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18 Apr 24. Time to look at blue chip defense stocks as Middle East tensions rise.
- The rising global unrest in the Middle East and the Ukraine/Russia war combined with sticky inflation numbers has stopped the rally of the US S&P 500 index to 5,123.41 levels from an ATH 5,264.85. It was the second week in a row when the index lost some ground.
It posted its largest weekly loss of –1.55% YTD. The 50-day moving average is at 5,111.17, which will be tested in the coming weeks. The 100-day MA is at 4,910.93 at time of writing, or -12.5%, and the 200-day MA at 4,659.14 or -16%, again at time of writing.
2024 is turning out to be very successful year for our US stock picks, after we started the US column last September. My personal picks have enjoyed great success with one exception – in order of the pick:
- September: Nvidia [NASDAQ:NVDA] ($462.41 to $881.86 +90.7%,
- October: Skechers [NYSE:SKX] $48.29 to $56.17 +16.3%,
- November: Palantir Technologies [NYSE:PLTR] $17.79 to $22.67 +27.4%,
- December: General Dynamics [NYSE:GD] $244.83 to $287.87 +17.6%
- January: Palo Alto Networks [NASDAQ:PANW] $340 to $279.07 -17.9%
- February: Live Nation Entertainment [NYSE:LYV] $88 to $101.04 +14.8%
- March: Meta Platforms [NASDAQ:META] $506 to $511.90 +1.2%
This compared to the US S&P 500 index over the period from the end of August, 4,514.87 to 5,123.41 being up +13.5% (all data April 12th, 2024).
This is all since we started the column in September 2023; it goes to show that stock picking using fundamental research and analysis can pay off – and you can beat the market – with six out of eight of my picks beating the market: this is a total equally weighted alpha return of 18.8% including PANW’s loss and META’s small gain beating the market’s return of 13.5% by 5.3%. (Source: https://www.thearmchairtrader.com/)
18 Apr 24. New fund looks to invest $1bn into Australian defence industry. Periscope Capital Partners, launched 18 April, aims to invest $1bn of Australian private capital into defence industry over the coming decade, supporting the pipeline of military technology into the Australian Defence Force.
A new Australian private equity fund has launched (18 April) to support Australian defence businesses access private capital.
Periscope Capital Partners, headed by managing partner Mark Stevens, is a sovereign, specialised defence and national security fund focused on supporting the development of Australian sovereign capability.
According to a company spokesperson, the fund aims to address the industry’s most significant business development issues including a lack of access to private capital.
The fund is looking to invest $1bn of Australian private capital into industry over the next decade, while looking to bolster Australia’s ongoing commitments to AUKUS Pillars 1 and 2.
Periscope’s team, headed by Stevens, has over 100 years of collective experience in Defence and national security advisory, and has conducted over 70 private capital deals.
A company spokesperson explained that developing Australian capability is critical to Australia’s security with regional conflict anticipated in the region from 2027.
“We want to ensure that Australian defence industry realises its full potential. By deploying significant capital into these businesses, we will build sovereign capability while keeping supply chains, jobs, and profits in Australia,” Stevens said.
“Periscope is not just a ‘fund of funds’, we are cultivating an ecosystem that nurtures and accelerates the growth of Australia’s defence capabilities to contribute to AUKUS through strategic partnerships and direct capital support.”
In working with partners, the company aims to bridge the gap for companies between early-stage funding and capital market support, and support developing technology pipelines with the ADF.
“Periscope is aligned with the aims of the government’s Defence Industry Development Strategy (DIDS) and can sit alongside the Advanced Strategic Capabilities Accelerator (ASCA) and other government initiatives and play its role in revitalising defence industry by directing private capital to enhance sovereign innovation,” Stevens said. (Source: Defence Connect)
18 Apr 24. Fujitsu announces new cyber security consulting division.
IT giant Fujitsu launches trans-Tasman Fujitsu cyber security services consulting team.
Multinational IT and communications firm Fujitsu has announced a new cyber security division focused on Australia and New Zealand.
The new Fujitsu cyber security services division will provide a range of services, including consulting and assurance, AI-enhanced security services, digital forensics, and cyber security assessments.
The service is aimed at assisting Oceanic organisations navigate their cyber security needs as they evolve.
“Organisations of all sizes are increasingly facing cyber threats,” said Graeme Beardsell, chief executive officer Asia-Pacific at Fujitsu, in a statement.
“Fujitsu cyber security services will support firms to prepare and respond to the most pressing data security challenges today. Our integrated team of experts provides comprehensive, tailored solutions, from advanced threat intelligence to rapid response mechanisms. By unifying our firm’s regional expertise, Fujitsu offers a unique strategic advantage, enabling our clients to focus on their core business with the assurance of robust cyber resilience.”
The creation of the new division comes off the back of several recent regional acquisitions, including cyber security specialist MF & Associates, Microsoft cloud security provider oobe, and Enable, APAC’s largest ServiceNow provider.
Stuart Kilduff, head of Fujitsu cyber security services, said the new division is “backed by Fujitsu’s legacy of innovation”.
(Source: Defence Connect)
16 Apr 24. Qinetiq shares lose momentum. Growth in the Avantus Federal business was “modest” in its second half.
- Earnings forecasts remain upbeat
- Shares trade at discount to five-year average
Shares in defence technology group Qinetiq (QQ.) took a dive after the company warned that market conditions had remained “difficult” in the US. Over the second half of its financial year, growth at Avantus Federal – the company it spent $590m (£348m) on in August 2022 – was described as “modest” when compared with the first half.
Outside the US, Qinetiq has continued to perform well and said full-year expectations remain in line with analysts’ forecasts, which look decent. Company-compiled estimates show revenue is expected to grow by 19 per cent to £1.88bn for the year just ended, while underlying operating profit before research and development (R&D) credits is set to increase by 18 per cent to £211mn. New orders continue to outrun revenue growth, too, with the company achieving a book-to-bill ratio of 1.1 times.
The company also remains bullish on hitting longer-term goals. In October last year, it spelled out a plan to grow revenue by 7-9 per cent a year while maintaining stable margins of 11-12 per cent and converting 90 per cent of the ensuing profits into cash. So a 7 per cent slide in its shares, dragging the price over a 12-month period down 6 per cent, is perhaps more reflective of the prevailing mood around European defence stocks, which have sold off in recent days.
FactSet consensus forecasts are for Qinetiq’s earnings to grow by 4 per cent for the financial year just ended and by a further 11 per cent this year to 30.5p by next March. Using the latter figure, the shares trade at 11 times earnings – a discount to their five-year average of 14 times and well below peer ratings. Last IC view: Buy, 337p, 16 Jan 2024. (Source: Investors Chronicle)
16 Apr 24. James Fisher swings to a loss but there are positive signs.
- The exit of lower-margin marine transportation contracts
- Goodwill impairment and increased net financing expenses
It might be slightly crude to liken James Fisher’s (FSJ) full-year assessment to a post-operative review, but management believes that the divestiture of non-core businesses has already resulted in streamlined manufacturing and supply chain functions. But it’s debatable whether this rationalisation has had a pronounced impact on financial performance, although it could conceivably be a question of timing.
Management notes that the sale of the engineering group’s nuclear decommissioning business negatively impacted the refinancing of its bank debt with all the attendant problems that entails. The sale was completed for a nominal sum, and a £6.4mn provision was included in the results to cover potential claims/settlements under parent company guarantees. Arguably, the difficulties here show why the successful implementation of the group’s strategic objectives necessitates beefed-up risk management functions, presumably a priority for the new chief financial officer, Karen Hayzen-Smith.
There were mixed outcomes in terms of trading volumes. The energy and defence divisions performed creditably, although new business at the latter division was constrained due to delays in customer procurement processes. Another rationalisation measure – the exit of lower-margin maritime transportation contracts – had a negative impact on the top line, although, by definition, it will be a temporary effect.
The group swung to an operating loss of £18.6m against a profit of £24.7m in the prior year. Management highlighted a “stronger underlying business performance”, but James Fisher headed into negative territory due to a £28mn goodwill impairment, coupled with increased net financing expenses.
There were certainly positives from an operational perspective, and an adjusted forward rating of 14 times consensus earnings isn’t prohibitive given implied price/earnings (PE) ratings over the following two financial years, but the debt overhang casts a long shadow. Sell. Last IC view: Sell, 345p, 21 Sep 2023. (Source: Investors Chronicle)
16 Apr 24. Cicor records solid growth in the first quarter and further strengthens its position in the core markets. The Cicor Group (SIX Swiss Exchange: CICN) continued to grow in the first three months of the year. Quarterly sales increased by 11.8% to CHF 107.3m compared to the first quarter of the previous year (Q1/2023: CHF 96.0m). Despite the current economic weakness, the Cicor Group achieved slight organic sales growth of 0.3% and a book-to-bill ratio of 1.0 before acquisitions. The main contribution to growth came from STS Defence (STS), which has been consolidated since January 24, 2024. Due to the aperiodic order intake in the aerospace & defence market – important projects had been won in the months prior to the integration – STS has only recorded a small number of new orders since the acquisition. As a result, new orders in the first quarter of 2024 amounted to CHF 97.4m (Q1/2023: CHF 95.0m), corresponding to a book-to-bill ratio of 0.9. Cicor thus continues to have a very high order backlog, which is almost equivalent to one year’s sales. Effective March 31, 2024, Cicor became the European market leader in the production of high-end electronics for the aerospace and defence sector and achieved market leadership in the UK through the acquisition of the three production sites of TT Electronics in the UK and China and the previously acquired companies Axis Electronics (integration 2021) and STS Defence (integration 2024). With these acquisitions and the integration of Evolution Medtec in February 2024, Cicor has taken another step forward in implementing its strategy to become the European market leader in the core markets of medical, industrial and aerospace & defence. Sustainable acquisitions and organic growth will continue to play an important role in Cicor’s strategy, as the company sees attractive opportunities to create value in a highly fragmented market. Cicor is very well positioned and is benefiting from the dynamic developments in its three core markets. Cicor expects business to increase in the second half of the year. Provided that geopolitical, economic and financial conditions do not deteriorate significantly, Cicor continues to expect sales growth to CHF 460-500 m and an EBITDA margin in the target range of 10-13% for the full year 2024. The current guidance includes the contribution of the companies acquired in the first quarter. (Source: Google/https://www.eqs-news.com/)
15 Apr 24. Leonardo close to selling submarine unit WASS to Fincantieri. Italian defence group Leonardo (LDOF.MI), is close to finalising a deal to sell its submarine unit Whitehead Alenia Sistemi Subacquei (WASS) to shipbuilder Fincantieri (FCT.MI), Leonardo’s chief executive said on Monday.
“We are talking days, not months,” Leonardo CEO Roberto Cingolani told reporters in the port city of Genoa, in remarks confirmed by a spokesperson.
The deal, expected to be worth between 200m and 300m euros ($213m-$320m), would be part of Fincantieri’s broader strategy to grow through acquisitions and focus more on the fast-growing defence sector and strengthen its position in the underwater business.
Cingolani said there had been a slowdown in negotiations due to “temporary resistances” from internal managers, but added that he was in direct contact with his counterpart, Fincantieri’s Pierroberto Folgiero, on the deal.
Both companies are state-controlled.
Financial newspaper Milano Finanza reported on Saturday that the negotiations, though at an advanced stage, were being slowed by disagreements over the price of WASS and the scope of assets and employees covered by the deal. ($1 = 0.9382 euros) (Source: Reuters)
15 Apr 24. Accenture Federal Services to Acquire Cognosante. Accenture Federal Services has entered into an agreement to acquire Cognosante, a mission-driven provider of digital transformation and cloud modernization solutions for federal health, defense, intelligence, and civilian agencies. Founded in 2008 by Michele Kang, Cognosante has grown rapidly to become a trusted provider of innovative technology solutions with its federal government clients, including healthcare programs supporting veterans, active-duty military, patients, beneficiaries, providers, and payors. The company has an exemplary delivery track record powered by technology expertise, cloud modernization and migration capabilities, and exceptional program management. Cognosante is recognized for providing great user experiences, making healthcare more accessible and equitable, and maximizing the value of federal government investments.
“We are continually innovating and investing to help federal agencies stay ahead of the ever-changing needs of their mission and customers,” said Accenture Federal Services CEO John Goodman. “Accenture Federal Services is excited to welcome the Cognosante team. We are truly impressed with their people, capabilities, and impact. Together, we will deliver on the promise of technology for the nation’s priorities.”
Cognosante’s team of more than 1,500 people will join Accenture Federal Services’ more than 14,000 people to reimagine how work gets done, solve critical challenges, and create meaningful change.
“The Cognosante team is thrilled to embark on this next chapter of our remarkable journey,” said Kang. “I am grateful for the extraordinary group of past and present employees and clients who made Cognosante what it is today. As we explored ways to continue to scale and grow, we could not have found a better home than Accenture Federal Services. The company shares our commitment to its clients and people and has industry-leading capabilities, talent, speed, and scale. We look forward to continuing to help our clients modernize, enable the future mission, and enhance the lives of millions of people.”
The completion of the acquisition is subject to regulatory review and other customary closing conditions. Terms of the transaction were not disclosed.
Accenture Federal Services is a wholly owned subsidiary of Accenture (NYSE: ACN).
About Accenture Federal Services
Accenture Federal Services is a leading US federal services company and subsidiary of Accenture LLP. We empower the federal government to solve challenges, achieve greater outcomes, and build a digital core that is agile, smart, and secure. Our more than 14,000 people are united in a shared purpose to advance our clients’ mission-critical priorities that make the nation stronger and safer, and life better for people. We draw out the best of Accenture’s global network in nearly every industry, bringing proven commercial innovation to solutions built with advanced R&D, emerging technologies, and human-centered design at speed and scale. Together, we help clients create lasting value for their workforce, customers, and partners and make a difference for the country and our communities. See how we make change that matters at accenturefederal.com. (Source: BUSINESS WIRE)
09 Apr 24. KNDS, a leading European manufacturer of military land systems based in Amsterdam, has formally renamed its Group companies Krauss-Maffei Wegmann GmbH & Co. KG and Nexter Systems S. A. with effect from 8 April 2024. Krauss-Maffei Wegmann GmbH & Co. KG now operates as KNDS Deutschland GmbH & Co. KG, Nexter Systems S. A. as KNDS France S. A. As part of these renamings, the names of the German, French, British, Italian and Belgian subsidiaries of KNDS France and KNDS Germany have also been legally adapted. For all other subsidiaries of the Group, the name changes will be implemented by the end of 2024. The previous brand names had already been replaced by the ‘KNDS’ brand in June 2023. The legal name changes required special coordination with authorities, customers and suppliers. They were therefore implemented in a second step. (Source: www.joint-forces.com)
14 Apr 24. Czech arms maker CSG chief eyes place on global stage. Michal Strnad, who a decade ago became head of CSG, a family defence business, is closing in on buying U.S. ammunitions maker Kinetic Group that will transform a company that started by buying tanks for scrap into a key player in the global arms market.
But first Strnad, the 31-year old Czech, owner and chairman of the Czechoslovak Group (CSG) — a large supplier to Ukraine — needs to fend off a rival offer for Kinetic parent Vista Outdoor (VSTO.N), to get control of around 20 percent of the West’s small ammunitions market and nearly double its revenue from last year’s 1.7 bn euros.
“We are a long-term strategic investor that wants to take it private to build it and grow it and invest in new capacity and technology,” Strnad told Reuters in an interview on Friday. “We will not just come and shake the company for the money and try to squeeze it.”
The privately-held company, which employs more than 10,000 workers at 37 sites in Europe and the United States, has made a $1.91 bn all-cash offer for Kinetic Group, formerly known as the Sporting Products, which includes its ammunition production business.
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Vista Outdoor has agreed to the CSG bid, which needs clearance from shareholders in May, and approval from Committee on Foreign Investment in the United States.
The company has also received a revised unsolicited $3 bn all-cash bid deal from investment firm MNC capital, after rejecting a previous offer from the firm.
Strnad, whose net worth more than doubled last year to $4.4 bn according to Forbes, said his company’s offer makes sense for a privately-held company like his not answerable to shareholders that has the financial wherewithal to utilise and expand capacity and withstand what he called “peaks and valleys” in the industry.
Taken together with the 2022 acquisition 70% of Italy’s small-calibre ammunition maker Fiocchi Munizioni, the deal would make CSG the biggest player in that market in the world outside China and Russia, Strnad said.
“There is big space to improve efficiency and invest into automation, new production lines and machines,” said Strnad, who sees the deal giving the Czech company entry into the market for government contracts in the United States and elsewhere.
FROM SCRAP TO GLOBAL PLAYER
Strnad’s father Jaroslav started the business in the 1990s after the Cold War, buying Soviet-era military equipment, initially meant for scrapping. He then turned to refurbishing it, and slowly growing the company from a small outfit with family members.
The father stepped away in 2013 and handed CSG leadership to then 21-year old Strnad, who started working at the company in high school and has overseen its growth into a major producer in the European Union and exporter to over 50 markets including many fellow NATO member states.
“I finished school when I was 18… at 1 p.m. I got in the car and went to the factory to work,” said Strnad whose first job at the company was working in a storage warehouse with his grandmother during summer holidays when he was just 13.
The fast growth under Strnad accelerated in 2022 following Russia’s invasion of Ukraine because the company was able to supply refurbished Soviet-era tanks as well as new equipment, and quickly ramped up shell production.
Core earnings more than doubled in 2023 to 439 m euros and CSG forecast continued strong demand for its heavy military equipment and large-caliber ammunition as countries ramp up defence spending amid the war in Ukraine.
Strnad said the company plans to tap its war chest for some additional acquisitions, though nothing the scale of Vista.
“We would like to grow in all of our divisions in the group,” said Strnad who said targets in the defence industry had big premiums these days. “In each group there are small or bigger acquisitions. Some are vertical while some are buying competitors.”
ARTILLERY BACKLOG
Where Strnad said the company has seen huge growth due to Ukraine is the production of large calibre ammunition, where its annual capacity has increased 10-fold to more than 500,000 rounds of tank and various artillery rounds, which is a significant part of current European capacity.
“We have invested hundreds of millions of euros since the start of the war in capacity,” Strnad said.
He said the company now had a backlog of artillery orders for six years and was investing further into new capacity at its plants in Slovakia, Spain and Serbia.
Strnad said CSG also planned to restart and idle gun powder and nitrocellulose production line at an Italian factory, in cooperation with the Italian government, to address what he called a huge bottleneck for European ammunition makers.
The company, which also makes howitzers, armoured vehicles or multiple rocket launchers sees promising markets Asia, the Middle East and Africa but also Ukraine where it has been exploring joint ventures with Ukrainian companies.
While the war makes it difficult to set up shop now, Strnad believes that the help and good will his company and the Czechs have received for supplying weapons and equipment to Ukraine can translate into an important foothold in the nation’s future defence industry.
“In the long term or mid term we would like to localize and help them with their own defence industry,” Strnad said. (Source: Reuters)
14 Apr 24. DroneShield Limited (ASX:DRO) (“DroneShield” or the “Company”) released its business update and Appendix 4C for the three-month period ended 31 March 2024.
Highlights
- 1Q24 revenues of $16.4m, up 10x vs 1Q23 ($1.6m)
o Exceptional ongoing momentum, following reaching $9.3m profit after tax in 2023
- 1Q24 customer cash receipts of $7.1m, up vs 1Q23 ($7m)
o Highest ever March quarter
- The main difference between revenues and cash receipts in 1Q24 was due to US Government orders where deliveries took place in 1Q24, and payments due in 2Q24 (30 days past delivery), a substantial portion of which has now been received
- Strong start to 2024 given strong seasonality in revenues and cash receipts, with the March quarter being the slowest period
o This is due to most payments being from US Government, with typical net30 payment terms (and December and January being generally quieter months), hence only one “business as usual” month of February being captured under net30 in the March quarter cash receipts)
o End of calendar year often corresponds to the start of a new budget cycle for many customers
o Accordingly, the cost base of the business reflects annual rather than first quarter revenues
- 1Q24 SaaS revenues doubled to $561k vs 1Q23 ($239k)
o SaaS growth underpinned by customers requiring Company’s latest AI software engines, upgraded quarterly, in response to a rapidly evolving drone threat
o Additional SaaS based solutions planned for launch in the next 12 months
- Cash balance of $56.4m as of 31 March 2024, no debt or convertibles
o Committed supply chain payments for inventory of $35.4m over the next 9 months
o DroneShield hardware carries sophisticated componentry (which assists high margins and competitive differentiation), driving requirement for componentry purchasing in advance due to the build time
- $27m contracted backlog and pipeline of over $519m (as at 31 March 2024)
- Ongoing investment into ready to sell inventory during the quarter
o Inventory book value of $24m at 31 March 2024 vs $19 m at 31 December 2023
- Following expansion of DroneShield’s Sydney facility and its supply chain network, the current manufacturing capacity is $400m per annum
o 120 team members including over 95 engineers
o A number of hires are recent, with productivity expected to get a further significant boost as they ramp up their contribution to the business
- Launch of the Expeditionary Fixed Site (EFS) Kit for DroneSentry-X Mk2. DroneSentry-X Mk2 is a multi-mission C-UAS solution providing AI driven detection, identification and next generation electronic defeat capabilities engineered for mobile and expeditionary use cases. DroneShield’s EFS Kit enables rapid deployment of the DroneSentry-X Mk2 across a wide range of operations, setting a new standard for ease of use among tactical end users.
Outlook and Key Themes
Small drones continue to be used extensively in virtually every conflict around the world today, taking advantage of their low cost, ease of use, and versatility. They are used to deliver explosive payloads, battle reconnaissance, directing artillery strikes, and more. Outside of the military applications, drones are used to deliver contraband into prisons, disrupt airports, conduct terrorist attacks, disrupt critical infrastructure and shipping, and conduct corporate espionage. This is expected to continue to rapidly rise, as the drone technology continues to improve. Geopolitics and conflicts are generally expected to further deteriorate over coming years, by most commentors.
Counterdrone/C-UAS market is at a negligible saturation point today, due to how new the drones are. This is in contrast to markets such as helmets, body armour and tactical radios, as those markets have existed for a relatively long time, and are saturated as a result.
This means the buyers of C-UAS systems, such as military planners and security acquirers are rapidly starting to be aware of the need to fulfil their counterdrone requirements, and are presently gearing up for large acquisitions of C-UAS equipment, following smaller purchases and trials over recent years.
DroneShield’s Positioning
As a pioneer and global leader in the C-UAS sector, DroneShield has a number of technical and commercial differentiators compared to its competitors. These differentiators have been developed over years and are challenging to disrupt. On the commercial side, this includes deep trusted relationships and being written into multi-year requirement plans with key customers across the U.S. Department of Defense (“DoD”) and other organisations directly, and the defence prime contractors working with the DoD, to support current and coming priorities. Global defence primes are often customers and partners, as opposed to competitors for DroneShield, as they prefer to leverage DroneShield’s expertise and organisational structure to operate and deliver at the required speed of innovation for the C-UAS sector.
With current annual production capacity of $400 m in hardware value, the Company is well positioned for the quickly growing demand.
Technically, with over 95 hardware and software engineers, DroneShield is able to continue to rapidly innovate and build on its unique differentiators, which include a dedicated Data Engineering team with a substantial proprietary database of data samples feeding its Artificial Intelligence software engines, growing through the ability of the field deployed devices with the customer option to relay the data back to DroneShield for prioritisation of new functionality and capabilities.
The United States is expected to continue to be the largest market for DroneShield (around 70% of its 2023 revenues), with a growing customer base across numerous government agencies, including both military and non-military federal agencies. With numerous customers and supporting several different C-UAS use cases, DroneShield is poised for continued diversified growth. The Company is actively progressing opportunities, both directly and as a subcontractor, across all its major accounts.
There are also a number of large non-US leads being pursued, with 2024 expected outcomes.
13 Apr 24. Solid State beats analyst forecasts with strong performance in systems division. Solid State [LON:SOLI], the Redditch-based electronic components distribution and manufacturing company has published a trading update for the year to end-March 2024.
As previously reported, Solid State is a specialist value added component supplier and design-in manufacturer of computing, power, and communications products.
The company has had a record-breaking year, especially in the latter part of the year, with revenues and profit before tax being ahead of analysts’ consensus on the back of its Systems division, receiving revenues that were expected to be realised in 2025. Subsequently the company upgraded its expectations for FY25.
Solid State upgrades expectations
The company now expects revenues of GBP155.3m for FY23/24 and revenues of GBP152m for FY24/25. This equates to adjusted profit before tax of GBP12.5 for both financial years. However the company plans to reduce its debt exposure and transform this into a positive cash position of GBP1.1m, a turnaround of near 140%.
As The Armchair Trader previously reported, debt was a concern for Solid State, seeing a 56% increase year-on-year for the year to end-March 2023 and the electronics company seems to have taken this to heart and committed to increasing its cash reserves. (Source: https://www.thearmchairtrader.com/)
13 Apr 24. Melrose bosses to share £300m as founder eyes new venture. The 20 top executives at the aerospace giant are set win huge share awards next month, as former boss Simon Peckham establishes ‘Melvest’ to hunt for deals
Simon Peckham says that he is “one of those sad people whose work is their hobby”, and is already planning his next challenge after a month of unemployment
For the first time in a very long while, Simon Peckham is unemployed. He left the FTSE 100 company he co-founded, Melrose, last month after two decades — for the last 12 years of which he was chief executive. In that time, he steered it through a succession of deals that transformed it into a £7 bn aerospace giant. Now he’s a free agent, but he’s not killing time on the golf course.
“I’ve been quoted before: I don’t play golf. I’m one of those sad people whose work is their hobby. It’s what I love doing.”
Peckham, 61, has stepped out of a late lunch to speak to The Sunday Times, and explain why, after the success of Melrose, he’s keen to do it all over again. He has put together a crew of Melrose veterans to launch a new vehicle that will repeat the former’s model of buying manufacturers, sprucing them up, and selling them on for a profit, or “buy, improve, sell”, in the Melrose mantra.
Many people in his position would be minded to retire. After all, the man need never work again. Melrose has made Peckham and his co-founders maires many times over. In 2017, the Melrose quartet of top executives pocketed £42m each for their efforts. Next month, a cohort of 20 bosses — including Peckham, and his successor as CEO, Peter Dilnot — stands to make about £300m from a four-year performance scheme.
The scheme — which will pay out in shares — equates to 7.5 per cent of the rise in Melrose’s market value since December 2022. In that time, the company has recovered from a Covid downturn: by the end of last year, it had added £4bn in value, according to its annual report. On current estimates, that makes pot about £302m. Sources close to the company cautioned the final amount was not fixed and would depend on where the shares end up next month.
“It’s going to be a good payout — at least we hope it is. But our shareholders made a lot more money,” Peckham said. “You could take a view that no one should earn more than this or that, but at the end of the day, I would say that’s capitalism working.”
Since its first acquisition in 2005, the total shareholder return for Melrose — including its share price rise and the dividends it has paid out — is 3,039 per cent, according to the company. This is against a total return on the FTSE 100 of 210 per cent.
So what’s the plan for Melrose 2.0? Peckham says he has backers lined up and targets in mind in both North America and the UK. His biggest problem may be the name: ‘Melvest’.
“I personally came up with it and I’ve said to everyone, ‘if you’ve got a better name, please give it to me’. If The Sunday Times wants to have a competition to come up with one, I’m cool with that.” Readers may head to the comments online to have their say.
So the name and the model may hark back to the original Melrose, but it won’t be entirely the same. Peckham says he will look at not just under-performing companies, but under-valued ones, of which he believes there are many in the UK, particularly on the stock market. In practical terms, this might mean working with management teams, rather than turfing them out, as Melrose famously did in its hostile takeover of British engineer GKN in 2018.
“In our new future life, we should be able to work with existing management teams to improve their businesses,” said Peckham. “Management teams are better now. And some firms are undervalued and it’s not management’s fault.”
Melvest may seek a listing, Peckham said, but it’s too early to say. “If we were going to list, we would list in London,” he said, putting to bed fears that he may follow a stampede of other firms in ditching the UK for the temptation of a US float.
Peckham is a cheerleader of the public markets — as well he may be, given Melrose’s success — but he’s clear-eyed about London’s problems. “The UK stock market is in danger of being ordinary,” he said. The exodus of UK pension fund money out of British shares has weakened the City, he reckons. “If you have a large stock market, but you don’t have home investors, it’s going to have consequences… There’s a core domestic market of companies that are looking for foreign capital but cannot access it.”
His solution? “You need to encourage capital back. What the UK needs to do is find enough of a home base of investment to get companies to grow.”
He resists making demands of any new government, but says: “What I’d like to hear from all of our politicians is actually, how are they going to grow the wealth of this country? Instead of talking about how they are going to spend the tax that comes out of that wealth.”
The GKN deal attracted scores of headlines amid claims that Melrose was out to “asset-strip” a venerable British company, a maker of aeroplane wings and car parts that traced its heritage back to the 18th century. “We were 100 per cent accused of being raiders when we walked in,” Peckham said. “But we looked after the pension schemes. We invested in the business.”
Melrose sealed the £8 bn deal and cut 1,000 jobs, before making further redundancies to weather the Covid downturn. Under Peckham’s watch, Melrose split off GKN’s car business into a new listed firm called Dowlais and kept the aerospace business. His partners in Melrose agreed to break with tradition and keep hold of the latter, effectively cementing the company’s status as an engineering firm, rather than a buyout vehicle. Hence the need to form Melvest.
The truth is that Peckham simply isn’t ready to retire. Having left behind an organisation of 38,000, he is now set up in a “four-person” office in central London. “It’s like going back 20 years and it’s a lot of fun. I can’t wait to get going.” (Source: The Sunday Times)
12 Apr 24. Overdue Denel AGMs reprieved by Companies Tribunal. Denel, under the leadership of a permanent chief executive for the first time in over three years, has been reprieved by the Companies Tribunal for not timeously holding annual general meetings (AGMs).
The reprieve was reported by Johannesburg-based financial daily Business Day, which noted the Centurion-headquartered State-owned defence and technology conglomerate last held an AGM in January 2021. The Companies Tribunal has it, in terms of the Companies Act, that AGMs must be held annually and no more than 15 months after the date of the previous AGM.
Business Day reported the SOE had finalised its financials “but the Auditor General (AG) was unable to conclude the audits within the stipulated time”. This “forced” Denel to request further extensions for the 2021, 2022 and 2023 financial years by no later than the end of May this year. The request was granted by the Companies Tribunal, the paper reported.
The Companies Tribunal is an agency of the Department of Trade, Industry and Competition (DTIC) established in terms of the Companies Act to provide speedy resolution of company disputes.
Also this week, Democratic Alliance (DA) shadow public enterprises minister Mimmy Gondwe heard the Denel’s turnaround plan will be implemented over a three year period with the stabilise and sustain component already done. It is envisaged the turnaround plan will be fully implemented by the end of the 2024/25 financial year.
She was further told by Public Enterprises Minister Pravin Gordhan, in response to a Parliamentary question, that Denel’s order book stands at R4 406m with R16 580m listed as “order pipeline/winnable projects” at the end of last year.
In a reply to another parliamentary question, it also emerged this month that Denel has not paid out any bonuses to the Chief Executive Officer, Chief Operations Officer and the Chief Financial Officer since May 2019. (Source: https://www.defenceweb.co.za/)
12 Apr 24. Bluestone Announce Another Add-on Acquisition for its Portfolio Company CTI. Bluestone Investment Partners, a private equity firm focused on the defense and government technology sector, is pleased to announce the successful acquisition of Asymmetric Technologies LLC by its portfolio company, Chesapeake Technology International Corp. (CTI). This strategic move marks a significant expansion of CTI’s capabilities in the realm of defense technology and underscores Bluestone’s commitment to fostering growth and innovation within its portfolio.
Asymmetric Technologies, recognized for its expertise in open-source technology tailored to mission-specific needs, aligns with CTI’s mission to deliver advanced, operator-focused technologies. The integration of Asymmetric’s innovative products like IronClad and Whisper enhances CTI’s portfolio, providing sophisticated solutions for flight autonomy and edge communications across various Department of Defense and national security customers. “This acquisition will enhance our ability to deliver comprehensive software and purpose-built hardware products and solutions for our customers and reaffirms our strategy to invest in our business to address evolving national security needs,” said Jay Moorman, CEO of CTI.
Dustan Hellwig, Founder and Chief Strategy Officer of CTI commented: “The acquisition of Asymmetric marks another milestone in our strategic growth journey with Bluestone. It complements our existing technology and expands our capabilities to support emerging needs from our customers.”
John Allen, Managing Partner at Bluestone Investment Partners, stated that “Our acquisition strategy at Bluestone is designed to complement and enhance CTI’s rapid organic growth. We are excited to continue to partner with the CTI leadership team to further accelerate the company’s expansion through strategic M&A initiatives.”
The collaboration between CTI and Asymmetric presents new opportunities for innovation and growth, reinforcing Bluestone’s strategic vision for its portfolio companies. Bluestone remains committed to its mission of providing value-added capital and strategic support, ensuring continued success and advancement in the defense and government technology sector.
Bluestone and CTI are actively seeking additional add-on acquisition opportunities. We are particularly interested in companies possessing technologies that advance next-generation electronic warfare, intelligence, surveillance, reconnaissance, and situational awareness programs for the Department of Defense and national security customers. For further information, please reach out to Zack Hester, Director of M&A Strategy and Deal Generation at Bluestone (contact information below).
About Bluestone Investment Partners
Bluestone is a private equity firm investing exclusively in lower middle-market companies in the defense and government technology arena. Bluestone’s principals have a long and successful track record of owning, operating, investing in, and advising companies in the defense and government services sector.
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SPX CommTech, part of SPX Technologies Inc, innovates specialised technologies within the Radio Frequency (RF) spectrum to ensure a smarter, more secure future for all. Formed by TCI and ECS, SPX CommTech’s Battlespace portfolio enables defence and security teams to detect, defeat and exploit RF signals to enhance communications intelligence (COMINT) and counter unmanned aerial systems (Counter-UAS). Additionally, its Tactical Data Link portfolio allows intelligence gathering agencies, special forces, emergency response, and security teams to securely and reliably transfer video and data between enabled-aircraft and ground teams over long distances for airborne Intelligence, Surveillance, Reconnaissance (ISR). For more information visit www.tcibr.com and www.enterprisecontrol.co.uk
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