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.
RADA has issued guidance for 2021, which calls for revenues above $120m (growth of more than 60% year-on-year) and significantly improved profitability. Confidence in the outlook is supported by new order inflows demonstrating RADA’s success in obtaining initial orders in major US Army production programs. We are upgrading our 2021 revenue forecasts by 5.6% to $120.2m and our EPS forecasts by 9.5% to 29.6c. The 2020–24 forecast EPS CAGR of 25.4% supports our new DCF valuation of $12 (previously $10). 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 year to date orders of $59m announced on 14 September underpins our confidence in 2020 forecasts and longer term, the US Army announcement on 2 October that General Dynamics has won a $1.3bn IM-SHORAD contract represents a multi-year opportunity for RADA as a sub-contractor.