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Is Orbital Corporation Ltd set to blast off?

Credit: Pixabay

Earlier today industrial tech company Orbital Corporation Ltd. (ASX: OEC) announced that it had received a second US$9.7 million order for its unmanned aerial vehicle (UAV) propulsion systems. The order was from Insitu, a subsidiary of aerospace behemoth Boeing Co.

The propulsion system will be used in the Insitu ScanEagle UAV, an industry leader which has been in operation around the world for more than 10 years. Orbital and Insitu are currently negotiating a long-term supply agreement which Orbital advises should be in place by the end of the 2016 calendar year.

Management thinks that over time its UAV division will generate revenues of more than $100 million per year. It believes the same is true of the company’s other core division, Remsafe, which sells remote isolation systems to the mining industry.

Orbital had $16.6 million in cash after adjusting for debt at 30 June 2016 and it seems likely that the company will need to make significant investments in order to hit its ambitious revenue targets. For the year ending 30 June 2016 Orbital recorded $11.8 million in revenue and negative $5.1 million of operating cash flows.

Orbital represents an interesting prospect for risk tolerant investors, but I will be waiting for further evidence that management’s revenue targets are achievable before buying shares.

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Motley Fool contributor Matt Brazier has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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