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23 Sep 22. Terma to Acquire Part of Atos’ Space Business. Terma and Atos have agreed that Terma will acquire the Atos satellite ground testing busi-ness, covering Electrical Ground Support Equipment (EGSE) for satellites. This project will expand Terma’s position as a leading European Space business.
The acquisition will add key competencies to Terma’s space portfolio and increase business oppor-tunities. The agreement also represents a unique opportunity for the Atos EGSE business to reach its full potential thanks to the synergies that will be developed with Terma, while Atos will focus on its other space activities, in line with the Group’s transformation strategy.
“This is an important, strategical acquisition for Terma. Space activities play a vital role in the under-standing of our climate and environment and in defense and security matters. We already have a leading niche within select space technologies – including electronics, software solutions and space engineering services – and thanks to this acquisition, we are adding new, important competencies and offerings to foster the EGSE business,” says Jes Munk Hansen, CEO at Terma.
The future acquisition covers three main applications: Payload Testing, Radio Frequency (RF) Sub-system and Power Testing. Combined with Terma’s Central Check-out System, CCS5, it provides a comprehensive EGSE system used for functional and performance testing of a space system, ensur-ing the spacecraft is working perfectly.
“The Atos EGSE activities are fully complementary with our own EGSE activities. As an example, today, both Terma and Atos are providing EGSE solutions to European Space Agency (ESA) mis-sions.,” Jes Munk Hansen explains.
Highly skilled space experts from Atos located in Austria, Romania, and in the Czech Republic will join Terma’s teams. Terma will use this opportunity to set up companies in these three countries, hereby enhancing its European footprint. All business activities will continue under the Terma brand.
“Our space business is complementary to Terma’s, making them the right partner to acquire our EGSE business and accelerate its development as Atos has decided to strategically refocus its port-folio. In the broader context of its own transformation, Atos will retain its successful satellite monitor-ing and space data analysis activities, as part of its mission critical systems portfolio,” says Diane Galbe, Senior Executive Vice President of Atos.
The transaction is subject to regulatory approvals and work council consultation, with closing expected before March 2023.
Financial details of the transaction will not be disclosed.
21 Sep 22. Starburst Ventures Launches New Pre-Seed & Seed Fund Focusing on Aerospace & Defense Innovation. Starburst Ventures, the first venture capital fund dedicated to investing across aviation, space, and defense, today announced the launch of its new early-stage fund. Focusing on aerospace, defense, security, as well as enabling sciences and technologies, Starburst Ventures is investing in the next generation of industrial, software and hardware companies.
The fund’s team will be led by Starburst Ventures’ Founder and General Partner, François Chopard. A widely respected industry veteran, Francois founded Starburst in 2012, before A&D became the venture investment category it is today. François is joined by Benjamin Zeitoun as Investor. Together they hold a significant track record of securing investment and building startups from the early stage to IPO. Joining them in an advisory capacity is Jacqueline Tame, startup founder and former Deputy Director of the United States Department of Defense Joint Artificial Intelligence Center, and Natalya Bailey, Head of Strategy at Bloom Energy and former founder of Accion Systems, who was named top 15 most influential women in Space per Business Insider. Both will serve as hands-on advisors to provide unrivaled support in selecting investments and developing Starburst Ventures’ portfolio companies.
“The Starburst Ventures fund will be an imperative resource in developing the next generation of aerospace & defense companies,” said François Chopard, General Partner at Starburst Ventures. “Having the opportunity to lead and oversee something so impactful is a true honor. I look forward to working with some of the brightest minds across aerospace innovation and business development.”
Starburst Ventures’ existing investments include participation in a recent $7.1m seed round for Outpost, a sustainable satellite & Earth return company founded by Jason Dunn and Mike Vergalla, and backed by Moonshot Ventures & Draper Associates, as well as Strong Compute, a startup that recently completed its $7.8 m seed round and helps developers speed up machine learning training pipelines. Strong Compute is led by Ben Sand and backed by prolific investors including Sequoia Capital India, Folklore, Blackbird; and Skip Capital (led by Principal Kim Jackson). Other investments include companies wishing to stay under the radar, working on mapping the 27,000+ objects jamming Earth orbit to pave the way for space infrastructure, Open Source Intelligence platforms, and a revolutionary optical sensing payload.
“All five of these companies are at the cutting edge of aerospace innovation. We’re excited that our thesis drives our investment in both deeptech and tech companies that have the potential to make a real impact in our sector and beyond,” said Benjamin Zeitoun, Investor, Starburst Ventures.
The Starburst Ventures fund’s portfolio is a reflection of its leadership’s unique ability to imagine the next wave of innovation in space, aviation, and defense systems. Starburst Ventures is an independent US venture capital firm owned by its General Partners with a deep commitment to building the future of aerospace and defense.
About Starburst Ventures
Starburst Ventures is the first venture capital fund exclusively dedicated to investing across aviation, space, and defense to build the future of Aerospace & Defense. The team is made up of Aerospace & Defense specialists, former founders, and accelerator operators who are on a mission to help early-stage founders accelerate their business development efforts across government & industry.
Starburst is an innovation catalyst in the aerospace industry. They are the first and only global aerospace accelerator, connecting startups with corporates, investors and government, while providing strategic growth and investment consulting services for all. With offices in Los Angeles, Paris, Munich, Singapore, Seoul, Tel Aviv, and Madrid, the team has built an ecosystem of key players with 15000+ of startups in its network. Starburst’s accelerator program helps startups scale their business in aviation, space, and defense with access to the largest group of corporate stakeholders to help startups win their first contracts. More information about Starburst can be found at www.starburst.aero (Source: PR Newswire)
22 Sep 22. Ricardo’s green evolution continues. Ricardo looks well-positioned to take advantage of growing demand for green consulting services
There is a lot of spin in the world of ‘green’ investing and business. Companies, marketers, and public relations firms are understandably keen to portray corporate activity in the most flattering light in an increasingly eco-conscious market, whatever the underlying reality.
- Green transition opportunities
- Solid order book
- Undemanding valuation
- Strong cash generation
- Fairly slow revenue growth
- Return on equity has struggled
At a capital markets day in May, the management of Ricardo (RCDO) included “corporate decarbonisation”, “zero emission propulsion”, “global policy and funding for climate change”, and “energy transition” as key trends underpinning its growth strategy. The firm’s website is also littered with references to sustainability. Strange, one might think, for a company that takes a material chunk of its revenues from services related to the burning of fossil fuels.
But the engineering and consultancy firm can justifiably be considered an environmental, social and governance (ESG) investment play. Management expects that “energy and environmental transition” revenues will make up 75 per cent of cash profits by 2027 and that “sustainability and ESG advisory services” will drive growth in the coming years.
Just over a year ago, we wrote that “Ricardo, the reformed petrolhead, seems to have miles in the tank”. We stand by that statement. Over the last 12 months, the company has shown strategic progress in its path towards both a greener and more profitable future. With investor sentiment still dented by several years of margin dilution and bruising shareholder returns, the opportunity is barely reflected in the company’s shares.
A balancing act
Currently, Ricardo balances growing revenues from green consulting services with sales from traditional carbon-adjacent offerings. Its five divisions are automotive and industrial (helping vehicle manufacturers with product efficiency and performance), rail (certification services), performance products (engines and transmissions work), energy and environment (green consulting from air quality to waste and water), and defence, where its role as a supplier to the US Army recently resulted in a chunky new order for antilock brake system retrofit kits.
Automotive and industrial – from which it gets its petrolhead reputation – is the company’s biggest revenue contributor. Combined with performance products (where key clients include car giants McLaren, Porsche, and Aston Martin) these divisions took just over half of total revenue in the latest financial year to June. But green consulting revenues are growing. ‘Energy and environment’ work comprised 18 per cent of the revenue pie against 17 per cent in 2021, and there is evidence of growing demand for green-related services elsewhere. For example, management reports automotive and industrial is benefitting from a “rapid shift to decarbonised and sustainable transport solutions”.
To Stifel analyst Mark Davies Jones, Ricardo “is embarking on an overhaul aimed at moving the group to being a more focused and a more profitable business”. In a recent note, he suggested that “no quick fixes are offered, but momentum appears to be building”.
This feels like a fair assessment. In recent years, revenue growth has been less than inspiring. Sales edged up just 14 per cent in the six years to 2022, as big hits to the automotive and industrial segments during the pandemic dented momentum in 2020 and 2021. That means expectations for explosive top line growth should be tempered, and arguably, they are: FactSet-compiled consensus forecasts are for sales to hit £464m in 2025, up from £380mn this year. Slow and steady.
An overdue bump in profitability would also be welcome. Before Covid-19, the company was used to posting double-digit returns on equity – a measure which shows how efficiently a business converts equity into profits – but this fell from 20 per cent in 2016 to just 4 per cent this year and goes a long to explaining why the shares trade at less than half their 2018 high. The latest accounts showed a 30 per cent increase in annual research and development spending to £13.3m and a 9 per cent jump in capital expenditure. Both should be helpful in improving both the group’s offering and capacity to create value.
The good news is that Ricardo has differentiated itself from consulting peers in terms of both its sources of revenues and the breadth of its customer base. As of May, the group had over 500 “large and strategic customers across our sectors”, ranging from public sector clients to BP, Siemens, and Rio Tinto. Ricardo’s services are clearly well recognised.
Full-year results provided good evidence that these diversified services are also very much in demand. Order intake was up by a quarter at £425mn, with the year-end order book coming in at £340m. Order growth in automotive and industrial was a highlight, up 38 per cent, as the company enjoyed rising demand for consulting services around electrification.
Automotive & industrial and defence were the best top-line performers, with both divisions posting growth of 19 per cent, while the energy and environment arm was not far behind, with sales up 18 per cent. Elsewhere, growth has lacked momentum. Performance products sales edged up 5 per cent, while the rail division saw a 4 per cent contraction in revenues.
In terms of profitability, the energy and environment division came out on top and has been in that position for several years on the trot. Going green is paying off. The segment posted an underlying operating profit margin of 13.5 per cent, ahead of second-place defence on 13.1 per cent, though it was down by 140 basis points for 2022 due to product mix and higher costs.
The balance sheet is in a strong place, with a robust £50mn cash generated from operations and a positive working capital movement of £10.4m. This helped push net debt down by 8 per cent to £35mn, before lease liabilities. Cash conversion, always a feature to watch for a services company booking revenues and profits from multi-year contracts, came in at a solid 119 per cent.
As any engineer will tell you, projects cannot function without a brief. Fortunately, Ricardo is shooting for some ambitious but realistic financial targets in its bid to improve shareholder fortunes. These include doubling underlying operating profit by 2027, in large part by pushing the operating margin to the mid-teens range by the same year, from 7.4 per cent in 2022. A five-year average cash conversion target rate of above 90 per cent has also been set. How will the company hit the mark?
Brokers agree that both M&A and self-originating growth will have roles to play in improving performance. Liberum analysts view acquisitions as “part of the strategy but the vast bulk of growth will be organic”, while Investec views M&A as “a key element of delivering the targeted growth”.
Recent moves suggest the firm can buy (and sell) smartly. In March, Ricardo acquired Inside Infrastructure, an Australian water and sustainable resource management specialist, for a cash consideration of £6mn. It contributed £0.9m to sales and £0.1m pre-tax profit in just 10 weeks of trading in the latest financial year, which represents a small but positive start. The post-year-end sale of the company’s software business for a price which could reach £17m suggests that the business is clear on where it is headed and what it needs for success. Future deal-making is backed up by a new £150m revolving credit facility, after banking facilities were refinanced in August, and will also be aided by the balance sheet progress with cash generation and working capital.
Given its strategic progress and the long-term growth drivers that the company is well-placed to take advantage of, Ricardo’s market valuation looks undemanding. Investec has the shares trading at 13 times its 2023 forward earnings forecast, and the broker recently increased its target price from 555p to 660p. Liberum values the company at 12 times its 2023 forward earnings forecast and at less than one times’ the enterprise value to sales multiple. Both look conservative, if reasonable.
According to FactSet, the consensus analyst positions on both a forward earnings and price to book value basis are that the shares trade below their five-year averages. This, we think, makes Ricardo a value as well as an ESG play.
“It may take time to realise the group’s potential, but the core proposition – end to end technical capability to support the sustainability agenda – is a compelling and differentiated one,” argues Stifel’s Davies Jones. Of course, Ricardo isn’t the only consultancy moving in a green direction in these changing times. But what the group offers is unique, and the sheer breadth of its services stands the group in good stead as they enjoy increasing demand in a greener world.
(Source: Investors Chronicle)
22 Sep 22. Pennant – A below the radar recovery play. A supplier of products and services that train and assist engineers has returned to profit and a growing order book supports forecasts of material profit growth.
- Adjusted operating profit of £0.1mn reverses loss of £1mn in first half of 2021
- Gross margin more than doubles to 41 per cent
- Current net debt of £2.1m set to be wiped out by year-end
- Three-year order book worth £27m
Pennant (PEN:29p), an Aim-traded supplier of products and services that train and assist engineers in the defence and civilian sectors, reported a small underlying operating profit in the first half of 2022 despite reporting a decline in revenue from £7.5m to £6.9m, a reflection of the shift to higher margin software activities and the wind down of an onerous loss-making legacy armoured vehicle contact with the MoD.
Since the start of the year, the group’s software and services business has grown its first half revenue by 40 per cent to £3.6mn, accounting for more than half of group revenue for the first time. This explains why two-thirds of revenue is now recurring in nature, thus removing the lumpiness of contracts that have dogged Pennant in the past.
In addition to offering two proprietary software product suites, OmegaPS (a sophisticated logistics data tool) and R4i (a dynamic technical documentation solution), the group provides repeat consultancy, support and maintenance services on both software suites to many customers, including the Canadian and Australian defence departments and their respective supply bases.
During the summer, Pennant booked £1mn of software and equipment upgrades, lifting the total order intake to £12m during 2022. The closing three-year order book of £27m includes £12.2m of revenue for delivery in 2023, more than half of which is for software related activities. The directors note that the sales pipeline for this side of the business now exceeds £20m, highlighting multiple opportunities in the United States, Canada and Australia.
Pennant’s technical training business line, focused on the design and build of generic and platform-specific training technologies, is showing momentum, too. Having landed a three-year contract worth £8.8m to supply simulated training systems for the British Army’s new 50 Apache AH-64E helicopter fleet, the directors note that defence procurement activity continues to increase this year, particularly in relation to new and upgraded vehicle platforms in the UK. In fact, chairman John Ponsonby says that in the “prevailing global security situation, we are seeing real signs that defence procurement programmes are unlocking in our key regions, with several new opportunities already being pursued.” This aligns well with Pennant’s training systems engineering capabilities, and prospects to convert some of the £30mn contract opportunities in its sales pipeline.
The group’s balance sheet is looking in better shape, too. Since the half-year end, the disposal of surplus property has raised £2.1mn, which halved net borrowings to £2m, and net debt will be cut in half again to £1mn once recently issued invoices are settled within their 30-day payment terms. House broker WH Ireland expects Pennant to have net cash of £0.2m at the end of 2022, thus allaying concerns that some investors may have about its financial position.
- in the For the second half of 2022, WH Ireland expects Pennant to deliver an underlying operating profit of £0.3m on revenue of £7.1m, the second half order book materially de-risks these estimates. On this basis, expect pre-tax profit of £0.2m on revenue of £14m for the 12-month period.
Moreover, without the drag of the armoured vehicle contract next year – group gross margin would have been around 45 per cent in the latest six-month period without it – then WH Ireland sees a step change in 2023 profitability, predicting pre-tax profit of £1.2m on revenue of £16.5mn. Pennant has the benefit of £6.7m of historic tax losses, so forecast earnings per share (EPS) of 3.1p could accelerate sharply if the ongoing contract momentum is maintained and the group continues to win higher margin software contracts. The business has higher operational leverage, too, having terminated the lease on its Stevenage office and management is planning to rationalise more properties to realign the cost base to requirements in the post Covid-19 world.
Admittedly, investors have yet to cotton onto the upturn in Pennant’s fortunes, the share price has underperformed the London junior market by nine per cent since the annual results (‘Poised for a profitable recovery’, 25 May 2022) and only trades on a 2023 price/earnings (PE) ratio of 9.5. However, there is solid earnings recovery story unfolding here, and one that should reward bottom fishers. Buy. (Source: Investors Chronicle)
15 Sep 22. Saab Partners with Swedish Electric Aircraft Company Heart Aerospace. Saab has committed to becoming a minority shareholder in the Swedish electric aircraft manufacturer Heart Aerospace with a USD 5m investment.
Saab and Heart Aerospace have also signed a collaboration agreement regarding the supply of subsystems and the exploration of further areas of collaboration, including certification and manufacturing. This is in line with Saab’s ambition to support the transition to sustainable aviation.
“This underlines our commitment to innovative technology and solutions for sustainable aviation. Heart is a pioneer within commercial electric aviation and we look forward to contributing to the future of aviation with our experience of developing solutions at the forefront of technology,” says Micael Johansson, President and CEO of Saab. Heart Aerospace develops the ES-30, a regional electric airplane with a standard seating capacity of 30 passengers powered by batteries, allowing it to operate with low noise and with zero emissions.
Other Heart Aerospace investors include Breakthrough Energy Ventures, EQT Ventures, European Investment Council, Lower Carbon Capital, Mesa Air Group, United Airlines Ventures and Air Canada. (Source: ASD Network)
16 Sep 22. China plans sanctions on CEOs of Boeing Defense, Raytheon over Taiwan sales. China will impose sanctions on the chief executives of Boeing Defense and Raytheon over their involvement in Washington’s latest arms sales to Taiwan, a foreign ministry spokesperson said on Friday.
The sanctions on Boeing Defense, Space, and Security CEO Ted Colbert and Raytheon Technologies Corp (RTX.N) boss Gregory Hayes are in response to the U.S. State Department approval on Sept. 2 of the sale of military equipment to Taiwan.
Those sales include 60 anti-ship missiles and 100 air-to-air missiles, of which the respective principal contractors are Boeing Defense, a division of Boeing Co (BA.N), and Raytheon.
Colbert and Hayes will be sanctioned “in order to protect China’s sovereignty and security interests” said foreign ministry spokesperson Mao Ning citing “their involvement in these arms sales.”
Mao did not elaborate on what the sanctions would entail or on how they would be enforced. Neither company sells defense products to China, but both have robust commercial aviation businesses there.
U.S. defense procurement rules generally prohibit Chinese-origin content, so sanctions have had no impact on the U.S. military.
“The Chinese side once again urges the U.S. government and relevant entities to… stop selling arms to Taiwan and U.S.-Taiwan military contacts.”
The Pentagon announced the package in the wake of China’s aggressive military drills around Taiwan following a visit last month by U.S. House of Representatives Speaker Nancy Pelosi, the highest-ranking U.S. official to travel to Taipei in years.
to comment. Boeing declined to comment immediately, but on Thursday said it plans to remarket some airplanes that it had earmarked for Chinese airlines as geopolitical tensions have delayed deliveries.
In December 2021, China approved the return of Boeing’s 737 MAX to service after it had been grounded following two accidents involving the airliner that killed 346 people.
Despite the approval, Chinese airlines have not resumed flying the MAX and have not accepted deliveries of new MAX aircraft. The U.S. government has previously accused the Chinese government of blocking tens of bns of dollars of MAX deliveries to China.
Before the MAX was grounded, Boeing was selling a quarter of the planes it built annually to Chinese buyers, its largest customers.
Raytheon sells to China through its United Technologies engine business.
Friday’s announcement marks the first time Beijing identified and imposed sanctions against individuals from these companies.
Beijing considers the self-ruled island of Taiwan a wayward province it has vowed to bring under control, by force if necessary.
Taiwan rejects China’s sovereignty claims, saying only its people can decide their future, and vows to defend itself if attacked. (Source: Reuters)
16 Sep 22. Space tech startup Intuitive Machines seeks U.S. listing via $1bn SPAC deal. Intuitive Machines LLC said on Friday it plans to go public in the United States through a blank-check merger that values the space technologies provider at more than $1bn. Nine-year old Intuitive is one of NASA’s contractors and its lunar payload delivery services were selected by the space agency for three lunar missions to send the first American spacecraft to the surface of the Moon since the Apollo Program.
After Intuitive’s merger with special-purpose acquisition company (SPAC) Inflection Point Acquisition Corp (IPAX.O), the combined firm will have an enterprise value of nearly $815m, the companies said in a statement.
The SPAC had raised $300m in an initial public offering last year and said it intended to target a North American or European business in the consumer and technology sectors.
Houston-based Intuitive’s decision to go public comes at a time when the frenzy around listings through the SPAC route have wound down after nearly two years of immense popularity. A SPAC typically sells shares at $10 apiece, puts the cash in a trust account, and then searches for a company to buy. Inflection holds nearly $330m of cash in a trust.
The combined company has secured $55m of capital from entities affiliated with Inflection Point’s sponsor and an Intuitive founder, in addition to a $50m equity facility provided by CF Principal Investments.
It will list on Nasdaq under the name Intuitive Machines Inc, with the deal expected to complete in the first quarter of 2023.
JPMorgan Securities LLC and Cantor Fitzgerald & Co are serving as the financial advisors to Intuitive and Inflection, respectively. (Source: Reuters)
16 Sep 22. Spain allows Amber to lift stake in Indra to 9.99%, shares rise. The Spanish government has allowed activist fund Amber Capital to raise its stake in Indra (IDR.MC) to 9.99%, the defence company said on Friday. According to data from Refinitiv, Amber Capital holds 4.2% of Indra and would become its second-biggest shareholder after state holding company SEPI, which earlier this year increased its stake to 25.2% from 18.75%.
Shares in Indra were up 2.25% on Friday, leading gains in Spanish blue-chip index Ibex-35 (.IBEX), which was down 1.03%.
Indra still has to replace seven independent board members that were ousted or quit in June after shareholders unexpectedly agreed to give the government more control.
The company on Friday said the selection process for the directors was already at a very advanced stage and nearing completion. The appointments committee is expected to meet on Monday, Indra added.
The government’s bigger role in the company comes ahead of the rollout of a jet fighter programme, and as Spain looks to increase defence spending in the wake of Russia’s invasion of Ukraine.
The government on Tuesday authorised the joint foreign investment of Amber Capital UK and Amber Capital Italia SGR in Indra “up to a joint participation in shares, or other financial instruments with shares as underlying value, representing 9.99% of its share capital,” Amber said in a letter. At current market prices, the 10% stake in Indra has a value of around 140m euros ($139.69m). (Source: Reuters)
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