AAC Clyde Space — A major strategic step into the US

AAC Clyde Space (OMX: AAC)

Last close As at 20/12/2024

SEK46.65

−0.10 (−0.21%)

Market capitalisation

SEK275m

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Research: Industrials

AAC Clyde Space — A major strategic step into the US

We are adjusting our estimates following completion of the SpaceQuest acquisition just before the end of FY20. With a negligible income and cash flow impact in FY20 due to the timing, the deal will be reflected in an expanded balance sheet. However, with an EBITDA margin of more than 20% and significant growth expected in FY21, the deal is a major enhancement to group performance going forward.

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Industrials

AAC Clyde Space

A major strategic step into the US

SpaceQuest acquisition completion

Aerospace & defence

15 January 2021

Price

SEK3.75

Market cap

SEK552m

SEK11.4/£

Net cash (SEKm) at 30 September 2020

31.2

Shares in issue

147.2m

Free float

95%

Code

AAC

Primary exchange

Nasdaq First North Premier

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

18.5

35.8

(16.3)

Rel (local)

12.6

25.7

(27.7)

52-week high/low

SEK5.02

SEK2.40

Business description

Headquartered in Sweden, AAC Clyde Space is a world leader in nanosatellite end-to-end solutions, subsystems, platforms, services and components, including supply to third parties. It has production and development operations in Sweden, Scotland, the Netherlands and in the US.

Next events

FY20 results

18 February 2021

Analyst

Andy Chambers

+44 (0)20 3681 2525

AAC Clyde Space is a research client of Edison Investment Research Limited

We are adjusting our estimates following completion of the SpaceQuest acquisition just before the end of FY20. With a negligible income and cash flow impact in FY20 due to the timing, the deal will be reflected in an expanded balance sheet. However, with an EBITDA margin of more than 20% and significant growth expected in FY21, the deal is a major enhancement to group performance going forward.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/18

77.9

(38.4)

(0.50)

0.0

N/A

N/A

12/19

66.4

(38.2)

(0.45)

0.0

N/A

N/A

12/20e

101.6

(21.3)

(0.21)

0.0

N/A

N/A

12/21e

193.6

(6.4)

(0.04)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Strategic move into the US confirmed

On 30 December 2020, AAC Clyde Space announced that the acquisition of SpaceQuest in the US for c SEK75.6m (see our December update note) had completed following regulatory approval. SpaceQuest is one of the pioneers of the New Space segment, having been founded in 1994. It further extends the technical capability of the group and establishes a manufacturing presence in the important US market, which AAC Clyde Space had previously identified as a major strategic goal. It also brings with it an operational microsatellite constellation generating Space-as-a-Service (SaaS) revenues from third parties. To date, it has used its own 25cm3 cubesat platforms (AprizeSat), but the experience will be a major positive for AAC Clyde Space customers seeking to use nanosatellites. The operation is expected to grow strongly, building on a long history as a highly profitable company.

Laser contract highlights Hyperion’s capabilities

The recently acquired Hyperion Technologies has announced a contract award to demonstrate in orbit its CubeCat laser communication terminal in 2022. The terminal is a 1U, low power and lightweight solution downlink data from small satellites with speeds ultimately up to 1Gbps and uplink of 200Kbps and. It was developed together with the Dutch independent research institute TNO. Alongside propulsion, this was one of the two major additional technology capabilities the company brought to the group. While the contract is relatively small at SEK1.5m, laser communications are seen as a major potential enhancement to satellite capabilities in the future, greatly increasing data transmission speeds for small satellites compared to current radio communications.

Valuation: Moving towards positive cash flows

Following the capital raise and the addition of Hyperion, the value of our capped DCF remained unchanged at SEK4.8 per share. Adjusting for SpaceQuest, with its already substantial EBITDA margin, should significantly enhance the cash flow prospects for the group. As a result, the DCF value increases to SEK5.6 per share.

Earnings estimates updated for SpaceQuest

SpaceQuest should be fully consolidated as of the end of FY20 but, given completion was so near the year end, we do not expect any major impact on the income statement or cash flow in the year. At the time the acquisition was announced, SpaceQuest was expected to deliver FY20 revenues of US$2.5m (SEK21m) and EBITDA of US$0.7m (SEK5.7m), a margin of 28%. The earnout agreements that formed part of the deal in FY21, FY22 and FY23 are based on US$3m (SEK25m) of revenue growth in each year. Our assumption for FY21 assumes roughly half of that growth, with an EBITDA margin of 24%. It would be enough to drive group EBITDA into positive territory for the first time in FY21. We do not include the earnout payments in the out years in our model as a result, although we would expect achievement of the thresholds to be beneficial to AAC Clyde Space shareholders. The number of shares increases to 147.2m.

We have modestly adjusted our net cash assumption for the end of FY20 to reflect the SEK1.1m cash as part of the consideration paid for Hyperion on completion in November.

Exhibit 1: AAC Clyde Space earnings revisions

Year to Dec (SEKm)

2020e

2021e

Prior

New

% change

Prior

New

% change

Revenues by business

AAC

32.8

32.8

0.0%

40.4

40.4

0.0%

Clyde

66.7

66.7

0.0%

98.9

98.9

0.0%

Hyperion

2.0

2.0

 

19.3

19.3

 

SpaceQuest

0.0

0.0

 

0.0

35.0

 

Total group net sales

101.6

101.6

0.0%

158.6

193.6

22.1%

Revenues by activity

Satellite platforms

51.0

51.0

0.0%

81.6

81.6

0.0%

Subsystems

50.6

50.6

0.0%

76.0

111.0

46.0%

Licence & royalties income

0.0

0.0

1.0

1.0

 

Total group net sales

101.6

101.6

0.0%

158.6

193.6

22.1%

Other operating income

10.0

10.0

0.0%

6.5

6.5

 

Own work capitalised

9.2

9.2

0.0%

14.3

15.7

 

Total group income

120.8

120.8

0.0%

179.5

215.9

20.3%

 

 

 

 

 

 

Raw materials & subcontractors

(49.8)

(49.8)

0.0%

(71.4)

(87.1)

22.1%

Personnel costs

(57.5)

(57.5)

0.0%

(83.2)

(89.4)

7.4%

Other external expenses

(18.8)

(18.8)

0.0%

(27.0)

(32.9)

22.1%

Other operating expenses

(6.1)

(6.1)

 

0.0

0.0

 

EBITDA (company reported)

(11.3)

(11.3)

0.0%

(2.1)

6.4

N/A

EBIT (Pre PPA amortisation)

(20.7)

(20.7)

0.0%

(13.7)

(5.9)

(57.0%)

 

 

 

 

 

 

Underlying PBT

(21.3)

(21.3)

0.0%

(14.3)

(6.4)

(55.1%)

 

 

 

 

 

 

EPS - underlying continuing (SEK)

(0.21)

(0.21)

0.0%

(0.11)

(0.04)

(62.4%)

DPS (SEK)

0.0

0.0

 

0.0

0.0

 

Adjusted net cash (excluding lease liabilities)

68.4

67.3

(1.6%)

52.6

59.0

12.2%

Source: Edison Investment Research estimates

Exhibit 2: Financial summary

SEKm

2018

2019

2020e

2021e

Year-end December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Net sales

 

 

77.9

66.4

101.6

193.6

Own work capitalised and other operating income

11.3

14.1

19.2

22.2

Group income

89.2

80.6

120.8

215.9

EBITDA

 

 

(28.5)

(27.3)

(11.3)

6.4

Operating Profit (before amort. and except).

(30.9)

(32.7)

(16.5)

(0.0)

Intangible Amortisation

(7.2)

(4.6)

(4.2)

(5.9)

Exceptionals

(5.2)

(2.9)

(8.7)

(2.0)

Other

0.0

0.0

0.0

0.0

Operating Profit

(43.3)

(40.2)

(29.5)

(7.9)

Net Interest

(0.34)

(0.8)

(0.5)

(0.5)

Profit Before Tax (norm)

 

 

(38.4)

(38.2)

(21.3)

(6.4)

Profit Before Tax (FRS 3)

 

 

(43.6)

(41.0)

(30.0)

(8.4)

Tax

0.9

0.5

0.3

0.4

Profit After Tax (norm)

(37.6)

(37.8)

(21.1)

(6.1)

Profit After Tax (FRS 3)

(42.7)

(40.6)

(29.7)

(8.0)

Average Number of Shares Outstanding (m)

75.4

84.8

101.3

147.2

EPS - fully diluted (SEK)

 

 

(0.50)

(0.45)

(0.21)

(0.04)

EPS - normalised (SEK)

 

 

(0.50)

(0.44)

(0.21)

(0.04)

EPS - (IFRS) (SEK)

 

 

(0.57)

(0.48)

(0.29)

(0.05)

Dividend per share (SEK)

0.0

0.0

0.0

0.0

EBITDA Margin (%)

(36.6)

(41.1)

(11.1)

3.3

Operating Margin (before GW and except.) (%)

(39.7)

(49.3)

(16.2)

0.0

BALANCE SHEET

Fixed Assets

 

 

396.8

436.9

533.9

537.2

Intangible Assets

392.6

418.6

506.4

514.3

Tangible Assets

4.2

4.1

16.5

15.1

Right of use asset

14.2

11.0

7.8

Investments

0.0

0.0

0.0

0.0

Current Assets

 

 

56.2

108.5

123.7

145.0

Stocks

6.5

13.1

17.3

27.1

Debtors

10.1

17.7

18.3

29.0

Cash

12.2

52.4

67.8

59.8

Other

27.3

25.2

20.3

29.0

Current Liabilities

 

 

(35.6)

(60.5)

(55.9)

(90.8)

Creditors

(35.5)

(60.5)

(55.9)

(90.8)

Short term borrowings

(0.2)

0.0

0.0

0.0

Long Term Liabilities

 

 

(2.4)

(16.0)

(13.2)

(10.9)

Long term borrowings

(1.2)

(0.8)

(0.5)

(0.8)

Lease liabilities

(14.1)

(11.6)

(9.0)

Other long-term liabilities

(1.2)

(1.1)

(1.1)

(1.1)

Net Assets

 

 

415.0

468.9

588.5

580.5

CASH FLOW

Operating Cash Flow

 

 

(49.1)

(15.3)

(20.9)

8.3

Net Interest

(0.3)

(0.8)

0.1

0.1

Tax

0.8

0.4

0.2

0.3

Capex

(2.3)

(13.9)

(10.3)

(17.6)

Acquisitions/disposals

(377.4)

(3.0)

0.6

0.6

Financing

404.6

73.3

45.9

0.0

Dividends

0.0

0.0

0.0

0.0

Net Cash Flow

(23.6)

40.7

15.7

(8.3)

Opening net debt/(cash) excluding lease liabilities

(35.2)

(10.9)

(51.6)

(67.3)

HP finance leases initiated

0.0

0.0

0.0

0.0

Other

(0.7)

0.1

0.0

0.0

Closing net debt/(cash) excluding lease liabilities

(10.9)

(51.6)

(67.3)

(59.0)

Net financial liabilities including lease liabilities

 

(37.5)

(55.7)

(50.0)

Source: Company reports, Edison Investment Research estimates


General disclaimer and copyright

This report has been commissioned by AAC Clyde Space and prepared and issued by Edison, in consideration of a fee payable by AAC Clyde Space. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by AAC Clyde Space and prepared and issued by Edison, in consideration of a fee payable by AAC Clyde Space. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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