AAC Clyde Space — Volatility affecting progress

AAC Clyde Space (OMX: AAC)

Last close As at 10/10/2024

SEK34.00

−0.05 (−0.15%)

Market capitalisation

SEK194m

More on this equity

Research: Industrials

AAC Clyde Space — Volatility affecting progress

AAC Clyde Space offers exposure to the fast-growing low Earth orbit space market. The difficulties experienced in Q2, affecting full year expectations, are clearly disappointing if not wholly unexpected in a fast-growing company in a relatively volatile market. The recent acquisition of Spacemetric and key launches in Q3 are positive, suggesting that AAC remains an interesting play in the burgeoning space sector.

David Larkam

Written by

David Larkam

Analyst, Industrials

Industrials

AAC Clyde Space

Volatility affecting progress

Q224 results

Aerospace and defence

21 August 2024

Price

SEK36.0

Market cap

SEK205m

SEK10.7/$, SEK13.5/£

Net cash (SEKm) at 31 March 2024 (gross cash SEK36.8m)

10.1

Shares in issue

5.7m

Free float

70.0%

Code

AAC

Primary exchange

Nasdaq First North Premier Growth Market

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(12.0)

(17.6)

21.5

Rel (local)

(10.5)

(15.3)

(1.1)

52-week high/low

SEK58.0

SEK27.5

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

Q324 results

7 November 2024

Analyst

David Larkam

+44 (0)20 3077 5700

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

AAC Clyde Space offers exposure to the fast-growing low Earth orbit space market. The difficulties experienced in Q2, affecting full year expectations, are clearly disappointing if not wholly unexpected in a fast-growing company in a relatively volatile market. The recent acquisition of Spacemetric and key launches in Q3 are positive, suggesting that AAC remains an interesting play in the burgeoning space sector.

Year end

Revenue (SEKm)

PBT*
(SEK)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/22

196.7

(23.2)

(5.6)

0.0

N/A

N/A

12/23

276.6

(19.3)

(4.2)

0.0

N/A

N/A

12/24e

375.0

(8.1)

(1.4)

0.0

N/A

N/A

12/25e

600.0

44.5

7.6

0.0

4.7

N/A

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

Q2 affected by operational delays

The quarter was affected by a supplier issue on a major project, issues with the Kelpie satellites, the delayed start of revenue service of some in-orbit satellites and delays in contracts being signed. This led to lower revenue than planned, with net sales down 30% y-o-y, while internal costs were still being incurred leading to negative EBITDA of SEK16.5m, down from SEK2.3m, and negative EBIT of SEK27.4m (up from negative SEK5.4m). The EPS loss of SEK4.8 was up from a loss of SEK1.1. Cash from operations was a positive SEK6.9m assisted by a working capital inflow of SEK24.2m. Net cash generation for the period was SEK1.4m, leaving the group with gross cash of SEK36.8m (overdraft drawdown totalled SEK26.6m of the SEK30m facility). Order intake remained positive with the order book achieving another record of SEK660m.

Outlook forecasts

The operational difficulties in Q2 and delays in orders, moving sales further out, has led management to reduce sales expectations for the year to SEK350–400m, down from SEK430–500m. More positively, guidance for an EBITDA margin of 5–10% (FY23: 0.4%) is retained. AAC is not providing guidance for FY25, although we have trimmed our top line by c SEK50m (7%) to reflect a degree of caution given the lower cadence of the business. Our new forecasts for FY24 are EBITDA of SEK24.9m (from SEK32.9m), a loss before tax of SEK8.1m (from a profit of SEK12.4m) and an EPS loss of SEK1.4 (from +SEK2.1). Our revised forecasts for FY25 are EBITDA of SEK75.0m (from SEK79.6m), PBT of SEK44.5m (from SEK52.7m) and EPS of SEK7.6 (from SEK8.7).

Valuation: SEK278/share

We continue to use a discounted cash flow (DCF) as the key valuation methodology. Our forecast reductions inevitably affect cash flow and we have also realigned our WACC expectations to 12.0% to reflect the uncertainties and volatility facing the sector and AAC. This leads to a valuation of SEK278 per share, down from our previous valuation of SEK301 per share.

Q2 results

Overview

The quarter was affected by a number of delays and disruptions impacting on both the top line, with core sales down 29%, and profitability with a negative EBITDA margin of 31% against +3% in the previous year. Operational delays included a supplier issue on a major project in the Gothenburg, Sweden site, delaying work and revenue recognition, issues with the Kelpie satellites and the delayed start of revenue service of some in-orbit satellites. In addition, there were delays to signing contracts in the quarter, delaying work into the subsequent period. The impact can be seen in the AAC Product results line in Exhibit 2. This translated to an overall loss before tax of SEK28.4m and an EPS loss of SEK4.8.

Cash from operations was a positive SEK6.9m assisted by working capital inflow of SEK24.2m. After investing SEK7.8m in assets, net cash generation for the period was SEK1.4m leaving the group with gross cash of SEK36.8m (overdraft drawdown totalled SEK26.6m of the SEK30m facility). The number of employees was up marginally from 187 to 193, reflecting the expected increase in activity.

Exhibit 1: Summary performance

SEKm

Q223

Q224

Change

Total core sales

75.900

53.585

-29%

Other income

6.630

5.450

-18%

Own work capitalised

8.272

4.756

-43%

Net sales

90.802

63.791

-30%

Raw materials & subcontractors

(33.661)

(21.117)

-37%

Personnel costs

(42.421)

(44.682)

5%

Other external expenses

(11.427)

(11.492)

1%

Other operating expenses

(1.035)

(3.031)

193%

EBITDA

2.258

(16.531)

-832%

Depreciation & amortisation

(7.700)

(10.901)

42%

Underlying EBIT

(5.442)

(27.432)

404%

Financing income/(costs)

0.783

(1.000)

-228%

Underlying PBT

(4.659)

(28.432)

510%

EPS (SEK)

(1.14)

(4.82)

323%

Gross cash

12.984

36.753

183%

Bank overdraft

(5.200)

(26.600)

412%

Net cash/(debt)

7.784

10.153

30%

Source: AAC Clyde Space, Edison Investment Research

Divisional performance

Exhibit 2: Quarterly divisional breakdown

SEKm

Q123

Q124

Change

Sales by division

AAC Data & Services

4.575

5.660

24%

AAC Missions

7.051

19.061

170%

AAC Products

69.436

37.162

-46%

Eliminations

(5.162)

(8.298)

61%

Total core sales

75.9

53.585

-29%

EBITDA by division

AAC Data & Services

2.478

4.515

82%

AAC Missions

(3.122)

(5.074)

63%

AAC Products

9.872

(9.745)

-199%

Other segments

(6.288)

(6.117)

-3%

Eliminations

(0.684)

(0.110)

-84%

Total

2.256

(16.531)

-833%

EBITDA margin by division

AAC Data & Services

54.2%

79.8%

AAC Missions

-44.3%

-26.6%

AAC Products

14.2%

-26.2%

Total

3.0%

-30.9%

Source: AAC Clyde Space

Order book and intake

The order book continued to grow strongly to record levels of SEK660m, up from SEK654m at the end of Q1 (SEK444m at the end of H123). Major new contract announcements in the period included:

26 April 2024: AAC Clyde Space's subsidiary AAC Hyperion and its partners have won a project sponsored by the Dutch National Growth Fund. AAC Clyde Space is to develop its existing CubeCAT V1 1Gbps system to a speed of 10Gbps to generate a next-generation terminal to enable space-to-ground communication between small satellites and optical ground stations. The total value of the project is €3.5m (c SEK40.4m) and is planned to be finalised during the third quarter 2026.

15 May 2024: AAC Clyde Space has won its first order for its 16U EPIC satellite as part of the ESA OPS-SAT VOLT mission, which aims to test and evaluate groundbreaking real-time techniques and technologies with a focus on optical and quantum direct to Earth communication. The total order value is €2.3m (c SEK27.0m) and is due be delivered and commissioned by June 2026.

27 May 2024: AAC Clyde Space has received its first order on the commercial version of its laser communication terminal CubeCAT. The €0.6m (c SEK6.5m) order for two laser communication terminals comes from Greek company EMTECH SPACE for its Hellenic Space Dawn mission.

9 July 2024: AAC Clyde Space has won its first order for the Cyclops Earth observation satellite constellation by entering into a pre-commercial agreement valued at £612,000 (c SEK8.3m) with the Scottish government. The two-year project will provide high-resolution image data enabling, among many other applications, the efficient monitoring of tree health.

Exhibit 3: Group order book (SEKm)

Source: AAC Clyde Space, Edison Investment Research

Outlook and expectations

Given the delays experienced in the quarter, management now expects sales of SEK350–400m, down from SEK430–500m, but maintains its expectations for an EBITDA margin of 5–10%. This has led to the changes in our forecasts (see Exhibit 4). While we note this is disappointing, management points to some significant milestones to be achieved in Q3 including two satellites on a SpaceX Falcon rocket, an Arctic Weather Satellite with significant AAC content and Sedna-1, built in the Fairfax facility, which will expand AAC’s constellation for marine tracking to 11 satellites. This was successfully launched on 16 August.

Exhibit 4: Changes in forecasts

SEKm

FY24

FY25

Old

New

Change

Old

New

Change

Sales

465

375

-19%

648

600

-7%

EBITDA

32.9

24.9

-24%

79.6

75.0

-6%

EBITDA margin

7.1%

6.7%

-42bp

12.3%

12.5%

21bp

EBIT

16.5

(5.1)

-131%

60.3

50.0

-17%

EBIT margin

3.5%

-1.3%

-489bp

9.3%

8.3%

-98bp

PBT

12.4

(8.1)

-165%

52.7

44.5

-16%

EPS (SEK)

2.1

(1.4)

-164%

8.7

7.6

-13%

Net cash

11.5

20.0

74%

31.5

34.1

8%

Source: Edison Investment Research

Valuation

AAC remains an interesting investment as the space sector continue to grow rapidly. Volume growth should leverage the manufacturing cost base and data services income, which should be repeatable, start to expand as the constellations are in place. With limited earnings visibility in the short term, we use a DCF valuation for the group. Exhibit 5 highlights our valuation against the long-term growth expectations (post 2032) and cost of capital. We are taking a more cautious approach to the latter as space is a relatively volatile and potentially risky sector. We therefore use a WACC of 12.0%, suggesting a valuation of SEK278 per share, assuming 2% terminal growth.

Exhibit 5: DCF valuation (SEK/share)

Terminal growth rate

Weighted cost of capital

0.0%

1.0%

2.0%

3.0%

15.0%

179

188

198

209

14.0%

197

207

220

234

13.0%

218

231

246

265

12.0%

242

258

278

302

11.0%

272

292

317

349

10.0%

307

334

367

410

Source: Edison Investment Research


Exhibit 6: Financial summary

SEKm

2021

2022

2023

2024e

2025e

Year-end December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

 

Net sales

 

 

180.0

196.7

276.6

375.0

600.0

Own work capitalised and other operating income

30.9

47.0

48.8

26.8

39.0

Group income

210.8

243.7

325.5

401.8

639.0

EBITDA

 

 

(12.4)

(30.0)

1.0

24.9

75.0

Operating Profit (before amort. and except).

 

 

(21.9)

(40.3)

(12.5)

(5.1)

50.0

Intangible Amortisation

(0.9)

(0.7)

(2.6)

(1.5)

(2.4)

Other

(15.8)

(26.0)

(21.7)

(21.7)

(21.7)

Operating Profit

(38.6)

(67.0)

(36.8)

(28.3)

25.9

Associates & Other

0.0

0.0

0.0

0.0

0.0

Net Interest

(4.2)

17.9

(4.2)

(1.6)

(3.1)

Profit Before Tax (norm)

 

 

(27.0)

(23.2)

(19.3)

(8.1)

44.5

Profit Before Tax (FRS 3)

 

 

(42.8)

(49.1)

(41.1)

(29.8)

22.8

Tax

3.3

2.6

(0.5)

1.5

(1.1)

Profit After Tax (norm)

(24.9)

(22.0)

(18.4)

(7.7)

42.3

Profit After Tax (FRS 3)

(39.5)

(46.5)

(41.6)

(28.3)

21.7

Average Number of Shares Outstanding (m)

3.5

3.9

4.8

5.7

5.7

EPS - fully diluted (SEK)

 

 

(7.17)

(5.58)

(4.16)

(1.35)

7.59

EPS - normalised (SEK)

 

 

(7.17)

(5.58)

(4.16)

(1.35)

7.59

EPS - (IFRS) (SEK)

 

 

(11.36)

(11.82)

(8.73)

(4.97)

3.97

Dividend per share (SEK)

0.0

0.0

0.0

0.0

0.0

EBITDA Margin (%)

-6.9

-15.2

0.4

6.7

12.5

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

-12.2

-20.5

-4.5

-1.3

8.3

BALANCE SHEET

Fixed Assets

 

 

681.0

728.6

746.2

728.2

728.3

Intangible Assets

639.5

665.5

672.6

668.1

668.0

Tangible Assets

26.4

46.4

57.8

44.3

44.5

Right of use asset

15.1

16.8

15.8

15.8

15.8

Investments

Current Assets

 

 

193.4

152.8

192.2

199.8

321.8

Stocks

13.2

20.2

22.1

29.9

47.9

Debtors

23.0

24.5

23.5

31.9

51.0

Cash

96.1

52.1

59.5

20.0

34.1

Other

61.1

56.0

87.1

118.0

188.8

Current Liabilities

 

 

(129.2)

(182.0)

(249.4)

(267.2)

(353.5)

Creditors

(128.5)

(175.8)

(218.7)

(261.7)

(348.0)

Lease liabilities

0.0

(5.5)

(5.5)

(5.5)

(5.5)

Short term borrowings

(0.6)

(0.7)

(25.2)

0.0

0.0

Long Term Liabilities

 

 

(16.6)

(35.9)

(26.2)

(31.9)

(45.0)

Long term borrowings

0.0

0.0

0.0

0.0

0.0

Lease liabilities

(15.1)

(11.0)

(10.2)

(10.2)

(10.2)

Other long term liabilities

(1.5)

(24.9)

(16.1)

(21.8)

(34.9)

Net Assets

 

 

728.6

663.5

662.8

628.9

651.6

CASH FLOW

Operating Cash Flow

 

 

(37.3)

6.4

11.1

21.7

67.5

Net Interest

(0.2)

(0.2)

(2.9)

(1.6)

(3.1)

Tax

2.1

0.2

(1.3)

0.0

(1.1)

Capex

(29.2)

(40.9)

(51.0)

(35.3)

(49.2)

Acquisitions/disposals

2.6

(38.3)

(2.5)

0.0

0.0

Financing

94.1

33.3

37.6

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Other

0.0

(2.0)

0.0

0.0

Net Cash Flow

32.0

(39.4)

(11.0)

(15.1)

14.1

Opening net debt/(cash) excluding lease liabilities

 

 

(62.2)

(95.5)

(52.1)

(35.1)

(20.0)

HP finance leases initiated

0.0

Other

1.3

(4.0)

(6.0)

0.0

0.0

Closing net debt/(cash) excluding lease liabilities

 

 

(95.5)

(52.1)

(35.1)

(20.0)

(34.1)

Net financial liabilities including lease liabilities

 

 

(80.4)

(35.6)

(19.5)

(4.3)

(18.4)

Source: Edison Investment Research


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 2024 Edison Investment Research Limited (Edison).

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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 2024 Edison Investment Research Limited (Edison).

Australia

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United Kingdom

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Foxtons Group — Valuation offers 100% upside

Foxtons Group’s H1 results clearly highlight the success of the strategy the company embarked on at the start of last year. Although there is still work to be done, significant progress has been made and it now appears likely that the medium-term target of reaching operating profit in the range of £25–30m can be achieved. Although we have maintained our existing forecasts and valuation, we believe the risks appear to be to the upside, considering that the underlying macroeconomic data appear to be supportive; something that has been lacking for some time.

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