In the wake of turmoil caused by COVID-19, several government agencies and industry players are teaming up to address the real and potential impacts of COVID-19, as part of their efforts towards supporting their economies.
Recently, to work towards rapid production of face shields for frontline healthcare providers, the Department of Defence, Government of Australia entered a collaborative project with Axiom Precision Manufacturing.
Like any other industry, defence and aerospace has also felt the heat of disruptions wrought by coronavirus. Albeit, players operating in this industry are still in a better position as compared to other adversely affected industries such as aviation, tourism, and travel.
Let us have a look at few ASX-listed companies catering to the defence and aerospace sectors: OEC, QHL, XTE, EOS.
Orbital Corporation Ltd (ASX: OEC)
Advanced aerospace manufacturer, Orbital Corporation Ltd provides flight critical components and integrated propulsion systems for tactical UAVs (unmanned aerial vehicles). The Company offers engine development, validation, refurbishment, and testing services. OEC has offices located in Australia and the United States.
During early April 2020, the Company announced that demand for its products remains unaffected by the outbreak of coronavirus. Moreover, OEC has implemented measures at its facilities in Hood River in Oregon and Perth in Western Australia.
OEC, at the end of April 2020, announced that major contracts secured recently are unlikely to have an impact on its revenue guidance for the current financial year, which lies in the range of $25 million to $35 million.
The Company announced to have signed a contract with Northrop Grumman Corporation (aerospace and defence technology company). As per this contract, OEC would develop, supply and support two initial hybrid propulsion systems, which would then be integrated into the small UAV development platform of Northrop Grumman.
The task under the project would be executed at OEC’s design and production facility located in Western Australia. The two prototype propulsion systems for flight testing is likely to be delivered during 2021. The project is another opportunity for Orbital Corporation to boost its customer base of defence prime contractors for a global presence.
OEC signed an MoU with one of the defence companies based out of Singapore in March 2020. The MoU covered the development, design, and initial low-rate production of multi-fuel engines for UAV.
The Company also signed an MoU with Insitu Inc., which is 100 per cent owned by The Boeing Company. As per this MoU, OEC has been designated as the main supplier of two Insitu designed engines.
Stock performance: On 15 May 2020, OEC stock settled at $0.800, an increase of 1.266 per cent compared to the previous close. The stock has generated positive 1-month and YTD return of 43.64 per cent and 107.89 per cent, respectively.
Quickstep Holdings Limited (ASX: QHL)
Quickstep Holdings, founded in Perth in 2001, is a manufacturer of composite components for the defence and commercial aerospace industries.
According to a QHL report, the Company is supplying the chassis for The Nano, which is the first lightweight portable X-ray machine manufactured by Micro-X. The device is used by medical professionals to detect COVID-19.
Third Quarter Performance and Outlook
The Company provided a positive outlook for the upcoming period in its third quarter result report for three months ended 31 March 2020.
Guidance is driven by several factors such as upsurge in demand for C-130J as compared to its base volumes, additional orders received from Boeing, and production ramp up for F-35.
- For FY2020, the year-on-year sales growth is expected to be more than 10 per cent and EBITDA (excluding the impact of AASB16) to be 8 to 9 per cent of sales on a like for like basis.
- QHL is expecting to generate a positive NPAT and operating cash flow for FY2020.
- For FY 2021, the revenue is likely to increase further by 5-10 per cent.
3QFY20 performance highlights are as follows-
- Sales in the third quarter were $19.2 million, an increase of 16 per cent on a pcp basis. Also, YTD sales stood at $57.7 million, an upsurge of 14 per cent from the same period a year ago.
- Owing to the Christmas shutdown, operating cash flow of $0.1 million in Q3 FY2020 indicates a seasonal decline in receipts.
- At 31 March 2020, net bank debt stood at $6.6 million, cash was noted at $3.1 million ($2.6 million at 31 December 2019) and restricted term deposits at $0.7 million.
Stock performance: On 15 May 2020, QHL traded flat at $0.073. The stock has generated negative 1-month and YTD return of -5.19 per cent and -33.64 per cent, respectively.
XTEK Limited (ASX: XTE)
XTEK Limited offers tailored solutions and high-quality front-line combatant products to sectors including law enforcement, military, commercial and space, in addition to government agencies. XTE has proprietary technologies which include XTatlasTM and XTclaveTM.
Some of the key achievements of the Company in the year 2020 are as follows:
- Introduced new armour products in the US in January and opened XTclave™ manufacturing centre in Adelaide in February.
- For XTclave™ new generation armour, the Company received its first order from Australia in March, which was partly delivered to the customer in April.
- In May, XTE received its first international order for XTclave™ new generation armour from CPE Production Oy, which is a supplier to the Finnish Defence Forces and other defence customers in Europe. This order is worth more than $1 million.
- XTEK expects first order for XTclave™ helmets for international customers by mid-2020.
In the March quarter market update, the Company highlighted that XTE experienced a negligible disruption owing to coronavirus, as XTEK is part of the robust defence sector, wherein, there are a strong demand and supply.
Recently, XTEK signed an agreement with the Centre for Defence Industry Capability (CDIC) for a grant valued at around $830k. The grant comes under the Sovereign Industrial Capability Priority on behalf of the Department of Defence. The Company plans to use the fund for the industrialisation of its advanced helmet production line designed for ballistic combat.
Stock performance: XTE stock last traded at $0.605 on 14 May 2020, an increase of 0.833 per cent compared to the previous close. The stock has generated 1-month and YTD return of 21 per cent and -19.87 per cent, respectively.
Electro Optic Systems Holdings Limited (ASX: EOS)
Technology company, Electro Optic Systems Holdings Limited operates in the defence and space markets. The Company was founded in 1983, and the EOS Group of companies got listed on ASX in 2002.
Share Purchase Plan Completion
EOS recently notified the market that its SPP, which was announced on 15 April 2020, was completed on 8 May 2020. A total of $10.78 million of valid applications was received from 740 shareholders, in response to 8,357 eligible unitholders to whom SPP offer was sent. This indicates a participation rate of 8.9 per cent for those eligible shareholders with an average application of $14,578.
The capital raising is targeted towards enhancing liquidity and continuing to fund ongoing growth.
March Quarter Update
In the quarterly update for the period ended 31 March 2020, EOS updated regarding a reduction in guidance for 2020 from 70 per cent to 25 per cent growth over the performance in 2019. The reduction was attributed to the deferral of a large amount of activity and its associated revenue from 2020 to 2021.
At the end of March quarter, the Company held cash and cash equivalents of around $50 million. Receipts from customers under operating activities were $27.1 million.
The Company stated that it has no contractual challenges with respect to delays in product deliveries because of the COVID-19 pandemic.
Stock performance: On 15 May 2020, EOS stock settled at $4.420, representing an increase of 0.913 per cent compared to the previous close. The stock has generated negative 1-month and YTD return of -23.83 per cent and -41.60 per cent, respectively.
$ used refers to Australian dollar unless stated otherwise