tom Young and quickly became one of the fastest-growing government contractors in the country. The company has an extensive portfolio of cyber, aerospace, defense technology, aviation operations and training and logistics capabilities to include expertise in directed energy and computational fluid dynamics. By cultivating a diverse, skilled workforce adept at leveraging technologies to produce game-changing results, Kord is regularly recognized by government customers for the quality of its work. As part of the transaction, Tom Young, president of Kord, will join Centauri’s leadership team.
“Joining forces with Centauri is a win for our customers and employees,” said Tom Young. “The unique breadth and depth of our two companies will unlock new opportunities, and because Kord’s capabilities and specializations complement the work being done by Centauri, our combined teams will be able to provide even greater value to a wider list of space, intelligence and defense agencies.”
Kord is an industry leader in High Energy Laser weapon systems engineering and integration. Kord’s directed energy systems are designed to counter or defeat a variety of tactical threats on the battlefield. In August 2019, the U.S. Army selected Kord Technologies to lead its Directed Energy initiative. Under the new $484 million contract, Kord will employ critical, enabling technologies, lead development and integration of 50-kilowatt-class laser weapon systems on Stryker combat vehicles to address the Army’s urgent need for Short Range Air Defense capabilities. The company has also invested significantly in the research and development of advanced materials, propulsion system design, analysis and hypersonic and rotary-wing computational fluid dynamics. Combining these unique and cutting-edge capabilities with Centauri’s domain expertise in intelligence, space situational awareness, and advanced sensors will significantly improve the depth and breadth of support that Centauri provides its customers.
“As Centauri continues to grow, we’re committed to finding partners that champion the same values and culture that define our company,” said Dzaran. “Kord fits that mold and we’re excited to have them on the team.”
About Kord:
Kord is an integrated defense and aerospace company creating results for our clients in a fast-changing world. Kord delivers an extensive portfolio of directed energy, missile defense, space, cyber, and defense technology to Federal Government customers across the United States.
About Centauri:
Centauri is a high-end engineering, intelligence, cybersecurity and advanced technology solutions company headquartered in Chantilly, Virginia with offices Nationwide. We work with our customers in the intelligence and national security communities, helping them solve their most difficult challenges. Our agile, mission-first approach empowers our advanced technical and operational teams to meet the real-time demands and high-impact missions of national defense agencies across land, air, sea, space, and cyberspace. (Source: BUSINESS WIRE)
24 Sep 19. Pennant on track for strong profit recovery. I covered the pre-close trading update from Pennant (PEN:65p), an Aim-traded supplier of products and services that train and assist engineers in the defence and civilian sectors, in quite some detail after the company announced delays to some contracts, which prompted house broker WH Ireland to cut its 2019 pre-tax profit estimate in half to £1.8m on revenue of £20m (‘Pennant’s recovery potential’, 12 August 2019). Chief executive Philip Walker remains comfortable with that forecast, and so am I, having seen the contract schedule for delivery in the second half.
The major reason for the profit reversal is because Pennant was carrying £1m in additional costs in advance of starting work on a significant contingent contract (worth £28m in revenue over three years, according to Mr Walker) for the design, build and delivery of training equipment to the Ministry of Defence (MoD). Pennant was down-selected as supplier of training solutions by the US prime contractor in 2018. However, the effective contract start date has been pushed back to 30 June 2020, so in light of the delay the company has made £430,000 of annualised operational cost savings, and should achieve a further £170,000 in savings, all of which will be seen in the 2020 budget.
Of far more importance at this juncture is the potential for a strong recovery in Pennant’s profits as the company delivers on a healthy order book that has increased from £31m to £36m year on year. Of this sum, £11.5m is scheduled for delivery in 2020 (excluding the aforementioned single-source major contract), thus underpinning half of WH Ireland’s 2020 revenue estimate of £22.3m and significantly higher annual pre-tax profit of £3m and earnings per share of 7.7p. The higher profit margin not only reflects the aforementioned operational cost savings, but a record contribution from Pennant’s integrated logistic support (ILS) division.
This unit has long-term contracts with the Canadian and Australian defence departments, which use Pennant’s Oracle-based software product to reduce the support cost of major capital equipment in the defence, aerospace and transportation markets. The true cost of ownership of a major asset such as a train, tank or aeroplane is much more than the purchase price. Therefore, the speed and frequency of maintenance and repair has a substantial impact on overall cost. ILS is a methodology used by Pennant that identifies and minimises life cycle costs.
Mr Walker also noted during our results call this morning that he expects to report positive newsflow with regards to complementary acquisitions and partnerships in the next three to six months, both of which will underpin and diversify revenue streams away from lumpier contracts. The board has ample firepower to make bolt-on acquisitions, so as net borrowings of £400,000 are well within a £3m facility keenly priced at 1.75 per cent a year with Barclays. Also, Pennant has a further £1m bank facility, and owns unencumbered freehold property worth £5.5m. Moreover, its contracts are scheduled so that they are cash positive from day one, thus reducing working capital build.
It’s worth flagging up too that a potential £5m contract to supply trading aids to a new academy in Saudi Arabia that is due to open in September 2020 is not factored into WH Ireland’s 2020 revenue estimate even though the prime contractor is a longstanding partner of Pennant’s. Nor for that matter are three other smaller government contracts worth £2m that were deferred (due to budgetary issues) until 2020. The point being that these potential contracts and the £11.5m of contracted revenue in the order book for delivery in 2020 cover 83 per cent of WH Ireland’s 2020 revenue estimate, meaning that the ‘bridge’ is actually a lot smaller than it first appears. Moreover, analysts have yet to factor in a contribution from the £28m contingent MoD contract into 2020 estimates, thus offering potential for Pennant to outperform. Trading on a 2020 price/earnings (PE) ratio of 8.5, I continue to see strong recovery potential in the shares. Buy. (Source: Investors Chronicle)
24 Sep 19. Montagu Private Equity (“Montagu”) today announces that it has reached an agreement to acquire Jane’s (“the Company”) from IHS Markit. Jane’s is a leading provider of open source intelligence, providing timely information and data for the aerospace, defence and security industries. These insights are underpinned by a team of global analysts, covering areas ranging from information on military capabilities and budgets to national threat intelligence and defence markets forecasts.
Jane’s is a respected, trusted partner of the world’s top governments and national security agencies, as well as the largest aerospace and defence businesses. The Company was established in 1898 and has built its reputation through 120 years of service, delivering critical intelligence to its customers across the world.
Jane’s has over 300 staff based in strategic locations and works with over 600 contributing experts globally. Following completion, Jane’s will operate as a standalone business led by Blake Bartlett and his senior leadership team. Montagu intends to leverage its extensive expertise and network, working closely with Jane’s leadership team to continue the company’s growth trajectory and build upon its strong brand.
Ed Shuckburgh, Director at Montagu, said: “Jane’s is well positioned to benefit from a world which is growing increasingly reliant upon data-driven intelligence. Jane’s insights are respected and valued across the aerospace, security and defence industries and we look forward to working with Blake and his leadership team deliver on the next step in their growth strategy”.
Blake Bartlett, CEO at Jane’s added: “We will continue to focus on providing valuable insight to our customers around the world and we look forward to working closely with Montagu on further strengthening Jane’s offering and service.”
Jane’s currently sits within IHS Markit’s Transportation division alongside its Automotive and Maritime industry subsegments. Jane’s was original acquired by IHS Markit in 2007 from The Woodbridge Company and under IHS’ ownership, the business has accelerated its transition from a publisher into a digitally driven, data, information and intelligence provider.
23 Sep 19. Boeing bid for Embraer unit faces EU antitrust probe – sources. Boeing (BA.N) is set to face an EU antitrust investigation of up to five months into its bid for a controlling stake in the commercial aircraft arm of Brazil’s Embraer (EMBR3.SA), people familiar with the matter said on Monday. The deal, marking the biggest shift in commercial aerospace in decades, would reshape a global passenger jet duopoly and reinforce Western planemakers against newcomers from China, Russia and Japan. It would give Boeing a foothold in the lower end of the market, enabling it to better compete with the CSeries jets designed by Canada’s Bombardier Inc (BBDb.TO) and backed by European rival Airbus SE (AIR.PA).
Shares in Brazilian planemaker Embraer fall more than 1% on EU antitrust probe. The deal values the Embraer unit at $4.75bn (3.8bn pounds).
Embraer shares opened lower after Reuters’ report on the impending investigation and were trading 2.1% weaker at 1455 GMT.
The European Commission, which has set an Oct. 4 deadline for its preliminary review of the deal, did not respond to a request for immediate comment. The EU competition enforcer will launch a full-scale investigation following the end of its review, which could take up to five months and raises pressure on Boeing to offer concessions to address competition concerns.
The Commission recently quizzed suppliers and rivals on the deal, indicating concerns about the concentration in the market.
They were asked about the impact of the reduced number of players, from seven to six and from three to two in various segments, a person with direct knowledge of the deal said.
Boeing said it was engaged with regulatory authorities in relevant jurisdictions and was continuing to work through the regulatory approvals process. Embraer was not immediately available for comment.
Aviation analysts say there is limited overlap in the number of seats between Boeing’s 737 family and Embraer’s smaller E2 jets. There is slightly more overlap between Airbus’s portfolio and Bombardier’s CSeries programme which the European planemaker bought last year, they add. (Source: Reuters)
23 Sep 19. AirMap acquires drone workflow automation company Hangar Technology. US UTM company AirMap has today announced that it has acquired Hangar Technology, a drone workflow automation platform for enterprises. “In acquiring Hangar, AirMap augments its offering for enterprises, who are faced with mounting complexities to ensure the safety, efficiency, and scalability of their advanced drone operations,” says the company. In a press release, AirMap said: “Founded in 2015, Hangar Technology automates drone workflows for enterprises. Its products include JobSight, a construction-focused application that automates orthomosaics, panoramas, and other imaging, and TowerSight, a digital workflow application for automated tower inspections. Using the world’s most sophisticated autonomous flight and mission execution engine, Hangar software precision-scans every inch of an asset. The Hangar platform then automatically ingests, processes and analyzes drone data to create an accurate digital reconstruction and produce detailed component analysis.
“Hangar first joined the AirMap community as a developer of breakthrough automation technologies for enterprises,” said Ben Marcus, AirMap Chairman and co-founder. “We’re excited to bring this engineering talent in-house to make this technology available to our entire developer community.”
“We’ve worked closely with major players across construction and cell towers to streamline and automate every part of their UAS inspection workflow,” said Scott Lumish, CEO of Hangar. “We’re eager to combine forces with AirMap to enhance these offerings with AirMap’s airspace management capabilities for enterprises worldwide.”
Hangar Technology is a subsidiary of AirMap and retains its headquarters and team in Austin, Texas. (Source: www.unmannedairspace.info)