Two Industrial Stocks in Focus- KSS, VAH

The benchmark index S&P/ASX 200 Index closed higher on 11 July 2019 at 6,716.1, edging up by 0.39% (26.3 points). Also, the S&P/ASX 200 Industrials Sector Index ended the session in green, climbing up 0.06% to a value of 6,886.9. Let us take a look at how the following two industrial sector companies listed on the ASX have been performing lately.

Kleos Space S.A

Kleos Space S.A. (ASX: KSS), based in Luxembourg, is a space-powered Radio Frequency Reconnaissance data provider, working with an underlying aim to defend borders, safeguard assets and save lives by providing global activity-based intelligence and geolocation services. The company is designing and developing Kleos Scouting Mission, the first Kleos Space satellite system.

The company’s market capitalisation is around AUD 38.92 million with approximately 106.63 million shares outstanding. On 11 July 2019, the KSS stock last traded at AUD 0.390, edging up 6.849% by AUD 0.025, with approximately 7.51 million shares traded. In addition, the KSS stock has delivered impressive high and positive return of 284.21% for the last six months and 247.62% on YTD basis.

Partner Agreement with L3Harris- On 11 July 2019, Kleos Space announced to have entered into a commercial channel partner agreement with US-based technology firm L3Harris Technologies for the marketing of the Kleos product suite to government agencies in the United States.

L3Harris has decades of experience delivering mission critical technologies to the U.S. Intelligence Community and geospatial intelligence customers, through forming partnerships with agencies to effectively collect, process, manage, analyse, and deliver data for mission success.

Under the terms of the agreement, L3Harris will place the Kleos product suite on their GSA Earth Observation Solutions (EOS) Schedule and through a collaboration with the organization, prepare and present mission scenario demonstrations to the National Geospatial-Intelligence Agency.

Source: Company’s Announcement Dated 11 July’19

Sales Expert for South American market – On 10 July 2019, the company informed the stakeholders of the appointment of regional space expert, Pierre Duquesne as sales representative for the South American market to target planned investments of more than EUR 45 billion in the maritime and port sector in Latin America and the Caribbean. Mr Duquesne, a Franco-German executive, holds over twenty years of experience in different business development, marketing, sales and general management roles in the regional space industry, most recently as Managing Director for Airbus Intelligence in South America.

Pierre will supply his services via his ‘Prime Space-as-a-Service’ consultancy that aims to support the adoption of new “As-A-Service” business models.

According to The Corporacion Andina de Fomento (CAF), the development bank of Latin America, the outlook by 2040 for the maritime and port sector in Latin America and the Caribbean suggests an attractive environment for growth with planned investments over EUR 45 billion in the coming decade.

The company’s initial strategy as laid out in AGM Presentation 2019 illustrated briefly as follows.

Source: AGM Presentation 2019

In the presentation, the company also mentioned that its mission is to deliver maritime RF activity data to help disrupt illegal fishing, smuggling, trafficking and security & border challenges, all worth more than USD 80 billion.

Luxembourg Space Agency Support- Recently on 14 June 2019, Kleos Space informed the market that the Luxembourg Space Agency had approved of an extra EUR 1 million (~AUD 1,631,900) of non-equity financial grant aid for data product development.

The financial grant aid means Kleos is a part of the European Space Agency Business Applications programme process. The company is targeting to be on contract with initial funding receipts by the end of the year 2019.

Virgin Australia Holdings Limited

Virgin Australia Holdings Limited (ASX: VAH), based in Bowen Hills, Australia, is engaged in the operation of domestic and international airline business in Australia. Virgin Australia Holdings’ market capitalisation stands at around AUD 1.44 billion with approximately 8.45 billion shares outstanding. On 11 July 2019, the VAH stock settled trading at AUD 0.165, down 2.941% by AUD 0.005 from its previous closing price.

Virgin Australia Holdings, on 11 July 2019, announced that Connectivity Pte Limited (Affinity) is exploring an exit from its approximately 35% minority investment in Velocity Frequent Flyer Holdco Pty Limited (Velocity). Meanwhile, Connectivity Pte has urged to mull several options for exiting its stake.

Details of Affinity’s investment in Velocity were originally announced to ASX on 29 August 2014; however, there is uncertainty regarding the terms/timing of any such exit transaction.

On 4 July 2019, it was announced to the market that Virgin Australia received the interim authorisation from ACCC (Australian Competition and Consumer Commission) to develop cooperation with Virgin Atlantic on operation flights between Australia and the United Kingdom/Ireland, via Hong Kong, Los Angeles and any other possible mutual connecting points. Currently, the two airlines, which already have a codeshare arrangement, do not operate flights on any of the relevant routes.

Therefore, the above authorisation would enable the two companies to coordinate on a couple of business aspects such as combined management of prices, inventory, and marketing strategies.

Board Changes – On 29 May 2019, Virgin Australia announced the appointment of Ms Judith Swales as an Independent Non-Executive Director and the departure of Ms Sam Mostyn as an Independent Non-Executive Director, both effective the same day.

In addition, Mr Hou Wei was appointed as Non-Executive Director. Hou Wei will serve as the representative of the HNA Group. Moreover, Mr Du Ming was appointed as Alternate Director for Mr Hou on the Board of Virgin Australia in late May 2019.

The recent changes were introduced to the company’s board after the resignation of two leaders. The former nominated representative for HNA Group, namely, Mr Zhang Kui, and his Alternate Director, Mr Luo Jiaqui, decided to resign.

Trading Update - Virgin Australia Holdings, on 17 May 2019, released its earnings guidance for the financial year 2019. As per the company, the FY19 underlying earnings are expected to be at least $ 100 million down on FY18 comparative result of $ 64.4 million, reflecting uncertainty of revenue trading conditions in the domestic market and inclusive of annual fuel and foreign exchange headwinds in excess of $ 160 million.

In addition, VAH estimates revenue growth to be around 6% for FY19, even though the revenue growth has moderated for the second half of FY19 and expected to be lower than 2% for the last two months of FY19.

However, the company delivered a record 1H underlying result despite higher fuel costs and supported by the core VA Domestic business (see figure below).

Source: 1H19 Results Presentation


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