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Research: Industrials
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.
AAC Clyde Space |
Volatility affecting progress |
Q224 results |
Aerospace and defence |
21 August 2024 |
Share price performance
Business description
Analyst
AAC Clyde Space is a research client of Edison Investment Research Limited |
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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* |
EPS* |
DPS |
P/E |
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
|
|
Research: Real Estate
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