05 Dec 19. Smith & Wesson owner boosts outlook as US gun demand heats up. FBI has recorded an increase in background checks. Smith & Wesson’s parent company American Outdoor Brands raised its full-year outlook after booking stronger quarterly sales than forecast, as US demand for firearms has picked up in the back half of 2019. The results come after the Springfield, Massachusetts-based group said last month it would separate its gun-making business from the rest of the company whose products include knives, rifle scopes and other outdoor gear.
American Outdoor reported on Thursday net sales of $154.4m in its fiscal second quarter that ended in October, down 4.5 per cent versus the year-ago period but more than $4m higher than the top end of its guidance. On an adjusted basis, earnings of 9 cents per share surpassed estimates by two pennies. Background checks — used as a gauge of consumer gun sales — are poised to set a new annual record in 2019. The FBI processed 2.57m background checks in November, up more than 7 per cent versus last year, and the agency has recorded year-over-year gains in every month since April. Black Friday set a mark for the second-highest daily total on record. American Outdoor lifted its revenue forecast by $50m at both ends of the range. It now expects $680m to $700m in net sales for the year ending in April 2020, greater than analysts’ average estimate of $638.5m. Its guidance for full-year adjusted earnings per share rose to between 76 cents and 84 cents, from 70 to 78 cents. Analysts had projected earnings of 74 cents per share. Shares in American Outdoor rose more than 5 per cent in after-hours trading.
The stock has gained nearly 13 per cent since news of the proposed spin-off, and nearly 10 per cent in the past two days amid hopes for an upbeat earnings surprise against the backdrop of stronger demand. In recent years, American Outdoor has expanded its business of making outdoor accessories to lessen the company’s exposure to the boom-and-bust cycle of gun sales. American Outdoor said last month “changes in the political climate” and a tighter insurance market contributed to its decision to separate its accessory brands and Smith & Wesson, the 167-year-old firearms maker. Demand for rifles and handguns in the US has historically cooled off when prospective buyers perceive little threat of new restrictions on purchases. The recent increase in background checks has transpired amid the Democratic presidential primary race, with most of the party’s candidates supporting gun-control measures. (Source: FT.com)
05 Dec 19. Buy into the Babcock turnaround. Babcock International (BAB) has been maligned for several years. Criticism of the defence engineer has included: its management and corporate structure; its failings in a number of government contracts; the steady trickle of broker downgrades to forecast earnings; and a poor record on cash generation. Having traded within a whisker of 1,300p in early 2014, the shares steadily declined to a nadir of 410p in May. Over this time the valuation applied to the shares as a multiple of forecast rolling 12-month earnings (Fwd NTM PE) fell from 19 times to just six.
However, having substantially reset earnings expectations this year (see chart above) prospects may finally be improving. Large orders have come in at the marine business and there is growing optimism about a resurgence in defence spending. We think investors should take heed of the recent momentum in the shares, which signals that a long-awaited recovery may finally have begun.
Babcock breaks its activities down into four segments: marine, land, aviation and nuclear. Marine accounts for the biggest share of Babcock sales and profits at 33 per cent and 37 per cent, respectively. Meanwhile two-thirds of the group’s turnover is derived from the UK.
While half-year results last month revealed a fall in sales owing to the conclusion of a number of contracts, including aircraft carrier work, the more significant news was the signing of a deal worth around £1.25bn to build five Type 31 frigates for the UK government. The deal took Babcock’s order book up to £18bn in November from £17bn at the group’s March year-end. The contribution to profits from this Type 31 contract will start to really be felt in 2022, with broker JPMorgan forecasting that it will contribute annual profits of about £10m, rising to £20m through to 2028. Perhaps more significant has been growth in the bid pipeline, which stood at £16bn following the Type 31 win, compared with £14bn at the end of March. Babcock has since won a £1bn contract to design weapons systems for Australian Navy submarines.
The UK’s latest review of its defence expenditure in September brought a 2.3 per cent above-inflation increase in the defence budget, excluding operations, for 2020-21. This takes the four-year real-terms increase in core defence spending to 9.6 per cent, which represents the biggest such increase since the early 1980s, according to the Royal United Services Institute. The specialist nature of Babcock’s services gives it a bidding advantage; for example its Devonport facility where it maintains warships and submarines cannot be replicated by rivals.
While orders are encouraging, investors still need more encouragement on Babcock’s ability to generate cash. There may be upward pressure on working capital from contract delays in Italy and Spain, along with the group’s entry into two new markets for aviation, Norway and Canada, which will hopefully restore the division’s performance. However, the company still expects full-year free cash flow excluding pension contributions to come in at around £250m. It has also set a target of £1.4bn of free cash flow over the next five years, which should bring net debt down from 1.9 times cash profits (Ebitda) and into its target range of 1 to 1.5 times.
Even after a strong rally from May’s lows, Babcock’s shares trade at just eight times forecast 2020 earnings. With disclosed short interest standing at 7.6 per cent of the shares in issue, it’s clear that the company has its doubters. But it has also registered takeover interest, having rebuffed Serco (SRP) earlier this year and acknowledged the possibility of a private equity buyout. Meanwhile, contract wins, a large bid pipeline and the most lucrative time for defence spending since the end of the Cold War all bode well. More evidence that Babcock can achieve targets on debt, cash flow and its pension obligations could help encourage a more substantial rerating. Buy.
Last IC View: Buy, 531p, 20 Nov 2019. (Source: Investors Chronicle)
04 Dec 19. Blue Canyon Technologies Acquires Antenna Company to Expand Technological Base. Acquisition of antenna manufacturer will speed up spacecraft deliveries. Small satellite manufacturer and mission services provider Blue Canyon Technologies (BCT) has purchased leading RF antenna manufacturer, Antenna Development Corporation (AntDevCo).
As a vertically integrated company, the acquisition plays a key role in BCT incorporating antennas into their design and manufacturing capabilities portfolio. Prior to the acquisition, BCT was a primary customer for AntDevCo, procuring more than 60 antennas, 11 of which are currently on-orbit on 5 different spacecraft. The easily customizable, compact antennas will be designed in-house for use on future small satellite builds.
By bringing the RF communications system model in-house, technical risk is reduced, and capabilities are advanced. The acquisition will aid in the implementation of additional cost-effective practices such as streamlining procurement schedules, provide better integrated modeling, and offer improvements in communication solutions.
Equipment and test capabilities will also be advanced as part of acquisition. Stemming from the equipment transfer, BCT will now have a devoted Antenna Test Lab. BCT will gain access to more than 40 years of experience of antenna design, manufacture and test for antennas used from LEO to Deep Space.
Existing orders will be produced, tested and fulfilled in the current New Mexico location. Over a period of six months, all new builds, equipment and designs will transition to BCT’s Boulder-based facilities. Terms of the sale are not being disclosed.
“We are excited about the great synergy in a niche market between two leading small sat industry partners,” said Matt Beckner, Chief Operations Officer at BCT.
Blue Canyon’s highly integrated systems have enabled a broad range of missions and technological advances for the New Space economy, further reducing the barriers of space entry.
BCT is currently building more than 60 spacecraft for government NASA, Department of Defense, commercial and academic missions. The company has doubled in size over the past 12 months and plans to open its new 80,000-square-foot headquarters and production facility in 2020.
Blue Canyon Technologies, Inc., (BCT) a Colorado-based private company founded in 2008 to bring innovative, reliable and affordable solutions to space missions, is an experienced integrator of aerospace systems and developer of advanced aerospace products and technologies. BCT is a vertically integrated spacecraft manufacturer supporting nearly 40 unique missions with over 70 spacecraft. The company currently has more than 60 satellites in production and is developing a new 80,000-square-foot facility for high rate production.
BCT has supported missions for the U.S. Air Force, NASA, the Defense Advanced Research Projects Agency (DARPA) and many others and provided the Attitude Control Systems for the first interplanetary CubeSats which successfully traveled to Mars. The company has been recognized with awards including Inc Magazine’s 5000 Fastest Growing Private Companies, 2017 Colorado Companies to Watch, and the 2019 Colorado Biz Made in Colorado Emerging Manufacturer Winner. (Source: BUSINESS WIRE)
03 Dec 19. Brazilian investor group Abradin files complaint against Embraer-Boeing deal. A Brazilian group representing minority investors filed a complaint on Tuesday with Brazil’s antitrust watchdog CADE against the Embraer-Boeing deal.
The head of the Abradin group, Aurelio Valporto, said it asked for an investigation of the deal. Abradin also filed a complaint with the European Commission two months ago arguing that the acquisition of Embraer SA’s (EMBR3.SA) commercial division by Boeing Co (BA.N) creates hurdles to competition in the Brazilian aerospace industry.
Former leftist presidential candidate Ciro Gomes also filed a complaint with the Brazilian antitrust watchdog and is seeking an injunction from Brazil’s Supreme Court to block the deal.
Embraer said in a statement that it is working with global regulators on the Boeing deal, which has been approved in the United States, China and Japan. The company said it will continue to cooperate with other regulators. (Source: Reuters)
03 Dec 19. Gooch & Housego bets on subsea rescue plan. Gooch & Housego (GHH) exited its September year-end with an order book of £94.4m, representing a 5.1 per cent decline at constant currencies. Management had foreshadowed a fall-away in demand for the group’s components used in industrial lasers, set against volumes for its fibre optic products, which are at record levels.
It could be argued that the contrasting performances of the business lines, partly a consequence of the ongoing US/China trade dispute, points to the logic behind the photonics (light sciences) group’s attempts at diversification. Yet different business lines usually mean different rates of marginal profitability, so even though overall sales were up on the prior year, earnings were constricted by a near five percentage point decline in the gross margin. However, this was also attributable to further investment in the fibre optics business, the benefits of which are expected to become apparent in the current financial year.
The result might seem at odds with what management describes at the “twin strategic pillars of further diversification and moving up the value chain”, but it would be churlish to dismiss these objectives simply because of short-term weakness in the industrial laser market. Management believes that “innovation will ultimately drive future growth in the industrial laser sector”, but the comments may have been delivered in hope rather than expectation.
At any rate, shareholders can realistically look forward to further growth in the fibre optics business, as capacity has been increased to match rising demand for high-reliability fibre couplers used in subsea networks to boost signal strength and increase bandwidth.
The global subsea network is expanding rapidly as digital technologies expand across the globe. Google has become the first major non-telecom company to build a private international cable, while a host of cabling projects, such as Havfrue/AEC-2, have been driving demand for specialist couplers. Other digital leviathans such as Facebook (US:FB) and Microsoft (US:MSFT) are reliant on subsea cables as they offer more capacity and have lower latency (latency limits the maximum rate that information can be transmitted).
Arden Partners forecasts adjusted EPS of 51.7p for the year to September 2020, against 46.7p in FY2019.
Our August sell call, which may now seem overly pessimistic, was partly predicated on a deteriorating outlook on US/China trade relations, with “falling confidence in the Chinese market choking demand for industrial lasers”. If the US President is to be believed, a breakthrough may be imminent. Yet even if relations are thawing, we will wait to assess margin performance at the half-year stage before we review our recommendation. Sell. Last IC View: Sell, 1,145p, 15 Aug 2019. (Source: Investors Chronicle)
03 Dec 19. FLIR Systems Completes Strategic Investment in Providence Photonics, LLC. FLIR Systems, Inc. (NASDAQ: FLIR) and Providence Photonics, LLC announced today that FLIR has made a strategic investment in Providence Photonics, developers of advanced software used to quantify invisible gas emissions using FLIR Optical Gas Imaging (OGI) cameras.
Providence Photonics specializes in the development and utilization of advanced technology in the field of optical gas imaging while tackling some of the industry’s most challenging environmental and safety problems. Using patented technology, advanced computer vision techniques, and state-of-the-art infrared imagers, they create solutions for several applications, including leak quantification, leak survey validation, autonomous remote leak detection, and flare combustion efficiency monitoring.
As part of the strategic investment, FLIR will gain exclusive access to certain elements of Providence Photonics’ intellectual property, while helping to expand FLIR Systems’ set of offerings to its oil and gas industry customers. The companies will work to deploy Providence Photonics’ quantification algorithms in current and future FLIR OGI cameras and digital services.
“Our investment in Providence Photonics represents another example of our evolution from solely being a leading sensor company to one that adds decision support to create intelligent sensing solutions,” said Frank Pennisi, President of the Industrial Business Unit at FLIR. “This investment enables to us to better serve our existing Oil and Gas industry customers who rely on our optical gas imaging technology to improve efficiency and safety, while ensuring compliance with methane mitigation regulations.”
02 Dec 19. Hedge fund activists drop opposition to $6bn Inmarsat buyout. Group led by Oaktree Capital had argued takeover valuation was too low. A $6bn private equity takeover of British satellite group Inmarsat has moved closer to completion after a group of hedge funds dropped their opposition to the deal. Oaktree Capital Management and other investors had planned to raise objections to a recommended takeover of the FTSE 250 tech group by a private equity consortium led by Apax and Warburg Pincus at a High Court hearing on Tuesday but backed down overnight. A successful move to block the scheme of arrangement would have been unprecedented and could have undermined the established takeover process in Britain. Financial advisers to the bidding company said that an eleventh hour intervention by the judge to delay or disrupt the deal based on the hedge funds arguments would have been an extraordinary development. Inmarsat, Britain’s largest satellite company, recommended a takeover offer from a private equity consortium led by Apax and Warburg Pincus in March. The takeover has been cleared by the government and was set to proceed until Oaktree, alongside other funds, called on the sale of Inmarsat to be delayed last month. Oaktree, the fund founded by billionaire Howard Marks, wrote to the British satellite group’s board last month calling for the postponement of a court hearing next week that would clear the path for the deal. Oaktree argued that the recommended offer for Inmarsat failed to take account of the potential value of spectrum assets used by Inmarsat’s US partner Ligado Networks.
The potential value of US spectrum within the satellite industry had been underlined by a sixfold rise in Intelsat’s share price since summer last year, driven by hopes that airwaves it controlled in a range known as the C-Band would be repurposed for 5G services. But Inmarsat’s buyers rejected that argument and said on Mondaythat they would not raise its offer or extend the takeover date beyond December 10 in line with the court process. That left the hedge funds with the options of backing down or continuing to fight to derail the takeover altogether. Jefferies, the investment bank, said it was “highly likely” that the scheme of arrangement would be sanctioned on Tuesday. Inmarsat, which is based at the Old Street roundabout overlooking London’s tech-focused Shoreditch, was founded as a marine safety company by the UN in the 1970s. When it floated in 2005, satellite companies were generating huge amounts of cash from long-term contracts to provide connectivity to broadcasters, mobile phone companies and, in the UK company’s case, ships, planes and soldiers in remote areas. But in recent years satellite groups have burnt through capital as they launched new satellites to provide broadband-like services, while stiffer competition also emerged from telecoms groups and start-up rivals such as SoftBank-backed OneWeb. New growth opportunities such as in-flight WiFi, then failed to offset the loss of older revenues for the established providers. (Source: FT.com)
02 Dec 19. Rheinmetall re-enters race for Volkswagen’s Renk unit – sources. German defence group Rheinmetall (RHMG.DE) has rejoined the auction for Volkswagen’s (VOWG_p.DE) transmissions maker Renk (ZARG.F), as a mid-December deadline for the process approaches, people close to the matter said.
Rheinmetall, which was initially dropped from the race due to its unattractive offer, has been invited back to the negotiating table, the people said.
They added Rheinmetall was expected to vie with buyout funds Carlyle (CG.O) and EQT (EQTAB.ST) for the maker of transmissions used in tanks and other heavy vehicles. Renk also makes standard gears, gears for ships and slide bearings.
It is unclear whether Triton, a previously reported suitor, is still in the process, while KKR (KKR.N) has dropped out, the people said.
Volkswagen, Rheinmetall and the other suitors declined to comment.
Bids could give Renk an enterprise value of around 700 m euros (£601.36m), people close to the matter have said previously.
Renk is 76%-owned by Volkswagen’s main shareholder, Porsche SE (PSHG_p.DE), with the rest of the shares widely held. It currently has a market value of 741m euros. Renk’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 the business, the sources said. (Source: Reuters)
02 Dec 19. Moog Announces Agreement to Acquire GAT. Moog Inc. (NYSE: MOG.A and MOG.B) announced today that it has completed the acquisition of Gesellschaft für Antriebstechnik mbH and GAT Inc. (GAT) for a purchase price of €48.5m (approximately $53.8mi). GAT is headquartered in Geisenheim, Germany and has approximately 200 employees.
GAT is a world leader in the design and manufacture of high-end fluid rotating unions and slip rings. The company’s products are used in a variety of applications including specialty industrial machinery, machine tools, steel mills, medical products, wind turbines, and semiconductor fabrication.
“We are pleased to welcome GAT to Moog’s expanding line of high-performance motion products,” said Pat Roche, President of Moog’s Industrial Systems segment. “This business complements our core slip ring business, expands our offering into fluid rotary products and allows us supply fully integrated slip ring/rotary union solutions – thereby increasing the value we deliver to our customers. The GAT product offering, engineering expertise and manufacturing capability will strengthen our market position.”
GAT anticipates 2019 year-end sales of €34m (approximately $37.7m). The business was founded in 1978 and has a successful history of providing fluid rotary unions into a diverse customer base, primarily in Europe, and over the past 10 years has expanded sales into China and the U.S. regions. (Source: BUSINESS WIRE)
02 Dec 19. Arlington Capital Partners Announces Acquisition of Firth Rixson Forgings from Arconic as Part of Forged Solutions Group. Arlington Capital Partners (“Arlington Capital”), a Washington, D.C.-based private equity firm, today announced the acquisition of Firth Rixson Forgings Limited (the “Company”) from Arconic. Going forward, the business will operate as part of Forged Solutions Group (“FSG”), which was formed in November 2019 by Arlington Capital as its aerospace forging platform. Located in Sheffield, United Kingdom, the Company is a leading provider of complex closed die forgings and forged discs and proprietary forward-and-backward extrusion produced shafts and cylinders primarily for OEM and Tier 1 aerospace & defense engine customers.
Peter Manos, a Managing Partner at Arlington Capital, said “The Company is a perfect complement to our recent acquisition of Doncasters Group’s Blaenavon Forging business. The Company possesses proprietary and difficult-to-replicate manufacturing capabilities and is well positioned on fast growing, next generation engine platforms such as the LEAP, and additionally has a strong portfolio of aftermarket components on sole sourced programs.”
“We are excited to partner with a veteran aerospace investor in Arlington Capital and the management team at Blaenavon to embark on the Company’s next chapter of growth. The combination of the two businesses and the creation of Forged Solutions Group creates a supplier with the available capacity of five manufacturing facilities, complementary and fully integrated manufacturing and testing capabilities, a broader product portfolio, and strong managerial expertise to better serve our customers,” said Ben McIvor, General Manager of the Company.
Erica Son, a Vice President at Arlington Capital, said, “We could not be happier to have Ben, his deeply experienced team, and Firth Rixson’s long history in aerospace forging join Forged Solutions Group and partner with Arlington Capital. Forged Solutions Group will continue to evaluate strategic acquisitions that add new customers, new capabilities, and geographic reach to better serve our customers.” (Source: BUSINESS WIRE)
02 Dec 19. Japanese shipbuilders form business alliance. Two of Japan’s biggest shipbuilders – Imabari Shipbuilding and Japan Marine United (JMU) – have agreed to enter an alliance, the companies announced on 29 November. The move represents the latest in a series of large-scale restructuring efforts in shipbuilding in Northeast Asia. In a joint statement, Imabari and JMU said that their proposed “capital and business alliance” is aimed at “strengthening the international competitiveness of both companies” in the global shipbuilding sector. The companies said they aim to finalise the transaction before the end of March 2020.
Under the agreement, Imabari will acquire nearly a 30% stake in JMU through the issuance of new shares. (Source: IHS Jane’s)
02 Dec 19. Derby-headquartered Gardner Aerospace has acquired a 3D printing company in Burnley which operates in the automotive, medical, motorsport, F1 and aerospace industries. FDM Digital Solutions, a polymer additive layer manufacturer, was established in 2012 by Graeme Bond.
The business will become part of the Gardner Technology Centre, a newly created business unit focused on advanced technology, innovative solutions and research and development.
Gardner Aerospace chief executive Dominic Cartwright said: “Gardner Aerospace is breaking new ground in terms of technology.
“The acquisition of FDM and the creation of our new Technology Centre business unit provides us with the perfect opportunity to expand our technical knowledge, R&D capability and product offering, and aligns us with our customers’ growing expectations on innovative solutions, continuous improvement and cost competitiveness.
“The role of 3D printing within manufacturing is constantly expanding and this newly acquired additive layer manufacturing capability complements Gardner’s long-standing capabilities as a producer of metallic detailed parts and sub-assemblies.” (Source: News Now/https://www.insidermedia.com/)