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Low volumes induce quarterly volatility

AAC Microtec 9 May 2019 Update
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ÅAC Microtec

Low volumes induce quarterly volatility

Q1 results

Aerospace & defence

9 May 2019

Price

SEK6.12

Market cap

SEK421m

SEK9.58/US$1

Net cash (SEKm) at 31 March 2019

10.1

Shares in issue

68.7m

Free float

71%

Code

AAC

Primary exchange

Nasdaq FN Premier

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

7.0

67.0

(13.5)

Rel (local)

7.2

56.6

(15.9)

52-week high/low

SEK8.0

SEK3.0

Business description

Based in Sweden, ÅAC Microtec is a world leader in nanosatellite end-to-end solutions, subsystems and platforms after merging with Clyde Space in Scotland. The merged company also supplies a range of technology components to other small satellite manufacturers globally.

Next events

AGM

23 May 2019

H1 results

22 August 2019

Analyst

Andy Chambers

+44 (0)20 3681 2525

ÅAC Microtec is a research client of Edison Investment Research Limited

Management states that Q119 results were broadly according to plan, although on an underlying basis (excluding prior period acquisition costs) both net sales and EBITDA were slightly lower. ÅAC made modest progress, but Clyde saw a reduction due to business mix combined with lower platform sales in the period. Now that financing is being addressed by the underwritten rights issue, the main challenge for management is to execute on the growing backlog. Given the lumpy nature of revenues in the current low-volume platform environment, we maintain our estimates as we expect volumes to grow as the year progresses.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/17

13.3

(27.3)

(0.86)

0.0

N/A

N/A

12/18

77.9

(37.2)

(0.55)

0.0

N/A

N/A

12/19e

120.8

(8.5)

(0.12)

0.0

N/A

N/A

12/20e

200.4

27.5

0.36

0.0

16.6

N/A

Note: Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items. Clyde Space consolidated for 11 months in FY18. All pre-rights issue.

Q1 a period of low platform deliveries

Q1 results reflect lower platform deliveries at Clyde, where net sales of SEK7.5m were down 25% despite an extra month’s contribution, and healthy growth for subsystems at ÅAC where sales rose 16% to SEK7.4m. Group net sales were down 9% to SEK14.9m (Q118: SEK16.4m). Platform sales were down a third, with subsystems sales up 3%, and the adverse mix at Clyde saw its EBITDA contribution fall SEK4.7m to a loss of SEK4.5m, excluding the SEK8.8m of acquisition expenses from Q118. ÅAC in Sweden reduced its EBITDA loss by SEK1.8m to SEK2.0m. The group finished the period with net cash of SEK10.1m and an unused overdraft facility of SEK5.0m. The rights issue, which was approved by the EGM, will raise up to SEK82.5m, of which SEK67.5m is underwritten.

Market appears supportive, execution is key

The additional funds should enable the company to cover working capital requirements as volumes grow, as well as seeking new opportunities in the market. The SEK54m ORBCOMM deal that was signed after the period end provides ÅAC’s first space-as-a-service deal. Its funding appears to be front end loaded, but terms on other projects may be less favourable. Management must now focus on attracting key personnel with the talents and skills to enable it to ramp up production as new satellite orders are obtained, including what are expected to be the first constellation orders.

Valuation: Still at an early growth stage

We will review our numbers once the result of the rights issue is confirmed but, as stated previously, we expect the loss per share for FY19 would be reduced by c 24% given the increased weighted average share count if fully subscribed, and the FY20 EPS would fall by around 29% to SEK0.25. The additional funds should facilitate future growth and higher return, as ÅAC improves cash flow organically.

Q119 summary

The Q18 results are summarised below:

Exhibit 1: ÅAC Microtec first quarter results summary

SEKm

Q118

Q119

% change

ÅAC

6.422

7.429

16%

Clyde

9.999

7.509

(25%)

Net sales

16.421

14.938

(9%)

Satellite platforms

5.447

3.659

(33%)

Subsystems

10.974

11.279

3%

Net sales

16.421

14.938

(9%)

Other operating income

0.471

2.497

430%

Development work capitalised

0.800

0.927

16%

Group income

17.692

18.362

4%

Raw materials & subcontractors

(4.6)

(7.2)

56%

Personnel costs

(12.1)

(12.5)

4%

Other external expenses

(4.5)

(5.4)

19%

Other operating expenses

(0.0)

0.2

EBITDA adjusted

(3.5)

(6.5)

86%

Acquisition expenses

(8.8)

0.0

EBITDA reported

(12.2)

(6.5)

(47%)

Depreciation and Amortisation

(3.4)

(3.5)

2%

EBIT

(15.636)

(9.931)

(36%)

PBT

(15.7)

(10.2)

(35%)

Net income

(15.3)

(10.1)

(34%)

EPS (SEK)

(0.27)

(0.15)

(44%)

Net cash at period end

53.6

10.1

(81%)

Source: Company reports

It should be noted that Clyde was consolidated for the full period in Q119 and for only two months in Q118.

We still expect more satellite platforms to be delivered by Clyde in 2019 than in 2018, so the expectation is that sales and profitability should improve as the year progresses, albeit that as volumes are still low quarterly performance is likely to reflect variable delivery rates.

The incoming CEO, Luis Gomes, joined at the start of May from Surrey Satellite Technology (SSTL), where he has been for the last 21 years. The company has also appointed Anita Bernie as a non-executive director. She has a background in spacecraft design and engineering, having worked in Airbus and SSTL, and in her current role as leading strategy and execution at KISPE Space Systems. In addition, the CEO of ÅAC North America is to step down, with group CSO Craig Clark temporarily filling the role until a replacement is appointed.


Exhibit 2: Financial summary

SEKm

2017

2018

2019e

2020e

Year end December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

13.3

77.9

120.8

200.4

Own work capitalised and other operating income

4.2

11.3

5.2

5.2

Group income

17.5

89.2

126.0

205.7

EBITDA

 

 

(21.4)

(28.5)

0.9

33.6

Operating Profit (before amort. and except).

(21.7)

(28.8)

0.5

33.0

Intangible Amortisation

(5.6)

(8.0)

(9.0)

(5.6)

Exceptionals

0.0

(6.4)

(5.3)

(5.3)

Other

0.0

0.0

0.0

0.0

Operating Profit

(27.3)

(43.3)

(13.8)

22.1

Net Interest

(0.0)

(0.3)

(0.0)

0.0

Profit Before Tax (norm)

 

 

(27.3)

(37.2)

(8.5)

27.5

Profit Before Tax (FRS 3)

 

 

(27.3)

(43.6)

(13.8)

22.2

Tax

(0.0)

0.9

0.7

(2.2)

Profit After Tax (norm)

(27.3)

(36.4)

(8.0)

24.7

Profit After Tax (FRS 3)

(27.3)

(42.7)

(13.1)

19.9

Average Number of Shares Outstanding (m)

31.7

65.6

68.7

68.7

EPS - fully diluted (SEK)

 

 

(0.86)

(0.55)

(0.12)

0.36

EPS - normalised (ore)

 

 

(86.17)

(55.34)

(11.68)

35.92

EPS - (IFRS) (SEK)

 

 

(0.9)

(0.7)

(0.2)

0.3

Dividend per share (ore)

0.0

0.0

0.0

0.0

EBITDA Margin (%)

(161.1)

(36.6)

0.8

16.7

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

(163.3)

(37.0)

0.5

16.5

BALANCE SHEET

Fixed Assets

 

 

16.3

396.8

384.4

376.4

Intangible Assets

15.9

392.6

380.4

372.8

Tangible Assets

0.4

4.2

4.0

3.6

Investments

0.0

0.0

0.0

0.0

Current Assets

 

 

46.0

46.4

59.7

110.4

Stocks

1.9

6.5

10.0

16.3

Debtors

3.6

10.1

18.1

30.1

Cash

37.2

12.2

5.0

24.0

Other

3.3

17.5

26.6

40.1

Current Liabilities

 

 

(16.4)

(25.8)

(41.1)

(63.9)

Creditors

(14.4)

(25.8)

(41.1)

(63.9)

Short term borrowings

(2.0)

0.0

0.0

0.0

Long Term Liabilities

 

 

(1.0)

(2.5)

(1.2)

(1.1)

Long term borrowings

0.0

(1.2)

0.0

(0.0)

Other long term liabilities

(1.0)

(1.3)

(1.2)

(1.1)

Net Assets

 

 

44.9

414.9

401.8

421.8

CASH FLOW

Operating Cash Flow

 

 

(24.9)

(40.3)

(4.2)

25.2

Net Interest

(0.0)

(0.3)

(0.0)

0.0

Tax

(0.0)

0.8

0.4

(2.7)

Capex

(4.0)

(1.6)

(2.3)

(3.4)

Acquisitions/disposals

(9.5)

(376.2)

0.0

0.0

Financing

0.1

393.5

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

Net Cash Flow

(38.4)

(24.1)

(6.1)

19.0

Opening net debt/(cash)

 

 

(73.5)

(35.2)

(11.0)

(5.0)

HP finance leases initiated

0.0

0.0

0.0

0.0

Other

0.1

(0.0)

0.0

0.0

Closing net debt/(cash)

 

 

(35.2)

(11.0)

(5.0)

(24.0)

Source: Company reports, Edison Investment Research estimates. Note: All numbers pre-rights issue.

General disclaimer and copyright

This report has been commissioned by ÅAC Microtec and prepared and issued by Edison, in consideration of a fee payable by ÅAC Microtec . 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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

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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 (nor will such persons be able to purchase shares in the placing).

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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

1,185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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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

1,185 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 ÅAC Microtec and prepared and issued by Edison, in consideration of a fee payable by ÅAC Microtec . 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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

1,185 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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