AAC Clyde Space — xSPANCION commitment confirmed

AAC Clyde Space (OMX: AAC)

Last close As at 28/02/2024

SEK48.20

0.20 (0.42%)

Market capitalisation

SEK279m

More on this equity

Research: Industrials

AAC Clyde Space — xSPANCION commitment confirmed

AAC Clyde Space has confirmed the acceleration of the xSPANCION satellite project following completion of the capital raise, which has provided SEK35.9m of net new funds. This will provide liquidity to proceed with the final phase to build out 10 satellites, the first four of which are to be added to AAC’s own SDaaS fleet by the end of 2024. By that time we would expect AAC to be generating positive EBITDA and net cash flow as it continues to grow the high-margin data revenue streams.

Andy Chambers

Written by

Andy Chambers

Director, Industrials

Industrials

AAC Clyde Space

xSPANCION commitment confirmed

Rights issue outcome

Aerospace and defence

31 July 2023

Price

SEK0.61

Market cap

SEK172m

SEK10.5/$, SEK13.5/£

Adjusted net cash (SEKm) at 31 March 2023
(excluding lease liabilities of c SEK16.5m)

27.6

Shares in issue

284.2m

Free float

93%

Code

AAC

Primary exchange

Nasdaq First North Premier Growth Market

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(2.4)

(52.5)

(60.2)

Rel (local)

(3.9)

(51.9)

(62.2)

52-week high/low

SEK2.01

SEK0.56

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

Q223 results

30 August 2023

Q323 results

23 November 2023

Analysts

Andy Chambers

+44 (0)20 3077 5700

Natalya Davies

+44 (0)20 3077 5700

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

AAC Clyde Space has confirmed the acceleration of the xSPANCION satellite project following completion of the capital raise, which has provided SEK35.9m of net new funds. This will provide liquidity to proceed with the final phase to build out 10 satellites, the first four of which are to be added to AAC’s own SDaaS fleet by the end of 2024. By that time we would expect AAC to be generating positive EBITDA and net cash flow as it continues to grow the high-margin data revenue streams.

Year end

Revenue
(SEKm)

PBT*
(SEKm)

EPS*
(SEK)

DPS
(SEK)

P/E
(x)

Yield
(%)

12/21

180.0

(27.0)

(0.14)

0.0

N/A

N/A

12/22

196.7

(17.7)

(0.08)

0.0

N/A

N/A

12/23e

355.1

0.6

0.00

0.0

N/A

N/A

12/24e**

483.6

44.9

0.15

0.0

4.0

N/A

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

Rights issue outcome

The rights issue was 66% covered with a subscription ratio of 45%, guarantee subscriptions of 19% and non-rights subscriptions of 2%. While take-up of 45% may seem disappointing given the deep discount, we feel that this may reflect investors’ understandable caution towards space investments and the segment’s performance over the last 18 months. With AAC yet to reach positive EBITDA, perceived risk remains high, although modest positive EBITDA is expected this year as higher-margin SDaaS revenues accelerate. The company is set to receive SEK35.9m in new funds for working capital to support growth, replacing the bridge facility that had been utilised while the share offer was undertaken. Liquidity has also been aided by passing the significant Critical Design Review milestone for the Arctic Weather Satellite (AWS) in early July and the receipt of annual R&D tax credits. AAC is supplying some SEK160m of payload and systems content to the AWS under various contracts.

xSPANCION Phase 3B supports SDaaS growth

On 26 July, AAC announced the agreement to move to the final SEK103.4m Phase 3B of the SEK225.6m xSPANCION programme to develop an innovative satellite constellation service. As with the entire project, the final phase is co-funded by the UK Space Agency through the European Space Agency’s Pioneer Partnership Projects. The final phase will see the construction of 10 satellites, the first four of which will be deployed in FY24 within the framework of the contract and used by AAC to support its SDaaS activity. Beyond the contract, the remaining six platforms are to be offered to customers to deploy their own payloads.

Valuation: Significant potential for successful delivery

With no changes to our underlying estimates, our DCF-based fair value stands at SEK6.1/share compared to SEK8.2/share before the rights issue. Management expects positive EBITDA in FY23 as SDaaS revenues accelerate, which we believe should lead to AAC generating self-sustaining positive cash flows from FY24.

Earnings revisions

The effect of the rights issue on our earnings estimates is shown in Exhibit 1 below. As we previously indicated, there is no change to our expectations for the underlying trading performance of the group in either FY23 or FY24. The dilution to EPS is not as severe as it would have been had the issue been fully subscribed, but at 27.9% remains significant. We expect the company to finish the year with adjusted net cash of c SEK64m.

Exhibit 1: AAC Clyde Space earnings adjustments

SEKm

2023e

2024e

 

Prior

New

% change

Prior

New

% change

By business

 

 

 

 

 

 

Total group net sales

355.1

355.1

0.0%

483.6

483.6

0.0%

Other operating income

7.3

7.3

3.0

3.0

Own work capitalised

38.0

38.0

53.3

53.3

Total group income

400.4

400.4

0.0%

540.0

540.0

0.0%

EBITDA (company adjusted)

21.9

21.9

0.0%

71.5

71.5

0.0%

EBIT (adjusted)

(2.5)

(2.5)

(0.0%)

42.8

42.8

0.0%

Underlying PBT

0.6

0.6

(0.0%)

44.9

44.9

(0.0%)

EPS – underlying continuing (SEK)

0.00

0.00

(19.5%)

0.21

0.15

(27.9%)

Adjusted net cash

25.5

63.5

149.3%

61.2

99.2

62.1%

Source: Edison Investment Research estimates

Valuation: Dilution but still significant potential

Our capped DCF valuation falls to SEK6.1/share compared to SEK8.2/share before the rights issue and SEK5.3/share had there been full subscription. The WACC applied continues to reflect our assumed cost of equity of 12%. We feel that the capital raise should be sufficient for AAC to move towards a self-financing situation in FY24, which should allow the risk assumption to moderate. Exhibit 2 below provides a sensitivity of the calculated DCF value to both WACC assumptions and terminal growth rates.

Exhibit 2: DCF sensitivity analysis to WACC and terminal growth rate (SEK/share)

Terminal growth rate

WACC

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

0%

11.8

10.1

8.7

7.7

6.8

6.1

5.5

5.0

4.6

1%

13.5

11.3

9.7

8.4

7.4

6.6

5.9

5.3

4.8

2%

16.0

13.0

10.9

9.3

8.1

7.1

6.3

5.7

5.1

3%

19.7

15.4

12.5

10.5

9.0

7.8

6.9

6.1

5.5

Source: Edison Investment Research estimates

Exhibit 2: Financial summary

SEKm

2020

2021

2022

2023e

2024e

Year-end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Net sales

 

 

98.4

180.0

196.7

355.1

483.6

Own work capitalised and other operating income

21.1

30.9

52.5

45.3

56.3

Group income

119.5

210.8

249.2

400.4

540.0

EBITDA

 

 

(17.5)

(12.4)

(24.5)

21.9

71.5

Operating Profit (before amort. and except).

(22.2)

(21.9)

(34.9)

8.3

56.4

Intangible Amortisation

(3.3)

(0.9)

(0.7)

(10.7)

(13.6)

Exceptionals

(12.1)

(15.8)

(26.0)

(16.8)

(16.8)

Other

0.0

0.0

0.0

0.0

0.0

Operating Profit

(37.5)

(38.6)

(61.6)

(19.3)

26.0

Net Interest

(1.3)

(4.2)

17.9

3.1

2.1

Profit Before Tax (norm)

 

 

(26.7)

(27.0)

(17.7)

0.6

44.9

Profit Before Tax (FRS 3)

 

 

(38.8)

(42.8)

(43.7)

(16.2)

28.1

Tax

0.5

3.3

2.6

0.8

(1.4)

Profit After Tax (norm)

(26.4)

(24.9)

(16.4)

0.6

42.7

Profit After Tax (FRS 3)

(38.3)

(39.5)

(41.1)

(15.4)

26.7

Average Number of Shares Outstanding (m)

102.3

173.8

196.9

254.5

284.2

EPS - fully diluted (SEK)

 

 

(0.26)

(0.14)

(0.08)

0.00

0.15

EPS - normalised (SEK)

 

 

(0.26)

(0.14)

(0.08)

0.00

0.15

EPS - (IFRS) (SEK)

 

 

(0.37)

(0.23)

(0.21)

(0.06)

0.09

Dividend per share (SEK)

0.0

0.0

0.0

0.0

0.0

EBITDA Margin (%)

-17.8

-6.9

-12.5

6.2

14.8

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

-22.5

-12.2

-17.7

2.3

11.7

BALANCE SHEET

Fixed Assets

 

 

523.0

681.0

728.6

740.0

764.9

Intangible Assets

494.3

639.5

665.5

660.8

668.8

Tangible Assets

16.2

26.4

46.4

62.8

80.2

Right of use asset

12.5

15.1

16.8

16.4

15.9

Investments

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

113.3

193.4

152.8

180.7

229.6

Stocks

12.8

13.2

20.2

35.5

45.9

Debtors

9.5

23.0

24.5

39.1

50.5

Cash

62.4

96.1

52.1

63.5

99.2

Other

28.5

61.1

56.0

42.7

33.9

Current Liabilities

 

 

(56.1)

(129.2)

(170.2)

(198.5)

(245.1)

Creditors

(56.1)

(128.5)

(170.2)

(198.5)

(245.1)

Short term borrowings

0.0

(0.6)

0.0

0.0

0.0

Long Term Liabilities

 

 

(14.4)

(16.6)

(17.8)

(18.1)

(18.6)

Long term borrowings

(0.3)

0.0

0.0

(0.0)

0.0

Lease liabilities

(12.9)

(15.1)

(16.5)

(17.0)

(17.4)

Other long term liabilities

(1.2)

(1.5)

(1.2)

(1.2)

(1.1)

Net Assets

 

 

565.8

728.6

693.5

704.2

730.9

CASH FLOW

Operating Cash Flow

 

 

(14.6)

(37.3)

(14.2)

17.1

100.5

Net Interest

(0.2)

(0.2)

19.4

4.0

3.0

Tax

0.4

2.1

1.3

(0.0)

(2.2)

Capex

(17.2)

(29.2)

(40.9)

(48.6)

(66.4)

Acquisitions/disposals

(6.2)

2.6

(43.7)

0.9

0.9

Financing

49.2

94.1

33.4

38.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

11.4

32.0

(44.7)

11.4

35.8

Opening net debt/(cash) excluding lease liabilities

(51.6)

(62.2)

(95.5)

(52.1)

(63.5)

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)

(63.5)

(99.2)

Net financial liabilities including lease liabilities

(49.3)

(80.4)

(35.6)

(46.5)

(81.8)

Source: Company reports, Edison Investment Research estimates


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

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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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