RADA Electronic Industries develops, manufactures, markets and sells defence electronics to various armed forces and companies worldwide. It offers land-based tactical radars for defence forces, critical infrastructure protection solutions and military avionics systems.
Investment summary
On 8 March 2021, RADA announced the closing of a secondary offering raising $59.5m (gross proceeds, $56.1m net) for general corporate purposes, with the number of shares in issue increasing by 5.2m to 48.9m. The successful raise reflects the strong growth the company is seeing in the business and is likely to be used to satisfy the continued working capital required to execute this growth. On the same day RADA announced new orders for January and February 2021 of $15m, 150% higher than the same period in 2020. This robust start to 2021 helps support our recently (12 February 2021) upgraded 2021 revenue forecasts. The 2020–24 forecast EPS CAGR of 25.4% supports our unchanged DCF valuation of $17. The company also trades at a significant 50% PEG discount to the peer group despite almost double the growth rate.
While defense spending could be pressured due to a less hawkish incoming US administration and COVID-19-related factors, RADA’s markets are deemed priorities and as such are likely to remain broadly unaffected. RADA’s participation in major multi-year programs increases visibility as it transforms into a supplier to the US Army for long-term programs rather than on an urgent needs basis.
