What's lifted the Orbital share price?

Investors were picking up the Orbital share price throughout the day after announcing a lucrative deal.

According to its release, Orbital advised it has signed an engine development and supply agreement with Textron subsidiary, Lycoming Engines.

Under the framework, Orbital will engage in a 12-month engine development program to integrate its technology into Textron Systems' Aerosonde platform. This will see Orbital's use the design of its unmanned aerial vehicle (UAV) core engine, including its patented fuel and engine control systems.

Textron subsidiary, Textron Systems is a leading international firm specialising in unmanned aircraft systems. The company is one of the largest suppliers of tactical UAVs to the United Stated military.

Once all checkpoints have been successfully met, the agreement will transition into a supply contract. Orbital will deliver the newly-integrated engines along with spare parts and support services to Lycoming over a minimum 5-year period. At the end of the contract, Lycoming has the option to renew the deal for an additional five one-year extensions. Delivery of the production engines is expected to be no earlier than the fourth quarter of FY22.

Orbital noted that its revenue guidance for the current financial year remains the same, between $30 million to $40 million. However, future revenue guidance cannot be determined until the successful completion of the engine development program, and known scheduling engine deliveries.

What did management say?

Orbital UAV CEO and managing director Todd Alder commented:

We are delighted to announce this major new collaboration with Lycoming and to be working with Textron Systems on a joint development program.

This relationship further enhances our status within the global UAV defence industry and provides the opportunity to increase our market share and deliver on our strategic growth objectives

Textron Systems, senior vice president of air systems Wayne Prender went on to add:

For more than four decades, Textron Systems has been designing, manufacturing, operating and supporting some of the world's most reliable and trusted multi-mission unmanned aircraft, including the Aerosonde and Shadow systems.

Orbital UAV's heavy fuel technology and design expertise coupled with Lycoming Engines' World Class reputation further supports Textron Systems' industry-leading UAV mission readiness rates and reputation for reliability and durability.

The Orbital share price has gained over 100% in the past 12 months, but has fallen 20% year-to-date.

The post Why the Orbital (ASX:OEC) share price ended the day up 6% appeared first on The Motley Fool Australia.

At the time of writing, the company's shares have clawed back some ground and are now trading at 90 cents, down 20%.

This, after the advanced aerospace manufacturer provided investors with a business update on its preliminary results for the first half of FY21.

What did Orbital announce?

In today's release, Orbital advised it achieved preliminary revenue of $19 million for the six months ending 31 December 2020. The company attributed this 67% increase on the prior corresponding period to strong output from its two engine production lines.

Orbital is the primary engine supplier for tactical unmanned aerial vehicles to Insitu Inc – a subsidiary of global behemoth, Boeing Co (NYSE: BA). Orbital runs operations in both Australia, and the United States.

Orbital CEO and managing director, Todd Alder, commented:

Throughout 2020 we proactively managed the additional risks brought about by COVID-19, managing our global supply chain and distribution network and implementing measures within our operations to keep our teams safe while continuing to manufacture.

So, what's sinking the Orbital share price?

With the positive news at the top of the release, Orbital went on to mention that it has revised its 2021 full-year revenue guidance. The adjustment is due to Insitu Inc requiring a drop in production volumes from one of the two engine models. Recent challenging market conditions caused by COVID-19 were blamed for what will be a loss of potential revenue to the company.

As a result, Orbital altered its production targets up until June 2021. Revised revenue guidance for the FY21 is expected to fall between $30 million and $40 million.

Mr Alder touched on the renewed update, saying:

Taking into consideration reduced customer requirements, we have revised our forecast production targets for the second half of FY21. While this adjustment to our production schedule is regrettable, we continue to manufacture and progress our deliverables under the existing long term supply agreement with Insitu.

It's worth noting that, Orbital has two of five engine models currently in production with Insitu Inc. A third engine model is currently in the development stage. It's anticipated that the upcoming engine will be ready for production in Q4 FY21 at its Western Australia facility.

Customer diversification

To avoid stunted growth, the company is focused on diversifying its customer base. Orbital has been busy at work with Northrop Grumman and one of Singapore's largest defence companies on engine development programs. It has scheduled the engine protypes to be sent to its retrospective customers in 2021 for further testing.

Said Mr Alder:

We continue to make good progress with our existing engine development programs and are advancing negotiations on additional Tier 1 defence opportunities.

With our superior heavy fuel patented technology and the current market opportunities that exist, we are confident in our ability to build our global customer base and create an exciting platform for long term growth in the rapidly evolving UAV industry.

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ASX trends in defence spending

Much of the defence spending over the next decade has already been announced. However, it will highlight recent discussions with Electro Optic Systems Holdings Ltd (ASX: EOS), and Orbital Corporation Ltd. (ASX: OEC). Meanwhile, aside from domestic spending, purchases continue to roll in from overseas. Just yesterday, DroneShield Ltd (ASX: DRO) announced an additional contract with one of the 'Five Eyes' nations.

I think all of these companies are potential options to buy early next week. They are well priced and I believe the ASX trend of high global defence spending is going to be with us for a long time to come. 

Formalised responsible lending changes

The proposed changes to the responsible lending laws are likely to be a game changer for the nation in our battle against the economic impacts of COVID-19. This ASX trend is likely to impact the share price of companies in lending or building residential houses. On the development side, I expect to see a big impact to blue chip companies like Stockland Corporation Ltd (ASX: SGP) and Mirvac Group (ASX: MGR).

In the area of mortgages, I tend to shy away from the banks. These companies continue to face headwinds from loan defaults and regulator imposed constraints to dividend payout ratios. However, mortgage brokers like Mortgage Choice Limited (ASX: MOC) are likely to see increased interest from this ASX trend. So too non-bank lenders like Resimac Group Ltd (ASX: RMC).

The opening borders

Queensland opened its borders to New South Wales again yesterday, sparking a flurry of activities across the borders. Furthermore, today there is talk of re-admitting students, and opening flights to New Zealand. I think the obvious implications for the ASX surrounding this trend will be for travel and tourism shares. For example, companies like Alliance Aviation Services Ltd (ASX: AQZ), or Event Hospitality and Entertainment Ltd (ASX: EVT) are likely to see an immediate impact. 

The post 3 ASX trends to watch in budget week appeared first on The Motley Fool Australia.

Here's why I believe these 4 ASX defence shares are undervalued and their share price could shoot higher in the coming years.

Austal Limited (ASX: ASB)

The shipbuilding giant designs and manufactures high performance vessels for commercial and defence customers worldwide. Most notably, Austal builds and services warships for the Australian Royal Navy and the United States Navy.

Early this month, the Australian shipbuilder delivered its expeditionary fast transport, USNS Newport to the US Navy. This brings the total number of ships built for the US Navy to 24, including 3 combat ships this year.

The Austal share price has sunk almost 16% after reporting its strong full-year results for 2020. The company has an order book of $4.3 billion to be fulfilled with 10 new ships to be built. As maritime relations become frosty between nations, I think the $3.16 Austal share price could be seen as a bargain in a few years.

Electro Optic Systems Hldg Ltd (ASX: EOS)

Electro Optic Systems is Australia's largest aerospace entity. It's also the largest defence exporter in the Southern Hemisphere, focusing on defence, space, and communications technology. Key applications include telescopes and dome enclosures, laser satellite tracking systems and fire control systems.

The defence company recently reported that it had resumed delivery of a major overseas contract worth $150 million. Electro Optic noted this was a key step in restoring cash flow that was disrupted by COVID-19.

The Electro Optic share price has misfired since reporting its FY20 results in late August, falling 17% to $5.13. As international borders start to reopen, the defence contractor is working towards clearing its $610 million worth of backlog products. In my opinion, this in-turn could lead the Electro Optic share price to dramatically rise.

DroneShield Ltd (ASX: DRO)

A leader in drone security technology, DroneShield designs and develops detection systems to protect people, organisations and critical infrastructure from drones.

The DroneShield share price has been making tailwinds in the past month thanks to a raft of positive announcements. Last week, the company secured funding from the US Defence Department to develop its DroneSheild Complete Command-and-Control (C2) system. The worldwide leader in drone security technology also received an order from a major Southeast Asian country.

The DroneShield share price is up 56% in the last 4 weeks from Friday's market close of 20.5 cents. With a market capitalisation of $79 million, the company should reward shareholders if it can secure meaningful contracts in the future.

Orbital Corporation Ltd (ASX: OEC)

Advanced aerospace manufacturer, Orbital provides integrated engine systems for tactical unmanned aerial vehicles (UAV). Its tier 1 client base includes Insitu (a Boeing company), Northrop Grumman, Textron Systems and a large Singapore defence company.

Engine development works are under way as Orbital seeks to build a hybrid propulsion system for the next generation of vertical take-off and landing UAVs. The company hopes to improve earnings and profitability on the sale of its flight critical components under the Insitu long-term agreement. In addition, Orbital is targeting new customer contracts and involvement in defence UAV programs.

The Orbital share price has dropped more than 35% from its 52-week high to $1.05. The underlying importance of drone technology could be a major benefactor to Orbital's bottom line. In light of this, I believe the Orbital share price is great value.

The post Why now is a good time to buy ASX defence shares appeared first on The Motley Fool Australia.

When investing in ASX growth shares, it's important to remember 3 pieces of advice. First, with great upside potential comes the ability to rapidly go to zero (this is what high risk looks like). Second, always consider investments over a minimum 3–5 year time frame. Third, do not commit to invest anything more than you can live with losing. 

So, if you have the nerve for investing in growth stocks, then here are 3 that I think are well worth your attention.

3 ASX shares with big potential

Fintech sector

The finance technology, or fintech, sector in Australia is fascinating. This is an area where companies are delivering financial services using modern technologies.

In this space, the ASX share that I believe is under appreciated is the blandly named CML Group Ltd (ASX: CGR). I believe this is a company made for our times. It provides debtor finance; that is, securing short-term finance with assets other than property. The largest example of this is invoice financing. CML Group will take your invoice as security and fund you up to 80–90% of it, with the loan paid back when the invoice is paid.

Short term credit like this is vital to small businesses for cashflow management. The "tech" part of this fintech is its recent acquisition of a a software-as-a-service (SaaS) website called Skippr. The platform integrates with common fintech platforms like Xero Limited (ASX: XRO) and MYOB, as well as a number of others. 

It provides small business with a subscription-based approach to quickly access short-term finance. It also automates a lot of the process making it feasible for CML Group to finance much smaller companies. Previously, it had to target companies with receivables of $200,000 or more to make it profitable. 

Aside from the business dynamics, there are a number of other reasons why I favour this company. First, it has a solid financial track record. In fact, over an 8-year period it has grown its earnings per share by about 12% per year. Second, it has a small market capitalisation. At $78.33 million, the idea of multiplying one or two times the initial  investment is believable. Last, at its current price it has a trailing 12-month dividend yield of 6.67%, which I find respectable.

Biotech sector

There are many innovative biotech ASX shares that are shaping the future not only in Australia, but throughout the world. Dimerix Ltd (ASX: DXB) is currently developing a drug, DMX-200, to treat diabetic kidney disease and focal segmental glomerulosclerosis (commonly referred to as FSGS). FSGS is a scarring of the kidneys and some cases may end in kidney failure, requiring dialysis or a kidney transplant.

Proteinuria, or protein in the urine, is a sign of kidney disease. DMX-200 demonstrated a 29% reduction in protein for all test subjects versus the placebo. Moreover, 29% demonstrated a greater than 40% reduction. In the first half of CY21 the company plans to commence the investigational new drug process with the FDA in the USA. 

Dimerix is valued at $92.94 million. Year to date, the company's share price has risen 261%. This company is a pure research organisation and it may take a year or so to start seeing real on the ground results. However, I think the ASX share price is likely to continue rising over the near term as it moves closer and closer to production. Most importantly, the potential addressable market for this company is massive and global.

Defence sector

In the defence sector there are a number of ASX shares worth looking into. These include aluminium ship building giant Austal Limited (ASX: ASB), sensor technology experts Electro Optic Systems Hldg Ltd (ASX: EOS), and body armour manufacturer Xtek Ltd (ASX: XTE). However, personally I think near-term growth is likely to come from Orbital Corporation Ltd. (ASX: OEC).

Orbital is the world leader in propulsion systems for unmanned aerial vehicles (UAV) or drones. The company recently announced it had achieved revenue of $33.8 million. This is an improvement of 121% on the FY19 revenue. Moreover, it now has 2 engine models in continuous production for Insitu, a subsidiary of Boeing. The 3rd of the 5 contracted engine models is scheduled for production in 2021.

In addition, Orbital signed a new MoU with one of Singapore's largest defence companies for the design, development and initial production of a multi-fuel UAV engine. Furthermore, it has a new contract with leading aerospace company Northrop Grumman for a hybrid propulsion system for a vertical take-off and landing UAV.

Foolish takeaway

There are many ASX shares that are poised for growth over the next 3–5 years. I have chosen 3 that I believe have strong momentum and are likely to see at least a doubling of their share price. Each of the 3 ASX shares above is advanced in their technologies, with CML and Orbital already generating revenues. Lastly, each of them has a very sizeable addressable market.

The post 3 ASX shares that could make you rich appeared first on The Motley Fool Australia.

This is part of an evolution in military technology towards drones and unmanned defence systems. Moreover, since the government announcement of $270 billion in defence spending, investors have become aware of the advanced technologies of ASX shares underpinning this transformation.

I think a range of companies in this sector are likely to grow significantly over the next 3–5 years. Many now have mature technologies, ongoing sales and significant growth opportunities ahead of them. Orbital is one of 4 leading ASX shares in this sector.

More drone propulsion systems

Orbital is a global leader in propulsion systems for tactical unmanned aerial vehicles (UAVs). The company recently announced an unaudited FY20 result of $33.8 million. This was within its guidance of $25–$35 million despite the interruptions of coronavirus in Australia and client countries. I am very bullish on this company. Partly because their current client base includes subsidiaries of Boeing, Northrop Grumman, and an unnamed large Singaporean Defence Company. 

FY21 is going to be about consolidating Orbital's current situation and expanding client base. FY21 revenue guidance for this ASX share is for $40–$50 million. In particular, 3 of the company's existing clients have been selected as providers for the Australian Defence Force (ADF) Land 129 program. 

More unmanned aerial systems

Xtek Ltd (ASX: XTE) makes small unmanned aerial systems (SUAS) among many other products. In particular, it supplies the AeroEnvironment WASP AE SUAS, produced in the United States.

At present, the ADF has more than 50 of these aircraft and Xtek recently announced an additional order for $2.8 million for this model, boosting the company's existing SUAS supply contract.

In FY20, the supply of SUAS parts and maintenance to the ADF was worth $8 million. In addition, Xtek manufactures lightweight body armour, and is the primary provider to the Department of Defence for portable X-ray equipment and demolition remote firing systems.

FY20 guidance is for revenue of $42 million, an increase on $37.9 million in FY19. This ASX share has increased its production capability and can produce its patented lightweight composite materials to support $40 million per year revenue. This is planned to double during FY21.

ASX shares for drone protection

Two ASX shares are active in this area. The first is DroneShield Ltd (ASX: DRO), a company that provides protection against drones. Droneshield sells multiple sophisticated devices that are just starting to gain traction. For example, it has the Drone Gun MKIII for soldiers in the field. At the more extreme end, the Drone Node disables drones within a 1km radius.

In the past month, the DroneShield share price has risen by 15.38%. Moreover, the company has made 3 positive announcements in the past 2 weeks. First, a $100,000 order from the European Ministry of Defence. Second, a US$200.000 contract with the US Air Force. And third, the successful completion of a trial in a mid-tier European airport. The company expects the implementation tender in Q4 CY20.

The other ASX share in this space is Electro Optic Systems Hldg Ltd (ASX: EOS), which focuses on sophisticated sensor technology. This came from the privatisation of the  Commonwealth of Australia space activity, and the technology has been at the forefront of satellite tracking for more than 35 years.

Electro Optic Systems has also used this technology to build vehicle-mounted, remote-operated weapons that are battle-tested against drones. It is currently in negotiations with the Australian Government for the acquisition of 251 of these weapons. 

Foolish Takeaway

These four companies are just part of our very capable defence contracting industry. Out of all of these ASX shares, I am most interested in Orbital Corporation because I think the time has arrived for this technology, in particular. However, it is clear that we have multiple mature drone technologies capable of servicing the ADF and countries throughout the world.

The post 4 ASX shares leading the way in drone technology appeared first on The Motley Fool Australia.

The company recently saw its share price rise by 19% after a visit from the Minister for Defence, the Hon Linda Reynolds. Moreover, this visit was two weeks after the launch of the Australian Government's 2020 Defence Strategic Update and 2020 Force Structure Plan. This plan includes potential investment of up to $700 million in tactical UAVs over the next decade. As well as up to $1.3 billion in Maritime Uncrewed Aerial Systems between 2020 and 2040.

What moved the Orbital share price?

The Company yesterday announced it had achieved revenue of $33.8 million. This is an improvement of 121% on the FY19 revenue of $15.3 million. The figure is at the top end of the company's market guidance range of $25 million to $35 million.

FY20 revenue grew due to the company's agreement with Insitu Inc., a wholly owned subsidiary of the Boeing Company. In fact, it now has two engine models in continuous production for Insitu. The third of the five engine models is scheduled for production in 2021. Delivering on Insitu commitments remains the company's highest priority. In addition, it is the most immediate opportunity to grow revenue in FY21.

Orbital UAV's customer demand remains strong and existing business and projected outlook has not been affected by the coronavirus pandemic. In addition, the company has implemented a comprehensive response and production capacity remains robust.

Management commentary

Todd Alder, the company's CEO and Managing Director said "Orbital UAV's excellent progress against our strategic objectives during FY20 is reflected in our strong financial performance. Delivering revenue at the top end of guidance, in spite of the COVID-19 environment, is testament to the commitment of our people and our ability to effectively manage our global supply chain."

In March 2020, the company signed a new MoU with one of Singapore's largest defence companies. This was for the design, development and initial production of a multi-fuel UAV engine. In April 2020, it announced a new contract with leading aerospace company Northrop Grumman. This was to develop a hybrid propulsion system for a Vertical Take-Off and Landing UAV.

"The two new engine development contracts announced earlier this year demonstrate Orbital UAV's growing reputation as a world leading engine manufacturer in the global tactical UAV market." said Mr Alder. "We will progress these exciting engineering development projects in FY21 while continuing to focus on our production priorities under the Insitu [agreement]," he said.

Share price performance

The Orbital share price is up by 268.4% in year to date trading. It has a market capitalisation of $108.62 million and currently pays no dividends. The company provided guidance for revenue for FY21 of between $40 million and $50 million.

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One example is the Japanese Memorandum of Understanding that formalises Australia and Japan's plans to work more closely together on space and defence sectors. A second example is the US$50 million in funding from the United States government to Austal Limited (ASX: ASB). This is to maintain, protect, and expand US domestic production of steel shipbuilding capabilities for capital projects over the next 24 months. Consequently, we are seeing a mini-boom in ASX defence shares. On that note, let's take a look at three defence shares that have done very well recently.

3 surging ASX defence shares 

DroneShield Ltd (ASX: DRO)

DroneSheild has made two strong announcements this week, taking its market capitalisation to $40.39 million. The company specialises in drone security technology and is a world leader in the field. Earlier this week, it announced new contracts with both the US defence forces and the European Ministry of Defence. This builds upon an already expansive client list which also includes the European Union Police.

Dronesheild saw its share price rise by 33.33% across this week. However, it is still down by over 40% in year to date trading due to the coronavirus market crash. I think this ASX defence share is likely to see an increased level of sales due to the proven capability of its product.

Orbital Corporation Ltd. (ASX: OEC)

Orbital has enjoyed a share price increase of only 0.79% this week. However, over the past month the share price has risen by approximately 73%. The company provides propulsion systems for small unmanned aircraft or drones. In the past month, the company had a visit from the Minister for Defence, the Hon Linda Reynolds, reminding the market that Orbital is already an accomplished defence contractor.

In addition, this ASX defence share received a new contract with Northrop Grumman to design and develop a hybrid propulsion system. This will combine an electric motor with the company's flight-proven engine. The company has a current valuation of $99.31 million.

Xtek Ltd (ASX: XTE)

Xtek is a very interesting company for me. Its share price is level for this week but up by 12.7% over the past month. The company has developed a patented technology called XTclave for curing and consolidating composite materials. Xtek has already installed an industrial sized machine in its Adelaide premises. This is large enough to support ~$40 million in revenues per year, and Xtek is also looking to install another one at its recently acquired US base.

This technology is used to produce a range of products, including; armour, lightweight tactical and human carriage equipment, robotic mechanical systems and unmanned craft. In the past 2 months, this ASX defence share has announced additional contracts with the Finnish Defence Forces and the Australian Defence Forces as well as a grant from the Australian Space Agency. 

Foolish takeaway

Australia has a good number of technologically advanced defence contractors. While most of us focus on Austal and Electro Optic Systems Holdings Limited (ASX: EOS) there are also many smaller ASX defence shares that have developed technologies other countries are willing to pay for.

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However, today the company is active in a range of areas. For instance, they are the world leader in the design and manufacture of propulsion systems and flight critical components for tactical unmanned aerial vehicles (UAVs). In addition, the company has a long-term agreement with Insitu Inc. (a Boeing Company) to supply engines across its entire fleet of military drones. At present, this encompasses three different models.

What moved the Orbital share price?

The Minister for Defence toured the company's headquarters in Balcatta, Perth on Thursday 16 July. Moreover, this visit comes two weeks after the launch of the Australian Government's 2020 Defence Strategic Update and 2020 Force Structure Plan. This plan includes potential investment of up to $700 million in tactical UAVs over the next decade as well as up to $1.3 billion in Maritime Uncrewed Aerial Systems between 2020 and 2040.

Orbital currently has contracts with some of the world's largest Defence Prime Contractors, including Boeing subsidiary Insitu Inc., Textron Systems, and a recently announced contract with Northrop Grumman. For Northrop Grumman, Orbital has been tasked to design and develop a hybrid propulsion system. This will combine an electric motor with the company's flight-proven engine.

Management commentary

"The announcements made within the 2020 Force Structure Plan highlight the increased relevance and strategic importance of tactical UAVs in Australia and mirrors the global growth that we have witnessed in this market in recent years," said Todd Alder, CEO and Managing Director of Orbital UAV.

Orbital company performance

The company is on track to achieve FY20 revenue guidance of $25-$35 million and full-year profitability despite the interruptions caused by the coronavirus lockdowns. The Orbital share price has risen by approximately 234% in year to date trading. It has a market capitalisation of $98.5 million and does not pay a dividend. 

The post Orbital share price soars by 19% appeared first on The Motley Fool Australia.

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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