Mynaric — Transitioning to commercialisation

At this stage of Mynaric’s evolution, technical progress is more important than financial metrics. In FY18 the company made significant advances in terminals for space deployment, keeping it broadly on track for commercial roll-out in the airborne sector in FY19 and the space sector in FY20. This positions it as a key supplier to the mega-constellations of satellites and aerial platforms under development. Importantly, Mynaric is making the transition from a technology company delivering one-off prototypes to delivering reliable product suitable for multiple customers.

Since January 2018 Mynaric has made substantial progress towards being able to provide customers with reliable product that can be offered in high volume. A communications subsystem was launched on a third-party satellite to enable the first trials of ground-to-space links on a satellite rather than a laboratory environment. The company formed an exclusive partnership with French research institute Leti for the supply of the next generation of Avalanche Photodiodes, enabling Mynaric to reduce the production costs, size, weight and power consumption of its laser communication units. It commenced development of an ultra-lightweight terminal for digital agriculture for delivery in early 2020. The first optical ground station for satellite communications successfully passed its site acceptance test, following which Mynaric commenced serial production of both ground-to-air and ground-to-space optical ground stations. As far as management is aware, it remains the only commercial supplier of optical ground stations to have done so. These developments are discussed in more detail in our November update.

In November Mynaric announced it had been selected by UK-based company ArQit to work on an initial study for ultra-secure data delivery from space. The project will validate the delivery of cryptographic quantum keys by satellites, enabling recipients to know that a message has been intercepted and security potentially compromised. Such an ultra-secure system would be of interest to organisations such as banks, insurers, hospitals and governments, which may require an individual optical ground station for every site included in an ultra-secure communication system. Mynaric could become the exclusive supplier of optical ground stations and laser terminals to the project once the first study phase has concluded. The project is being carried out under a public-private partnership between ArQit and the European Space Agency. As well as Mynaric, the ArQit-led industrial consortium includes QinetiQ, BT and the Fraunhofer Institute.

In October, Mynaric announced that it had signed a memorandum of understanding with an undisclosed company building a LEO satellite constellation. The first satellites equipped with Mynaric’s terminals are scheduled for launch in 2020. These will be part of a demonstration programme prior to rolling out the full constellation, which will potentially involve several hundred satellites and require more than one thousand Mynaric terminals.

In November Mynaric announced it was opening a new site in Shanghai to gain better penetration of the booming aerospace market in Asia. This complements its office in Alabama which serves as the Group’s sales and engineering base for the North American market.

In March 2019 former SpaceX and Airbus VP Bulent Altan joined Mynaric’s management board to lead the space business. He was joined by former Bosch Sensortec VP Hubertus von Janecek, who is leading sales and production of airborne products. Dr Wolfram Peschko has remained on the management board to lead finance, administration and strategy. The changes allow co-founders Markus Knapek and Joachim Horwath, who were previously management board members, to focus on the development of new products and technical innovation.

Mynaric has recently moved to larger, customised premises just outside Munich. This self-contained premises of over 4,500m2 houses a clean room, laboratories, R&D facilities and test equipment to support serial production of laser communication products.

Total operating performance (see Exhibit 2) more than doubled to €7.4m, reflecting substantially higher levels of activity as the company commenced serial production of ground terminals and intensified development work on space-borne and air-borne terminals. This is the most significant metric for Mynaric at its stage of evolution as this includes the value of the increase in finished goods and work in progress and the amount of development activity on projects that are not linked to customer contracts as well as revenues derived from delivered finished product and completed milestones on customer projects.

The total number of employees has increased from around 40 at the end of December 2017 to around 80 at present as management geared up for commercial production by adding employees in test, production, logistics, procurement, quality control and sales, strengthened the team based in North America and opened an office in China. While personnel costs rose by 81% year-on-year, this was substantially less than the 148% rise in total operating performance, indicating improving levels of efficiency. The cost of materials increased by 125%, which was also at a lower rate than total operating performance while ‘Other operating expenses’ fell by 17%. Losses after tax reduced by 4% to (€6.7m.)

Net cash (there is no debt) fell by €13.2m during FY18 to €15.2m at the year end. In addition to €7.5m cash consumed in operations, the company invested €4.0m in intangible assets, primarily the capitalised costs of manufacturing the satellite terminal, and €1.9m in fixed assets most of which related to fitting out and equipping the new facility, which is rented. In March 2019, Mynaric raised €11m funding through the issue of shares at €55/share to the lead investor of a satellite constellation with which it is working. This is the same satellite constellation as the one referred to in October’s announcement regarding a memorandum of understanding with the builder of a satellite constellation potentially requiring more than 1,000 of Mynaric’s laser communication terminals. The funds will be used to accelerate serial production of Mynaric’s product portfolio and for continued development of its product portfolio.

Management has not provided formal guidance for FY19. However, recent technical advances put Mynaric in a good place to provide equipment to key projected constellations that are getting closer to actual implementation. Other than the memorandum of understanding with the undisclosed satellite constellation builder, there is very little public information advising whether an individual communications network will be deploying Mynaric’s laser links. We note that Mynaric’s technology can potentially support data rates c 1,000 times faster than conventional microwave links between satellites, substantially improving the economics of a satellite, drone or balloon-based communications network.

The share price has fallen by around 17% from a peak of €50.60 in April and is trading around 22% below €54.0/share at the IPO in October 2017. It is likely that the share price performance has been affected by lower than expected revenues during FY18 as management decided to delay moving into serial production of airborne terminals, which it had previously scheduled for FY18, while it made further improvements to the design. We note that consensus estimates have recently been revised down, to reflect lower shipments of airborne terminals during FY19 and a slippage of the first space-borne terminals from FY19 into FY20.

Mynaric is still at the pre-commercial phase and is not expected to be generate operating profit until FY21. This limits the value of any analysis based on peer multiples, which do not ascribe any value for the substantial growth that may be realised from FY20 onwards when many of the proposed mega-constellations that could potentially deploy Mynaric’s terminals are scheduled for launch. It is not surprising therefore that Mynaric’s FY19 EV/sales multiples are at the upper end of our sample of listed peers involved in optoelectronics components and subsystems, all of which are at a later stage of corporate development than Mynaric.

We supplement the peer-based approach with a scenario analysis (Exhibit 3) showing potential revenues achievable if the technology is deployed in communication systems of different sizes. We split the analysis into two types of system. The first looks at communication networks based on smaller LEO satellites, which typically have more than 100 satellites each. The second looks at communication networks based on many more, less expensive platforms, which may be UAVs (unmanned aerial vehicles), aircraft or balloons. A communications satellite has space-qualified terminals, which are more expensive than those on an airborne platform.

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