The list of positive things that happened in 2020 is a short one, but one of them was surely SpaceX’s successful launch of two Nasa astronauts into orbit, the first time a private company had done so. The achievement “should get people right in the heart,” Elon Musk, the SpaceX founder, said at the time.
However, the spirit of exploration is not the only thing attracting Musk to space — there is also the commercial opportunity. In addition to selling shuttle services to take astronauts to the International Space Station with reusable rockets, SpaceX is offering broadband internet from its Starlink satellite network. This week, the company will put another 60 satellites into orbit to expand the network.
Musk is not the only billionaire to see the potential in a global commercial internet service — Jeff Bezos’s Amazon is planning to offer one from its network of low-earth orbit satellites, although it hasn’t launched any yet, and the British government bailed out London-headquartered satellite operator OneWeb in November, with Bharti Global, owned by Sunil Bharti Mittal, the Indian billionaire.
The government and Bharti paid $500 million (£360 million) each for an 84.4 per cent stake of OneWeb, and the government also has a golden share.
Morgan Stanley estimates that the global space industry could generate revenues of more than $1 trillion by 2040, up from $350 billion in 2020, and analysts said “the most significant short and medium-term opportunities may come from satellite broadband internet access”. Aerospace and defence companies, technology hardware makers and the telecoms sector will also offer investment opportunities linked
to space.
The sector is worth £15 billion to the British economy, after trebling in size since 2010, and employs about 42,000 people, according to the UK Space Agency. Last year the government announced funding for seven UK “space hubs” to “take maximum advantage of the commercial space race”.
Yet there is not an entirely straightforward way in to the sector for investors in UK listed companies, because many of the space companies here are privately owned or part of larger international aerospace or technology businesses.
Inmarsat, a British space success story, was taken private by Apax Partners and Warburg Pincus in 2019, while, among specialist players, small satellite maker Clyde Space was bought by AAC Microtec of Sweden in 2018 and the shares trade in Stockholm.
One option is Qinetiq, the FTSE 250 defence technology company, which said this month that it would beat City forecasts for the year to the end of March. In its last full year, the company generated 25 per cent of its service revenues in Europe, the Middle East and Africa from aerospace and space, plus 9 per cent of its global product revenues from space. That included winning a €75 million (£65 million) contract from the European Space Agency to develop and assemble the ozone-monitoring Altius satellite.
Qinetiq said it expects “mid single- digit percentage compound annual organic revenue growth over the next five years, with strategic acquisitions further enhancing this growth” and an operating profit margin of between 12 and 13 per cent.
The shares have climbed 5.4 per cent over the past year, but have not recovered their five-year peak of 387¾p in February 2020, pre-Covid. The shares closed up ¼p at 331½p yesterday.
Given its position in the relatively stable defence sector, plus Qinetiq’s satellite-building capability, Tempus thinks the shares are a good option for investors who want to back the UK space story.
Advice: Buy
Why: Qinetiq offers a way into space for UK plc investors
J Sainsbury
Sainsbury’s has been a safe haven for its investors over the past year — the shares have climbed 17.2 per cent in the past 12 months, compared with a 26 per cent decline in Tesco’s shares and a 7.4 per cent fall in Wm Morrisons. It has also been a safe haven for its customers as the supermarket chain doubled its online sales in the latest financial year, including 12 million deliveries to elderly and vulnerable customers.
In common with other retailers, safety for customers and staff has come at a price, with Sainsbury’s spending £485 million on Covid-19 related costs including extra hygiene measures and sick pay for staff who had to shield. Retail sales, excluding fuel, climbed 7.3 per cent to £28.8 billion. However, the retailer reported a £261 million pre-tax loss for the year to March 6, as a result of writedowns linked to plans to close 420 Argos stores announced in November.
It wasn’t just groceries, boosted by shoppers obliged to eat at home, that performed well — Argos also had a good year with its online sales increasing by 68 per cent. Sainsbury’s online sales for both Argos and groceries grew profitably.
The new financial year has also started “strongly” Sainsbury’s said, and it expects underlying profit to be higher than the £586 million it reported in March 2020, adding that it is “comfortable” with consensus forecasts of about £620 million this year. In a further sign of confidence, the company will pay a final dividend of 7.4p, maintaining its full-year payout at 10.6p, the same as last year.
Takeover speculation has bubbled around Sainsbury’s in recent weeks, after it came to light that Czech billionaire Daniel Kretinsky has built up a 9.99 per cent stake in the company. At the same time, some hedge funds are betting on a fall in the company’s shares, and Sainsbury’s was the fifth most heavily shorted share in the London stock market this month, according to IHS Markit data.
Analysts at Barclays point out that Sainsbury’s trades below its peers, on a full-year 2022 price-to-earnings ratio of 12.2 times, compared with 12.4 times for Morrisons and a European sector average of 15.4 times. The shares closed down 7p at 235p yesterday.
Advice: Hold
Why: Successful expansion online and changes at Argos
