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Research: Industrials
AAC Clyde Space has announced a rights issue to raise SEK73.7m on a three-for-five basis at SEK0.60/share. The fully subscribed issue will raise c SEK60.6m net (after costs of SEK13.1m) for the company and is 65% covered by subscription commitments from several existing shareholders, potential investors and management. In combination with a secured SEK20m loan facility, the proceeds will be used to support working capital as AAC grows its space data as a service (SDaaS) business and funding for the acceleration of the xSPANCION satellite constellation project.
Written by
AAC Clyde Space |
Capital raise to support growth |
Rights issue |
Aerospace and defence |
21 June 2023 |
Share price performance
Business description
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Analysts
AAC Clyde SpaceAAC Clyde Space is a research client of Edison Investment Research Limited |
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AAC Clyde Space has announced a rights issue to raise SEK73.7m on a three-for-five basis at SEK0.60/share. The fully subscribed issue will raise c SEK60.6m net (after costs of SEK13.1m) for the company and is 65% covered by subscription commitments from several existing shareholders, potential investors and management. In combination with a secured SEK20m loan facility, the proceeds will be used to support working capital as AAC grows its space data as a service (SDaaS) business and funding for the acceleration of the xSPANCION satellite constellation project.
Year end |
Revenue (SEKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
180.0 |
(27.0) |
(0.14) |
0.0 |
N/A |
N/A |
12/22 |
196.7 |
(23.8) |
(0.11) |
0.0 |
N/A |
N/A |
12/23e** |
355.1 |
0.6 |
0.00 |
0.0 |
N/A |
N/A |
12/24e** |
483.6 |
44.9 |
0.21 |
0.0 |
2.9 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Pre-rights issue adjustments.
Funding transition to cash-generative growth phase
For each five shares held, shareholders will be able to subscribe for three new shares at SEK0.60 per share. If fully subscribed, the number of shares in issue will increase by c 122.9m to c 327.7m. The rights issue is covered up to c 65% by subscription undertakings from several existing shareholders and guaranteed commitments from existing and new investors, including directors and management commitments covering 6% of the issue. In addition, AAC has agreed a SEK20m loan facility with Formue Nord Markedsneutral and Selandia Alpha Invest at market rates to manage cash flow requirements, available until 31 June 2024 but intended to be repaid using the rights issue proceeds.
Supporting the development of revenue streams
AAC reported a much stronger Q123 performance and recent launches, together with those planned for later in 2023, should commence a rapid expansion of the SDaaS revenue stream from historical low levels. Management still expects revenues to grow to c SEK100m next year (FY22: SEK17m), and rapidly accelerate to produce SEK1.3bn by 2030. The growth requires increasing investment to support operations in terms of headcount, equipment and ground facilities. In addition, the xSPANCION project to develop and build 10 satellite constellations with novel technologies is in full swing, having entered its third SEK33m phase, and requires significant company funding. The next SEK99m Phase 3B has been accelerated with the first four satellites of the project, which AAC leads, to be launched by Q324, and the remaining six to be sold when customer contracts are signed. It is co-funded by the UK Space Agency.
Valuation: Underpins growth to positive cash flow
With no changes to our underlying estimates, on a pro forma basis assuming full subscription to the rights issue, we have calculated that our DCF-based fair value would stand at SEK5.2/share. We believe this financing round should see AAC move to self-sustaining positive cash flows in 2024 and beyond.
Pro forma earnings adjustments
The table below shows the effect of the rights issue on our earnings expectations for FY23 and FY24 assuming full subscription. With only a modest positive impact assumed on net interest, we calculate the dilution to earnings at 37.5%, although this implies no financial interest benefit from the increased gross funds. Clearly, a lower subscription would reduce the dilution but leave the company with a lower level of funds. When the issue is complete we will adjust our estimates to reflect the actual factors, including the subscription level and the theoretical ex-rights price (TERP) factor.
Exhibit 1: AAC Clyde Space pro forma earnings adjustments
SEKm |
2023e |
2024e |
||||
|
Prior |
New |
% change |
Prior |
New |
% change |
By Business |
|
|
|
|
|
|
AAC |
66.0 |
66.0 |
0.0% |
89.3 |
89.3 |
0.0% |
Clyde |
145.9 |
145.9 |
0.0% |
207.1 |
207.1 |
0.0% |
Hyperion |
20.2 |
20.2 |
0.0% |
24.2 |
24.2 |
0.0% |
SpaceQuest |
40.8 |
40.8 |
0.0% |
53.1 |
53.1 |
0.0% |
Omnisys |
67.9 |
67.9 |
0.0% |
84.9 |
84.9 |
0.0% |
AAC Space Africa |
14.3 |
14.3 |
25.0 |
25.0 |
0.0% |
|
Total group net sales |
355.1 |
355.1 |
0.0% |
483.6 |
483.6 |
0.0% |
By activity |
||||||
SDaaS |
55.0 |
55.0 |
0.0% |
101.0 |
101.0 |
0.0% |
Space Missions |
74.7 |
74.7 |
0.0% |
88.0 |
88.0 |
0.0% |
Space Products |
225.4 |
225.4 |
0.0% |
294.6 |
294.6 |
0.0% |
Licence & royalties income |
0.0 |
0.0 |
0.0 |
0.0 |
||
Total group net sales |
355.1 |
355.1 |
0.0% |
483.6 |
483.6 |
0.0% |
Other operating income |
7.3 |
7.3 |
3.0 |
3.0 |
||
Own work capitalised |
38.0 |
38.0 |
53.3 |
53.3 |
||
Total group income |
400.4 |
400.4 |
0.0% |
540.0 |
540.0 |
0.0% |
Raw materials & subcontractors |
(149.1) |
(149.1) |
0.0% |
(200.7) |
(200.7) |
0.0% |
Personnel costs |
(165.4) |
(165.4) |
0.0% |
(190.3) |
(190.3) |
0.0% |
Other external expenses |
(60.4) |
(60.4) |
0.0% |
(72.5) |
(72.5) |
0.0% |
Other operating expenses |
(3.6) |
(3.6) |
(4.8) |
(4.8) |
||
EBITDA (company adjusted) |
21.9 |
21.9 |
0.0% |
71.5 |
71.5 |
0.0% |
EBIT (adjusted) |
(2.5) |
(2.5) |
(0.0%) |
42.8 |
42.8 |
0.0% |
Underlying PBT |
0.6 |
0.6 |
0.0% |
44.9 |
44.9 |
0.0% |
EPS - underlying continuing (SEK) |
0.00 |
0.00 |
(20.3%) |
0.21 |
0.13 |
(37.5%) |
Adjusted net cash/(debt) |
25.5 |
85.7 |
236.4% |
61.2 |
121.7 |
98.9% |
Source: Edison Investment Research estimates
Valuation: Impact of rights issue
We have also adjusted our capped DCF valuation to reflect full subscription to the rights. The revised value is SEK5.3/share, compared to the previous pre-rights value of SEK8.2/share. We believe the issue de-risks AAC as it moves towards positive cash flow so we could assume a lower equity risk premium when calculating WACC (we still use 12.0%). The table below provides a sensitivity of the calculated DCF value to both WACC assumptions and terminal growth rates.
Exhibit 2: DCF sensitivity analysis to WACC and terminal growth rate (SEK/share)
Terminal growth rate |
|||||||||
WACC |
7.0% |
8.0% |
9.0% |
10.0% |
11.0% |
12.0% |
13.0% |
14.0% |
15.0% |
0% |
10.2 |
8.7 |
7.6 |
6.7 |
6.0 |
5.3 |
4.8 |
4.4 |
4.0 |
1% |
11.7 |
9.8 |
8.4 |
7.3 |
6.4 |
5.7 |
5.1 |
4.7 |
4.2 |
2% |
13.8 |
11.3 |
9.4 |
8.1 |
7.0 |
6.2 |
5.5 |
5.0 |
4.5 |
3% |
17.0 |
13.3 |
10.8 |
9.1 |
7.8 |
6.8 |
6.0 |
5.3 |
4.8 |
Source: Edison Investment Research estimates
Exhibit 3: Financial summary
SEKm |
2020 |
2021 |
2022 |
2023e |
2024e |
||
Year-end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Net sales |
|
|
98.4 |
180.0 |
196.7 |
355.1 |
483.6 |
Own work capitalised and other operating income |
21.1 |
30.9 |
47.0 |
45.3 |
56.3 |
||
Group income |
119.5 |
210.8 |
243.7 |
400.4 |
540.0 |
||
EBITDA |
|
|
(17.5) |
(12.4) |
(30.0) |
21.9 |
71.5 |
Operating Profit (before amort. and except). |
|
|
(22.2) |
(21.9) |
(40.5) |
8.3 |
56.4 |
Intangible Amortisation |
(3.3) |
(0.9) |
(1.2) |
(10.7) |
(13.6) |
||
Exceptionals |
(12.1) |
(15.8) |
(25.4) |
(16.7) |
(16.7) |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
(37.5) |
(38.6) |
(67.0) |
(19.2) |
26.1 |
||
Net Interest |
(1.3) |
(4.2) |
17.9 |
3.1 |
2.1 |
||
Profit Before Tax (norm) |
|
|
(26.7) |
(27.0) |
(23.8) |
0.6 |
44.9 |
Profit Before Tax (FRS 3) |
|
|
(38.8) |
(42.8) |
(49.1) |
(16.1) |
28.2 |
Tax |
0.5 |
3.3 |
2.6 |
0.8 |
(1.4) |
||
Profit After Tax (norm) |
(26.4) |
(24.9) |
(22.5) |
0.6 |
42.7 |
||
Profit After Tax (FRS 3) |
(38.3) |
(39.5) |
(46.5) |
(15.3) |
26.8 |
||
Average Number of Shares Outstanding (m) |
102.3 |
173.8 |
196.9 |
204.8 |
204.8 |
||
EPS - fully diluted (SEK) |
|
|
(0.26) |
(0.14) |
(0.11) |
0.00 |
0.21 |
EPS - normalised (SEK) |
|
|
(0.26) |
(0.14) |
(0.11) |
0.00 |
0.21 |
EPS - (IFRS) (SEK) |
|
|
(0.37) |
(0.23) |
(0.24) |
(0.07) |
0.13 |
Dividend per share (SEK) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
EBITDA Margin (%) |
-17.8 |
-6.9 |
-15.2 |
6.2 |
14.8 |
||
Operating Margin (before GW and except.) (%) |
-22.5 |
-12.2 |
-20.6 |
2.3 |
11.7 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
523.0 |
681.0 |
728.6 |
740.1 |
765.1 |
Intangible Assets |
494.3 |
639.5 |
665.5 |
660.9 |
669.0 |
||
Tangible Assets |
16.2 |
26.4 |
48.6 |
65.0 |
82.4 |
||
Right of use asset |
12.5 |
15.1 |
14.6 |
14.1 |
13.7 |
||
Investments |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
113.3 |
193.4 |
152.8 |
142.7 |
191.6 |
Stocks |
12.8 |
13.2 |
20.2 |
35.5 |
45.9 |
||
Debtors |
9.5 |
23.0 |
24.5 |
39.1 |
50.5 |
||
Cash |
62.4 |
96.1 |
52.1 |
25.5 |
61.2 |
||
Other |
28.5 |
61.1 |
56.0 |
42.7 |
33.9 |
||
Current Liabilities |
|
|
(56.1) |
(129.2) |
(170.2) |
(198.5) |
(245.1) |
Creditors |
(56.1) |
(128.5) |
(170.2) |
(198.5) |
(245.1) |
||
Short term borrowings |
0.0 |
(0.6) |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(14.4) |
(16.6) |
(17.8) |
(18.1) |
(18.6) |
Long term borrowings |
(0.3) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Lease liabilities |
(12.9) |
(15.1) |
(16.5) |
(17.0) |
(17.4) |
||
Other long term liabilities |
(1.2) |
(1.5) |
(1.2) |
(1.2) |
(1.1) |
||
Net Assets |
|
|
565.8 |
728.6 |
693.5 |
666.3 |
693.0 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(14.6) |
(37.3) |
(13.7) |
17.1 |
100.5 |
Net Interest |
(0.2) |
(0.2) |
18.8 |
4.0 |
3.0 |
||
Tax |
0.4 |
2.1 |
1.3 |
(0.0) |
(2.2) |
||
Capex |
(17.2) |
(29.2) |
(40.9) |
(48.6) |
(66.4) |
||
Acquisitions/disposals |
(6.2) |
2.6 |
(43.6) |
0.9 |
0.9 |
||
Financing |
49.2 |
94.1 |
33.3 |
0.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
11.4 |
32.0 |
(44.7) |
(26.6) |
35.8 |
||
Opening net debt/(cash) excluding lease liabilities |
|
(51.6) |
(62.2) |
(95.5) |
(52.1) |
(25.5) |
|
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.8) |
1.3 |
1.3 |
0.0 |
0.0 |
||
Closing net debt/(cash) excluding lease liabilities |
|
(62.2) |
(95.5) |
(52.1) |
(25.5) |
(61.2) |
|
Net financial liabilities including lease liabilities |
|
|
(49.3) |
(80.4) |
(35.6) |
(8.5) |
(43.8) |
Source: company reports, Edison Investment Research estimates
|
|
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