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On Saturday 18 June, Major Tim Peake returns to Earth following his six months on the International Space Station. The space industry will once again become centre stage for the nation. For investors, that means taking a closer look at the UK-listed stocks participating in the race for space.
As the first Brit to go into space since Cambridge-born space tourist Richard Garriott paid $30 million (£21 million) for a 10-day trip to the ISS in 2008, former helicopter pilot Peake’s adventure has captured the imagination of the British public.
While much of what the UK brings to the global space business stems from research across many of the UK’s universities, investors can access a surprisingly wide range of opportunities via the London stock market, from satellites, electronic components, and camera sensors to ground and on-board control systems.
This is an industry worth an estimated £12 billion a year to the UK economy, directly employing around 37,000 people and enjoying circa 8% growth a year since 2000.
While there are plenty of relevant stocks, choosing clear winners is less straightforward as we now explain.
Ground kit and applications
Chelmsford-based E2V Technologies has been supplying niche electronics, radio frequency and microwave components to the wider space industry for years. For example, it provided the imaging sensors used by the New Horizons space craft, which last year started beaming back spectacular images of Pluto and its biggest moon, Charon.
This is a modest growth business but one that throws off plenty of cash and pays dividends, implying a 2.9% income yield for the year to 31 March 2017.
Guildford-based Acal supplies specially designed electronic parts and components to more than 20,000 manufacturing customers worldwide, but space is a new area following its £3.7 million acquisition of Danish magnetic parts supplier Flux in November 2015.
At the moment space activities may only represent a small part of Acal’s earnings, so you would need to take a view on broader activities to warrant considering an investment.
AIM-quoted SciSys is a software applications designer with its own space division. It largely manufactures bespoke and mission critical control systems that run space missions from the ground.
Troubled last summer after massively underestimating the scale and complexity of a fixed price contract in its Enterprise Solutions and Defence division, the share price has rebounded thanks to a steadied ship and improved performance.
Some analysts now believe that performance indicators are pointing in the right direction for progress yet we still struggle to see the excitement in the story. Sub-scale and lumpy earnings, perhaps a sale of the business would be the best outcome.
Communicating from space
FTSE 100 satellites network operator Inmarsat largely serves military, maritime and energy market customers. Both Avanti Communications and Bicester-based Satellite Solutions Worldwide run networks of their own.
Sadly the investment backcloth is not great for satellite operators at present. Inmarsat’s maritime and energy markets have been under pressure for some time, as illustrated by first quarter results to 31 March 2016, showing revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) down 2% and 6% respectively.
The other two companies largely serve consumers based in places hard to reach by fixed-line infrastructure, yet capacity oversupply and slow take-up is putting pressure on pricing.
The capital expenditure-hungry nature of Avanti is a constant concern for investors, with a particular focus on its net debt position. That is one possible reason why its shares have fallen approximately 80% in value since late 2015.
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