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FY19 proved to be a more challenging year than management expected originally. Encouragingly, order intake reached record levels and FY20 has started strongly. The project delays and resourcing issues now appear to have been addressed. Management expects strong revenue growth and a reduced EBITDA loss in FY20, with a positive result and free cash inflow in FY21. The new executive team are clearly focused on a robust delivery of the innovative solutions driving an increasingly high quality backlog.
Written by
AAC Clyde Space |
Strong growth anticipated in New Space |
FY19 results |
Aerospace & defence |
25 February 2020 |
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Business description
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AAC Clyde Space is a research client of Edison Investment Research Limited |
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FY19 proved to be a more challenging year than management expected originally. Encouragingly, order intake reached record levels and FY20 has started strongly. The project delays and resourcing issues now appear to have been addressed. Management expects strong revenue growth and a reduced EBITDA loss in FY20, with a positive result and free cash inflow in FY21. The new executive team are clearly focused on a robust delivery of the innovative solutions driving an increasingly high quality backlog.
Year end |
Revenue (SEKm) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/18 |
77.9 |
(38.0) |
(0.49) |
0.0 |
N/A |
0.0 |
12/19 |
66.4 |
(38.7) |
(0.45) |
0.0 |
N/A |
0.0 |
12/20e |
129.8 |
(14.7) |
(0.15) |
0.0 |
N/A |
0.0 |
12/21e |
194.2 |
8.9 |
0.09 |
0.0 |
52.4 |
0.0 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY19 project delays appear to be resolved
Despite a record order intake, FY19 was more challenging than expected as project delays and staffing levels constrained performance and increased costs. Delivery of the two platforms affected slipped into January 2020 and are now completed. The resultant FY19 EBITDA loss of SEK27.3m was broadly in line with our recently reduced expectations, although the cost splits reflected the revised staffing levels and extra costs incurred to complete the projects. Net cash of SEK51.6m (excluding lease liabilities of SEK14.1m) also finished FY19 close to our estimate. The order backlog at the year end was up by more than 150% to SEK169m.
Strength of backlog with improving quality
The company has SEK88m of current-year revenues already under contract. This represents just under half of the order backlog at the end of January 2020, which stood at SEK185m following additional orders. The sales cover alone would deliver record revenues and a more than 30% increase on FY19. We expect the required uplift to meet our FY20 revenue forecast to come from further subsystems orders for delivery in FY20, as well as continued platform orders which will add to revenue recognition during the design and construction phases. We are now estimating higher material costs following the performance although some of the proportionate increase may have been due to resolving the project delays. The inflation in employee costs per head has been lower than expected, although we expect staff numbers to continue to rise as workload increases. Our FY21 forecast is introduced with further strong growth anticipated as the small satellite market develops. Our expectation of a positive EBITDA and cash flow reflects management indications.
Valuation: Anticipated growth not yet reflected
We have updated our capped DCF estimates to a FY20 basis which now returns a fair value of SEK8.6 per share (previously SEK8.4). If management successfully executes the growth plan, earnings-based metrics should prove undemanding.
Earnings revisions
While we maintain our revenue expectations for the current year, we now anticipate slightly higher material costs which leaves the EBITDA at a small loss of SEK1.2m compared to our previous expectation of a SEK2.0m profit. The prospects for FY21 are for further strong top line growth as both platform and revenues continue to expand. The resultant profitable EBITDA should drive positive operational and net cash flows.
Exhibit 1: AAC Clyde Space earnings revisions
Year to December (SEKm) |
2019e |
2019 |
|
2020e |
2020e |
|
2021e |
|
Prior |
Actual |
% change |
Prior |
New |
% change |
New |
By business |
|
|
|
|
|
|
|
AAC |
28.1 |
26.4 |
(6.1%) |
39.736 |
39.736 |
0.0% |
50.420 |
Clyde |
44.8 |
40.1 |
(10.6%) |
90.1 |
90.1 |
0.0% |
143.7 |
Total group revenue |
72.9 |
66.4 |
(8.8%) |
129.8 |
129.8 |
0.0% |
194.2 |
By activity |
|
|
|
|
|
|
|
Satellite platforms |
16.6 |
20.4 |
23.1% |
36.6 |
36.6 |
0.0% |
76.9 |
Subsystems |
56.1 |
45.9 |
(18.2%) |
91.3 |
92.2 |
1.0% |
115.2 |
Licence and royalties income |
0.2 |
0.1 |
|
1.9 |
1.0 |
(47.4%) |
2.0 |
Total group revenue |
72.9 |
66.4 |
(8.8%) |
129.8 |
129.8 |
0.0% |
194.2 |
Other operating income |
9.0 |
11.2 |
24.4% |
2.0 |
2.0 |
0.0% |
0.2 |
Own work capitalised |
2.6 |
3.0 |
16.6% |
2.9 |
2.9 |
0.0% |
3.8 |
Total group income |
84.4 |
80.6 |
(4.6%) |
134.7 |
134.7 |
0.0% |
198.2 |
|
|
|
|
|
|
|
|
Raw materials and subcontractors |
(28.4) |
(27.4) |
(3.4%) |
(44.1) |
(48.0) |
8.8% |
(68.0) |
Personnel costs |
(56.8) |
(51.8) |
(8.9%) |
(65.1) |
(62.2) |
(4.4%) |
(75.1) |
Other external expenses |
(23.3) |
(23.7) |
1.4% |
(23.4) |
(25.6) |
9.7% |
(29.1) |
Other operating expenses |
(3.7) |
(5.0) |
33.7% |
0.0 |
0.0 |
0.0% |
0.0 |
EBITDA (company reported) |
(27.9) |
(27.3) |
(2%) |
2.0 |
(1.2) |
(160%) |
26.0 |
EBIT (pre PPA amortisation) |
(36.3) |
(37.8) |
4.0% |
(6.9) |
(14.8) |
114.4% |
8.9 |
|
|
|
|
|
|
|
|
Underlying PBT |
(36.8) |
(38.7) |
5.1% |
(7.7) |
(14.7) |
90.3% |
8.9 |
|
|
|
|
|
|
|
|
EPS – underlying continuing (SEK) |
(0.41) |
(0.45) |
10.3% |
(0.07) |
(0.15) |
100.8% |
0.09 |
DPS (SEK) |
0.0 |
0.0 |
|
0.0 |
0.0 |
|
0.0 |
Net cash/(debt) |
53.6 |
51.6 |
(3.7%) |
42.9 |
25.7 |
(40.1%) |
31.5 |
Source: Company data, Edison Investment Research
Exhibit 2: Financial summary
SEKm |
2018 |
2019 |
2020e |
2021e |
||
Year end December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||
Net sales |
|
|
77.9 |
66.4 |
129.8 |
194.2 |
Own work capitalised and other operating income |
11.3 |
14.1 |
4.9 |
4.0 |
||
Group income |
89.2 |
80.6 |
134.7 |
198.2 |
||
EBITDA |
|
|
(28.5) |
(27.3) |
(1.2) |
26.0 |
Operating Profit (before amortisation and except). |
(30.8) |
(32.7) |
(7.3) |
18.7 |
||
Intangible Amortisation |
(6.9) |
(5.1) |
(7.5) |
(9.8) |
||
Exceptionals |
(5.2) |
(2.4) |
(2.4) |
(1.9) |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
(42.9) |
(40.2) |
(17.1) |
7.0 |
||
Net Interest |
(0.3) |
(0.8) |
0.1 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(38.0) |
(38.7) |
(14.7) |
8.9 |
Profit Before Tax (FRS 3) |
|
|
(43.3) |
(41.0) |
(17.1) |
7.0 |
Tax |
0.9 |
0.5 |
0.9 |
(0.4) |
||
Profit After Tax (norm) |
(37.2) |
(38.2) |
(14.0) |
8.5 |
||
Profit After Tax (FRS 3) |
(42.3) |
(40.6) |
(16.2) |
6.7 |
||
Average Number of Shares Outstanding (m) |
75.4 |
84.8 |
96.2 |
96.2 |
||
EPS - fully diluted (SEK) |
|
|
(0.49) |
(0.45) |
(0.15) |
0.09 |
EPS - normalised (SEK) |
|
|
(0.49) |
(0.45) |
(0.15) |
0.09 |
EPS - (IFRS) (SEK) |
|
|
(0.56) |
(0.48) |
(0.17) |
0.07 |
Dividend per share (SEK) |
0.0 |
0.0 |
0.0 |
0.0 |
||
EBITDA Margin (%) |
-36.6 |
-41.1 |
-0.9 |
13.4 |
||
Operating Margin (before GW and except.) (%) |
-39.6 |
-49.2 |
-5.6 |
9.6 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
396.8 |
436.9 |
435.1 |
431.9 |
Intangible Assets |
392.6 |
418.6 |
421.7 |
423.8 |
||
Tangible Assets |
4.2 |
4.1 |
1.9 |
(1.0) |
||
Right of use asset |
14.2 |
11.6 |
9.1 |
|||
Investments |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
56.2 |
108.5 |
89.6 |
87.8 |
Stocks |
6.5 |
13.1 |
22.7 |
27.2 |
||
Debtors |
10.1 |
17.7 |
26.0 |
29.1 |
||
Cash |
12.2 |
52.4 |
26.4 |
32.4 |
||
Other |
27.3 |
25.2 |
28.6 |
29.1 |
||
Current Liabilities |
|
|
(35.6) |
(60.5) |
(72.7) |
(79.3) |
Creditors |
(35.5) |
(60.5) |
(72.7) |
(79.3) |
||
Short term borrowings |
(0.2) |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(2.4) |
(16.0) |
0.6 |
19.0 |
Long term borrowings |
(1.2) |
(0.8) |
(0.8) |
(0.9) |
||
Lease liabilities |
(14.1) |
(11.6) |
(9.0) |
|||
Other long term liabilities |
(1.2) |
(1.1) |
(1.1) |
(1.1) |
||
Net Assets |
|
|
415.0 |
468.9 |
452.7 |
459.4 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(49.1) |
(16.2) |
(12.6) |
22.0 |
Net Interest |
(0.3) |
(0.8) |
0.1 |
0.0 |
||
Tax |
0.8 |
0.4 |
0.7 |
(0.4) |
||
Capex |
(2.3) |
(13.1) |
(14.2) |
(15.7) |
||
Acquisitions/disposals |
(377.4) |
(2.8) |
0.0 |
0.0 |
||
Financing |
404.6 |
73.3 |
0.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
(23.6) |
40.8 |
(25.9) |
5.9 |
||
Opening net debt/(cash) excluding lease liabilities |
(35.2) |
(10.9) |
(51.6) |
(25.7) |
||
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.7) |
(0.1) |
0.0 |
0.0 |
||
Closing net debt/(cash) excluding lease liabilities |
(10.9) |
(51.6) |
(25.7) |
(31.5) |
||
Net financial liabilities including lease liabilities |
|
(37.5) |
(14.1) |
(22.5) |
||
Source: Company reports; Edison Investment Research estimates
|
|
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