AAC Clyde Space — Gathering momentum for FY24 lift-off

AAC Clyde Space (OMX: AAC)

Last close As at 27/02/2024

SEK48.20

0.20 (0.42%)

Market capitalisation

SEK274m

More on this equity

Research: Industrials

AAC Clyde Space — Gathering momentum for FY24 lift-off

AAC Clyde Space’s (AAC’s) Q323 report was encouraging, although it benefited from a large element of licence income without which the underlying progress was disappointing. The reason for that was summer shutdowns at suppliers and customers with some key revenue recognition deferred. However, since the start of Q423 there has been a tremendous order inflow worth around SEK200m. Much of this will start in FY24, supporting the significant acceleration of revenues towards the SEK500m targeted. That should accompany improving profitability and cash flows and lead to a reversal of recent declines in the share price.

Andy Chambers

Written by

Andy Chambers

Director, Industrials

Industrials

AAC Clyde Space

Gathering momentum for FY24 lift-off

Q323 update and order flow

Aerospace and defence

14 December 2023

Price

SEK33.8

Market cap

SEK193m

SEK13.02/£1, SEK10.26/$1

Adjusted net cash (SEKm) at 30 Sept 2023 (excluding leases SEK17.3m)

c.5.0

Shares in issue

5.7m

Free float

88%

Code

AAC

Primary exchange

Nasdaq First North Premier Growth Market

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(5.0)

7.0

(56.8)

Rel (local)

(13.3)

(1.0)

(59.1)

52-week high/low

SEK83.05

SEK27.50

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, the United States and Africa.

Next events

FY23 prelims

15 February 2024

FY23 annual report

25 April 2024

Analysts

Andy Chambers

+44 (0)20 3077 5700

Natalya Davies

+44 (0)20 3077 5700

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

AAC Clyde Space's (AAC’s) Q323 report was encouraging, although it benefited from a large element of licence income without which the underlying progress was disappointing. The reason for that was summer shutdowns at suppliers and customers with some key revenue recognition deferred. However, since the start of Q423 there has been a tremendous order inflow worth around SEK200m. Much of this will start in FY24, supporting the significant acceleration of revenues towards the SEK500m targeted. That should accompany improving profitability and cash flows and lead to a reversal of recent declines in the share price.

Year end

Revenue (SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/21

180.0

(27.0)

(7.17)

0.0

N/A

N/A

12/22

196.7

(17.7)

(4.18)

0.0

N/A

N/A

12/23e

277.5

(3.9)

(0.76)

0.0

N/A

N/A

12/24e

468.2

23.3

3.88

0.0

8.7

N/A

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

Q323 performance constrained by delays

Five of AAC’s six business units saw a weaker year-on-year trading performance in Q323. The positive news was that the licence income received from a customer, which has little cost attached, more than compensated at the EBITDA level for both the quarter and the year to date. We have tempered our expectations for Q423 performance despite the recent positive newsflow and have reduced our FY23 revenue estimate by 16.0% and group income by 13%. We still anticipate a much stronger FY24 performance although a weaker mix with lower space data as a service (SDaaS) revenues than previously forecast.

Encouraging surge in order intake in recent weeks

At Q323 the order book remained reasonably robust at SEK434m, but the book-to-bill ratio has not looked indicative of substantial growth in FY24 until the last few weeks. A slew of orders has been announced worth in aggregate around SEK200m, which should leave the year-end backlog in excess of SEK550m. Because of the delays to some of AAC’s owned satellite launches we think the ramp up of SDaaS revenues will be slower in FY24. That was not helped by the recent loss of the Kelpie-2 satellite for ORBCOMM, although mitigation is being sought. The lower FY24 SDaaS revenue should be largely recovered from new work secured including the initial revenues from the Omnisys’s SEK137m contract for Square Kilometre Array (SKA), which will run to 2027.

Valuation: Moving to financial sustainability

The recent 50 for 1 share consolidation has clearly adjusted the per share figures but the underlying share price trend has been lower. With our expectation that the company should move towards a self-sustaining funding status in FY24, we feel the outlook is more positive than is reflected in the valuation. Our adjusted DCF value on our lower estimates is SEK287/share (SEK293/share previously).

Q323 more challenging than expected

Assisted by licence income

The Q323 report maintained good progress with revenues rising 23% to SEK56.1m (Q322 SEK45.7m) and a positive EBITDA contribution of SEK6.7m (Q322 EBITDA loss of SEK7.7m). The improvements were driven by the receipt of licence income. AAC Clyde Space in Sweden booked SEK26.2m of revenues during the quarter, adding to the SEK6.1m booked in H1223, which directly drops through to the profitability. The associated cash is planned to be received successively, completing in H124. Licence income is an important and cash positive revenue stream but it remains variable at present and we do not expect it to be a significant driver of attaining management’s FY24 and FY30 revenue targets.

Excluding the licence income, the trading performance during the quarter was more challenging than we had anticipated. Group revenues were down 28% at SEK30.0m (Q322 SEK41.9m), with year-on-year revenue declines in five of the six business units, including AAC Clyde Space in Sweden. Only Hyperion recorded an improvement. The performance was caused by delays to component supply and projects exacerbated by summer shutdowns, with deliveries and revenue recognition deferred, reducing the overhead coverage.

As a result, the EBITDA loss excluding licence income worsened to SEK19.5m (Q322 SEK11.5m) year-on-year and was substantially worse than the SEK2.1m EBITDA loss generated in H123 (adjusted for licence income of SEK6.1m).

Overall, the group loss before tax was SEK2.4m (Q322 SEK12.8m). Gross cash finished Q323 at SEK22.7m after receipt of the SEK35.9m net proceeds from the fund-raising. Adjusted net cash (excluding leases) was c SEK5m allowing for overdraft utilisation.

Exhibit 1: Q323 results summary

2022

2023

Change

SEKm unless stated

H122

Q322

9M22

H123

Q323

9M23

H123/H122

Q323/Q322

9 months

AAC Clyde

19.8

12.1

31.90

28.5

32.0

60.4

44%

164%

89%

Clyde

25.2

12.0

37.17

25.8

9.9

35.7

2%

(17%)

(4%)

Hyperion

6.8

2.8

9.62

30.6

4.7

35.3

351%

66%

267%

SpaceQuest

14.4

8.1

22.52

20.7

6.4

27.1

44%

(21%)

20%

Omnisys

22.7

9.6

32.32

43.2

3.1

46.2

90%

(68%)

43%

AAC Space Africa

1.7

1.1

2.84

1.0

0.1

1.1

(41%)

(89%)

(60%)

Net sales

90.7

45.7

136.4

149.8

56.1

205.9

65%

23%

51%

SDaaS

8.2

4.4

12.6

9.1

4.7

13.8

10%

8%

10%

Space missions

22.5

11.7

34.2

14.5

5.6

20.1

(35%)

(53%)

(41%)

Space products

60.0

25.8

85.8

120.1

19.7

139.8

100%

(24%)

63%

Licence income

0.0

3.8

3.8

6.1

26.2

32.2

Net sales

90.7

45.7

136.4

149.8

56.1

205.9

65%

23%

51%

Other operating income

9.9

5.7

15.5

12.8

6.4

19.2

30%

13%

24%

Development work capitalised

10.9

4.8

15.7

15.3

5.7

21.0

41%

18%

34%

Group income

111.5

56.1

167.6

177.9

68.2

246.1

60%

21%

47%

Raw materials and subcontractors

(30.8)

(18.1)

(48.9)

(65.5)

(9.0)

(74.5)

113%

(50%)

52%

Personnel costs

(68.1)

(32.7)

(100.9)

(82.5)

(38.9)

(121.4)

21%

19%

20%

Other external expenses

(19.6)

(11.6)

(31.2)

(22.9)

(10.3)

(33.2)

17%

(11%)

7%

Other operating expenses

(3.7)

(1.4)

(5.2)

(3.1)

(3.3)

(6.3)

(18%)

129%

22%

EBITDA reported

(10.8)

(7.7)

(18.5)

3.97

6.7

10.7

N/M

N/M

N/M

Depreciation and amortisation

(13.4)

(6.9)

(20.3)

(14.8)

(7.7)

(22.5)

11%

11%

11%

EBIT

(24.1)

(14.6)

(38.7)

(10.9)

(1.0)

(11.8)

(55%)

(93%)

(89%)

PBT

(18.8)

(12.8)

(31.6)

(10.6)

(2.4)

(13.0)

(44%)

(81%)

(59%)

Net income

(17.50)

(11.6)

(29.1)

(11.1)

(2.5)

(13.6)

(36%)

(79%)

(53%)

EPS (SEK)*

(4.5)

(3.0)

(7.5)

(2.5)

(0.5)

(3.0)

(44%)

(83%)

(60%)

Adjusted net cash at period end

46.5

25.0

13.0

22.7

(72%)

(9%)

Source: Company reports, * adjusted for share consolidation

For the nine-month period ending September 2023 group revenues were up 51% at SEK205.9m (9M22 SEK136.4m), and EBITDA was SEK10.7m (9M22 EBITDA loss SEK34.0m). PBT improved to a loss of SEK13.0m (9M22 SEK31.6m) again helped by the SEK28.4m increase in licence income booked during the period. Nevertheless, despite the weaker third quarter trading there was an underlying improvement in performance.

The order backlog was stable at SEK433.6m at the end of Q323 (FY22 SEK427.8m).

Exhibit 2: AAC Clyde Space order backlog development by segment

Source: Company reports, Edison Investment Research estimates

Outlook

Q423 proving to be a very busy period

Activity has picked up noticeably in Q324 with a raft of deliveries and a significant increase in order intake, with some significant new business won.

High levels of activity in the current quarter

The cutting-edge weather sensor payload was delivered by Omnisys to OHB Sweden for the Arctic Weather Satellite (AWS) in mid-October, deferred from Q323. The project has been one of the largest for the group with AAC Clyde Space also supplying a Starbuck power system and a Sirius command and data handling system for the 129kg satellite. Revenues will continue to be booked through next year when the satellite is due for launch and the AWS is expected to be a forerunner of a potential future constellation for monitoring weather and climate change.

Three new satellites were delivered to, integrated with, launched and deployed on SpaceX’s Transporter 9 mission on 11 November 2023. Two satellites form part of AAC’s own fleet and should start delivering data in 2024 with the other supplied to KP Labs. The three satellites were:

Ymir-1, designed and built by AAC Clyde in Sweden as part of the VHF Data Exchange System (VDES) being developed with its partners in AOS (ORBCOMM and Saab) to develop a maritime communications system.

EPICHyper-3, a 6U satellite that joins the already deployed EPICHyper-1 and EPICHyper-2 launched earlier in 2023. These provide hyperspectral Earth observation data for Canadian company Wyvern for the agricultural sector under the SDaaS contract.

Intuition-1, Earth observation satellite built for KP Labs based on the 6U EPIC VIEW platform and hosting its innovative cutting-edge hyperspectral instrument, which should provide high quality and actionable data for the agricultural sector.

Order backlog significantly enhanced

Since the end of Q323 AAC has been awarded a significant number of new contracts worth an aggregate of over SEK200m. Hopefully the order activity reflects the increasing confidence and financial capability of customers and should continue into FY24. We expect the year end order backlog to be around SEK550m, allowing for the sharp increase in sales anticipated in Q423. The order intake includes:

3 October 2023: AAC Clyde Space received a SEK12.1m order for a 3U satellite for delivery in Q424 with a VDES payload for AOS for maritime communications.

7 November 2023: Clyde Space won a c SEK8.8m replacement order for the new Amber Phoenix satellite for Horizon Technologies to replace the IOD-3 satellite lost at launch in January 2023; it should be delivered during Q324.

24 November 2023: AAC Clyde Space won an order worth c SEK13.4m for a Starbuck Mini power system for an existing customer to be delivered in Q125.

27 November 2023: AAC Clyde Space won an order worth c SEK6.4m for a Starbuck Mini power system for a customer to be delivered in Q424.

1 December 2023: Omnisys won a SEK137m contract to supply radio astronomy receivers for the SKA Observatory which is building two radio telescopes in South Africa and Australia. Omnisys will commence preparatory work in FY24 and then sequentially deliver 80 receiver dishes that weigh more than 180kg and are over one meter wide to the SKA-Mid telescope in South Africa until Q127.

4 December 2023: AAC Clyde Space announced the award of a SEK25.5m order from Iota Technology for an end-to-end satellite mission to support its winning magnetometer payload proposition in the MagQuest competition to measure the Earth’s magnetic field. It is planned for launched in Q425.

We still wait for significant additional data orders to be secured but these should appear after the initial SDaaS satellites start to provide data for evaluation by potential customers. With 12 of AAC’s own satellites expected to be in orbit by the end of FY24 and several already launched, we expect that to gather momentum in FY24.

Loss of Kelpie-2

On 22 November 2023, AAC announced the total loss of the Kelpie-2 3U satellite after the failure of its antenna to deploy following its launch in June 2023. It was the second of two satellites being supplied to deliver automatic identification system data under an SDaaS agreement with ORBCOMM of the US. Its sister satellite Kelpie-1 was successfully launched in January 2023. The satellite was insured and AAC is in discussion with its insurers with regards to recovery to mitigate financial losses. It is also seeking ways to provide data via alternative resources for the data customer, which may include using one of its other owned satellites. It is another reminder of the inherent technical risk of space.

Share consolidation

AAC initiated a 50 for 1 share consolidation during November 2023 reducing the share count to c 5.7m shares and adjusting the share price, EPS and other per share metrics by a factor of 50. It does not affect the finances or economics in any other way.

Earnings revisions

We have reflected the weaker than expected Q323 trading in our revised estimates. The improved mix of very high-margin licence income mitigates the impact on our FY23 EBITDA expectation resulting from the reduced revenues, including relatively high-margin SDaaS sales due to delays. Our revenues fall by 16% and EBITDA is reduced 36% to SEK10.6m. The adjusted net cash position is slightly reduced due to lower profitability and as some of the licence payments are planned to be received in H124.

For FY24 we have reduced our SDaaS revenues but now expect a stronger performance from Omnisys due to the SKA contract. Overall, we reduce our revenue estimate by 3% to SEK468m, slightly below management’s longstanding SEK500m ambition. Our EBITDA falls 26% to SEK52.5m and the EPS expectation reduces to SEK3.88/share.

Exhibit 3: AAC Clyde Space estimates revisions

SEKm

2023e

2024e

Prior

New

% change

Prior

New

% change

By Business

AAC Clyde Space

69.0

72.6

5.2%

89.9

82.3

(8.4%)

Clyde

79.6

51.0

(36.0%)

179.3

177.6

(1.0%)

Hyperion

56.6

51.2

(9.6%)

62.3

56.3

(9.6%)

SpaceQuest

40.8

36.1

(11.5%)

53.1

51.0

(3.8%)

Omnisys

78.4

62.7

(20.0%)

90.1

94.0

4.3%

AAC Space Africa

3.9

3.9

6.9

6.9

0.0%

Total group net sales

328.4

277.5

(15.5%)

481.6

468.2

(2.8%)

By activity

SDaaS

35.0

19.0

(45.7%)

101.0

40.0

(60.4%)

Space Missions

41.0

32.5

(20.6%)

79.8

113.6

42.4%

Space Products

236.3

193.7

(18.0%)

290.9

304.6

4.7%

Licence & royalties income

16.1

32.2

100.5%

10.0

10.0

0.0%

Total group net sales

328.4

277.5

(15.5%)

481.6

468.2

(2.8%)

Other operating income

20.3

26.3

3.0

3.0

Own work capitalised

35.3

30.3

53.2

52.3

Total group income

384.0

334.1

(13.0%)

537.8

523.5

(2.7%)

Raw materials & subcontractors

(142.9)

(106.7)

(25.3%)

(197.5)

(204.9)

3.8%)

Personnel costs

(165.4)

(165.4)

(0.0%)

(190.3)

(190.3)

0.0%

Other external expenses

(52.5)

(41.7)

(20.7%)

(72.2)

(68.7)

(4.9%)

Other operating expenses

(6.6)

(9.7)

47.9%

(6.7)

(7.0)

4.1%)

EBITDA (company adjusted)

16.7

10.6

(36.4%)

71.0

52.5

(26.2%)

EBIT (adjusted)

(0.8)

(5.6)

571.1%

40.3

22.8

(43.4%)

Underlying PBT

0.8

(3.9)

N/M

40.3

23.3

(42.2%)

EPS - underlying continuing (SEK)

0.14

(0.76)

N/M

6.71

3.88

(42.2%)

Adjusted net cash / (debt)

46.6

36.5

(21.7%)

78.9

61.5

(22.0%)

Source: Edison Investment Research estimates. Note: *Adjusted for share consolidation

Valuation

Due to the lower share count the per share DCF value increases by a factor of 50. The value based on our revised estimates drops to SEK287/share from SEK293/share previously. Assuming our estimates are achieved next year the FY24e P/E is currently 8.7x, which in our view implies significant potential for investors as cash generation improves. The sensitivity of our DCF model to WACC and terminal growth rates is shown below:

Exhibit 4: AAC DCF sensitivity to WACC and terminal growth rate (SEK/share)

WACC

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

Terminal growth rate

0%

545

467

407

359

319

287

260

237

217

1%

627

526

451

393

346

309

278

252

229

2%

741

604

507

435

379

335

299

269

244

3%

912

714

583

490

420

366

323

289

260

Source: Edison Investment Research estimates

Exhibit 5: Financial summary

SEKm

2020

2021

2022

2023e

2024e

Year end December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Net sales

 

 

98.4

180.0

196.7

277.5

468.2

Own work capitalised and other operating income

21.1

30.9

52.5

56.6

55.3

Group income

119.5

210.8

249.2

334.1

523.5

EBITDA

 

 

(17.5)

(12.4)

(24.5)

10.6

52.5

Operating Profit (before amort. and except).

(22.2)

(21.9)

(34.9)

(2.6)

36.1

Intangible Amortisation

(3.3)

(0.9)

(0.7)

(3.0)

(13.3)

Exceptionals

(12.1)

(15.8)

(26.0)

(17.5)

(17.5)

Other

0.0

0.0

0.0

0.0

0.0

Operating Profit

(37.5)

(38.6)

(61.6)

(23.1)

5.3

Net Interest

(1.3)

(4.2)

17.9

1.7

0.5

Profit Before Tax (norm)

 

 

(26.7)

(27.0)

(17.7)

(3.9)

23.3

Profit Before Tax (FRS 3)

 

 

(38.8)

(42.8)

(43.7)

(21.4)

5.8

Tax

0.5

3.3

2.6

1.1

(0.3)

Profit After Tax (norm)

(26.4)

(24.9)

(16.4)

(3.705)

22.2

Profit After Tax (FRS 3)

(38.3)

(39.5)

(41.1)

(20.3)

5.5

Average Number of Shares Outstanding (m)

2.0

3.5

3.9

2.9

5.7

EPS - fully diluted (SEK)

 

 

(12.89)

(7.17)

(4.18)

(1.28)

3.88

EPS - normalised (SEK)

 

 

(12.89)

(7.17)

(4.18)

(1.28)

3.88

EPS - (IFRS) (SEK)

 

 

(18.72)

(11.36)

(10.44)

(7.02)

0.97

Dividend per share (SEK)

0.0

0.0

0.0

0.0

0.0

EBITDA Margin (%)

-17.8

-6.9

-12.5

3.8

11.2

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

-22.5

-12.2

-17.7

-0.9

7.7

BALANCE SHEET

Fixed Assets

 

 

523.0

681.0

728.6

743.8

771.9

Intangible Assets

494.3

639.5

665.5

660.3

666.7

Tangible Assets

16.2

26.4

46.4

66.7

90.3

Right of use asset

12.5

15.1

16.8

16.8

14.8

Investments

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

113.3

193.4

152.8

136.2

191.8

Stocks

12.8

13.2

20.2

27.7

44.5

Debtors

9.5

23.0

24.5

30.5

48.9

Cash

62.4

96.1

52.1

44.6

65.6

Other

28.5

61.1

56.0

33.4

32.9

Current Liabilities

 

 

(56.1)

(129.2)

(170.2)

(155.1)

(237.3)

Creditors

(56.1)

(128.5)

(170.2)

(155.1)

(237.3)

Short term borrowings

0.0

(0.6)

0.0

0.0

0.0

Long Term Liabilities

 

 

(14.4)

(16.6)

(17.8)

(27.8)

(23.7)

Long term borrowings

(0.3)

0.0

0.0

(8.1)

(4.0)

Lease liabilities

(12.9)

(15.1)

(16.5)

(18.5)

(18.5)

Other long term liabilities

(1.2)

(1.5)

(1.2)

(1.2)

(1.1)

Net Assets

 

 

565.8

728.6

693.5

697.1

702.7

CASH FLOW

Operating Cash Flow

 

 

(14.6)

(37.3)

(13.2)

(14.6)

92.9

Net Interest

(0.2)

(0.2)

18.3

3.7

2.5

Tax

0.4

2.1

1.3

0.2

(1.2)

Capex

(17.2)

(29.2)

(40.9)

(42.8)

(71.2)

Acquisitions/disposals

(6.2)

2.6

(43.7)

2.0

2.0

Financing

49.2

94.1

33.4

35.9

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

11.4

32.0

(44.7)

(15.6)

25.0

Opening net debt/(cash) excluding lease liabilites

(51.6)

(62.2)

(95.5)

(52.1)

(36.5)

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)

(36.5)

(61.5)

Net financial liabilities including lease liabilities

(49.3)

(80.4)

(35.6)

(18.0)

(43.0)

Source: Company reports, Edison Investment Research estimates


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Copyright: Copyright 2023 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.

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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.

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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 £60,000 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 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Deutsche Beteiligungs — Solid exits in FY23, expanding into private debt

Deutsche Beteiligungs (DBAG) posted a strong 18.1% NAV TR in FY23 (to end-September 2023), which more than offset the NAV TR loss in FY22 of c 13%. Its performance benefited from, among other factors, comparable multiples expansion and a successful year in terms of realisations (in contrast to the muted exit activity across the broad global PE market). Moreover, DBAG’s management decided to enter the fast-growing private debt market through the acquisition of a majority stake in ELF Capital, with DBAG making a €100m investment commitment to ELF Capital’s funds. We believe this may have contributed to the recent update to DBAG’s distribution policy, which now assumes a minimum dividend of €1.00/share versus the previous 2023–25 management target of €1.60/share.

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