Will Redwire benefit from cold war into the space? 🚀

3:13 PM October 5, 2022

Redwire (RDW.US) is a U.S.based small company that supplies advanced parts and components to the space industry. The company announced the planned acquisition of the Belgian 'Space' division of British defense company QinetiQ. The agreed price of the acquisition will be $31.4 million, and it is expected to close by the end of the year after regulatory approvals. The company's CEO, Pete Cannito additionally pointed out the resilience of the new space sector to the coming macroeconomic problems:

  • Redwire's CEO indicated that despite the difficult macroeconomic environment, the company intends to pursue acquisitions and scale operations in the nascent 'new space' sector. QinetiQ Space NV primarily manufactures commercial satellite systems and small components for space missions launched from Europe. This is Redwire's first acquisition since it acquired Techshot in November, a year ago. With the acquisition, Redwire will gain possible contracts with ESA, Belgium and, possibly, QinetiQ's main division. The market expects the deal to have a positive impact on Redwire's EBITDA and free cash flow;
  • QinetiQ Space has been fulfilling orders for the European Space Agency for nearly 35 years. The company reported €49 million in revenue for the fiscal period ended March 31, 2022, resulting in €3 million in net profit after tax. The company currently has 113 mil. EUR in contracted deliveries for payload products, small satellites and space instruments. The performance of Redwire's 'European' division is impressive compared to the currently small capitalization of the U.S. company, which stands at around $170 million;

In an interview with SpaceNews, Redwire CEO Pete Cannito pointed to the supportive development of space capabilities likely coming in the 'second iteration' of the Cold War, and commented on the QinetiQ Space acquisition: "We are entering a multi-decade space competition with China and Russia (...) As a result, despite the negative macro-environment trend across the economy, demand for space capabilities from both U.S. and international government participants remains strong (...) the acquisition will provide additional revenue diversity, a larger addressable market and deeper relationships with international customers (...) it will be executed at a reasonable valuation to enhance Redwire's resilience regardless of future macroeconomic uncertainty." Redwire's primary focus is on orbital manufacturing, direct and digital servicing equipment and space domain awareness.

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Redwire is scaling the business both by pursuing its own projects and by consolidating a niche industry through acquisitions. Businesses acquired by Redwire to date include Made In Space and Deployable Space Systems, which develops spacecraft structures and solar batteries. Recall that HEICO (HEI.US), among others, has operated in a similar manner in the past, and has pursued acquisitions of select manufacturers of mechanical parts and advanced electronics from the beginning;

  • Redwire's strategic focus areas include servicing and orbital manufacturing. To simply become a good, profitable business, Redwire will have to acquire private customers in the future; relying on deliveries to ESA or NASA may not be enough to systematically scale the quality and predictability of the business. Redwire was one of the companies among the so-called SPACs that proved not to be immune to market turmoil in 2022, its stock price falling nearly 75% from its debut price near $10 and nearly 90% from its price peak above $16. Analyst consensus, however, still assumes an increase in share price valuation from current levels.

Redwire (RDW.US) share price, D1 interval. The stock is trading below the SMA 50 and SMA 200 averages, indicating a consistently pessimistic view of Redwire's stock. The RSI near 48 points is relatively neutral although the stock has gained nearly 30% from lows near $2 per share. If the sentiment holds, the nearest resistance will be around $3, where the 50-session moving average runs. Source: xStation5

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