In context
2021 saw his fair share of private space ventures entering the public markets via a SPAC acquisition, an increasingly popular way to go public (without as much scrutiny as a traditional IPO) by performing a reverse-merger with a public blank-check company.
With close to a dozen companies in the same sector seeking financing with little assets and accomplishment to justify their valuations and forward projections, in what seemed to be a unique market fuelled by low interest and risk appetite, Redwire went public on a 0.6 billion valuation, a somewhat reasonable approach compared to this group of companies mostly composed of growth oriented stocks which are mostly pre-revenue, unprofitable and with a high burn rate.
So on a purely fundamental basis versus peers, with the numbers that were then reported in the unaudited SPAC presentation, Redwire was looking decently priced and once the company merged the price surged alongside acquisition news and favorable broad market sentiment. The strong start of Redwire was however short-lived as it was announced on November 10 that the earnings were delayed due to an investigation of potential accounting issues at a business subunit, this coupled with difficult macroeconomics conjunctures meant bad news for Redwire's shareholders, has the company lost over 60% between their 52-weeks highs and their 52-weeks lows, at the time of writing this article.
So it brings us to wonder how is Redwire currently being priced? How is the current broader environment responsible for the price action versus the specific accounting situation Redwire is facing? And what is to expect once earnings are released?
But first, I'll do a quick overview of the assets and technologies of Redwire, to learn more about these subsidiaries please read my previous work here and here. To directly go through the conclusion, click here.
Overview
Redwire is a newly formed conglomerate that tries to capitalize on the consolidation of the industry as space companies mature and cost of operations keeps declining with the roll in of the new generation of reusable launch systems. Coming with a wide horizontal approach and a strong portfolio legacy with more than 150 satellite missions over 50 years, Redwire's recent acquisitions try to position the company as a versatile manufacturer and operator with a focus on space systems and in-orbit manufacturing, particularly 3d printing.
Made in Space
Founded in 2010, Made in Space can be considered a true success story between what can be popularly referred to as the new space. With numerous missions with space agencies and private partners, notably NASA's $73 millions funding grant for the Archinaut program, Made in Space's technologies and connections have been tested and proven and this is a confidence booster when come time to project the advancements of these capabilities in the future years.
Redwire Regolith Print (RRP)
The Redwire Regolith Print (RRP) project is a technology demonstration of on-orbit 3D printing using regolith feedstock material. The Made In Space Manufacturing Device (ManD) provides the necessary 3D printing capabilities, and it is currently aboard the space station. RRP consists of extruders and print beds designed specifically to use regolith-based materials and integrate with the ManD printer. The primary objective of performing the print operations is to successfully demonstrate the manufacturing process capability in microgravity. The secondary objective of the print operations is to produce material samples for scientific analysis.
Zblan manufacturing
Commercial manufacturing of microgravity-enabled optical fiber has enormous potential, for both use on Earth and space exploration. Our fluoride-based, space-enabled product could offer 10 to 100 times better signal loss than traditional, terrestrially produced silica-based fiber.
Archinaut
Archinaut is a customizable suite of manufacturing and assembly technology that can be integrated into free-flying satellites. Archinaut utilizes customizable extended structure 3D printing technologies paired with precise, autonomous robotic systems, to fabricate complex space-optimized structures of indefinite lengths using space-rated thermoplastics.
Techshot
Fun fact the founder of Techshot was 12 year old when his zero gravity chicken incubator project won a Nasa-sponsored contest, 40 year later John Vellinger and his company hatched eggs, grew plants, studied insects, rodents, squids, cells and bacteria in orbit.
This portfolio of biological experiments leads to interesting RnD and as incredible as it seems, Techshot most intriguing technology is the BFF a biomolecular printer that benefits from zero gravity environment to print complex layered tissues structures that would collapse if tried on earth, Nasa invested in the development of the tech who end is to ultimately print organs in-orbit.
PONDS - Passive Orbital Nutrient Delivery System
In an effort to reduce the frequency that an astronaut must water plants growing in space, Dr. Howard Levine and his colleagues at the NASA Kennedy Space Center (KSC) began exploring new design concepts for the component of Veggie that holds the root structure of the plants, the so-called ‘plant pillows’. Research at KSC led to a semi-hydroponic design concept dubbed the Passive Orbital Nutrient Delivery System
BFF - 3D BioFabrication Facility
The 3D BioFabrication Facility (BFF) and the Techshot ADvanced Space Experiment Processor (ADSEP), together comprise the first-ever system capable of manufacturing human tissue in the microgravity condition of space. Utilizing adult human cells (such as pluripotent or stem cells), the system can create viable tissue in space through technology that enables it to precisely place and build ultra-fine layers of bioink – layers that may be several times smaller than the width of a human hair – involving the smallest print tips in existence.
MVP- Multi-use Variable-Gravity Plaform
Past experiments on the International Space Stations
Adcole
Adcole specializes in sun sensors, star trackers and cameras. I will not present them all in depth, you can visit here for more information.
CSS - The coarse sun sensor
The Coarse Sun Sensor (CSS) Pyramid is a 2 axis sensor containing four detectors, used for applications including solar array pointing, sun acquisition, and failsafe recovery.
Star tracker
The Adcole Space Star Tracker is intended for CubeSat and NanoSat missions. The unit is completely self-contained and features Lost in Space star identification.
Deployable Space System
DSS is a leading supplier of mission-enabling deployable solar arrays, structures and mechanisms for space applications. To learn more.
Rosa - Roll-Out Solar Array
DSS’s patented and award winning ROSA Solar Array (Roll-Out Solar Array) is a simple highly modular elastically deployable tensioned blanket technology that elastically and immediately deploys in a known linear direction with high margin under its own strain energy. No complicated or expensive motors or controllers are required for deployment.
OLM - OPEN LATTICE MAST DEPLOYER
DSS’s deployable Open-Lattice-Mast (OLM) is a lightweight coilable-type boom system. OLM stows to 2% its deployed length as three intertwined helices, and deploys into a linear configuration with three-sides and a deep triangular cross section to provide high strength and stiffness.
Deep Space system
The specialties of DSS are system engineering and space system's development, integration and testing, deep space mission operations, and high-definition space-qualified cameras. In 2006, Lockheed Martin won the contract for the Orion spacecraft with the collaboration of Deep Space Systems and in 2009, DSS was named NASA's Johnson Space Center Small Business Subcontractor of the Year, for its work on Orion's avionic system. While collaboration with Lockheed Martin drives the business, Deep Space Systems diversified with the development of satellite-ready cameras.
DARS - Data Acquisition and Recovery System
The Data Acquisition and Recovery System allows for large file size retrieval from spacecraft. Because traditional data streaming is unreliable and lower resolution, The DARS solution does not require external power or commanding for operation and offers a long battery life (1 month prior to start of the mission, and 1-month post-release). Engineered for water recovery, DARS offers long range (100 km) direct data transmission via Lo-Ra, as well as global communication via the Iridium constellation. DSS video camera and lighting system options are available.
Roccor
Roccor is a manufacturer and supplier of high-reliability satellite technologies, solutions, and products.
HiPASS - solar array
The Redwire Space HiPASS solar array is a high power rigid solar array solution for smallsat applications. It uses metallic tape spring hinges to fabricate a robust solution that is extremely forgiving to system level tolerance stack-up risks. The SADA-compatible HiPASS is engineered with low-cost graphite panels that are designed to minimize manufacturing risk and complexity.
ROC FALL- deorbit device
From a fresh sheet of paper, using flight-proven technologies, Roccor’s solution was qualified and ready for flight in six months (ahead of schedule). Roccor’s ROC™ FALL drag sail device received FCC approval for end-of-life management for the OTB satellite mission and launched on the SpaceX STP2 Falcon Heavy in June of 2019.
Fundamentals
Since the company didn't release audited financials yet, we will have to refer to the SPAC presentation, here and here.
First of all, one can be skeptical about these projections, so this is why we will focus on current multiples. I will use an interactive widget that keeps valuation in real-time but as of the time of publishing this article the company trade at 5$ and around a 300 million market capitalization, down 50% from the pro-forma valuation of the SPAC.
At 5$ a share with the current float of 60m common shares, the company trade approximately at 2x their sales, between 0.66 to 1x of their book value depending on the source, with around $150m in cash from the SPAC proceeds they also trade close to 2x their cash.
Now let's compare these metrics against the most referred benchmark.
Current S&P 500 Price to Sales Ratio: 2.93
4:00 PM EST, Fri Jan 28
Current S&P 500 Price to Book Value: 4.51
4:00 PM EST, Fri Jan 28
We can agree that in some aspect Redwire valuation is starting to be attractive compared to the SP500, (which it is not a part of) and even more compared to the Nasdaq composite that trade a bit higher. This brings us to probably the most appreciated value metrics, the Price to Earning ratio and the cash flow. This is where the uncertainty reside in my opinion and where the current situation particularly hurt price discovery.
If we use the unaudited projection from the presentation, the company currently trade around a P/E of 23 and a P/CF of 20.
Current S&P 500 PE Ratio: 25.27
4:00 PM EST, Fri Jan 28
Current S&P 500 P/CF Ratio: 17.58
4:00 PM EST, Fri Jan 28
Which is looking more in tune with what the rest of the market has to offer.
Personal conclusion
In my opinion, as long as Redwire don't release audited financials, uncertainty will stay and the market will price Redwire on their current earnings and cash flow, in this optic the current valuation is not a big surprise if you take in consideration the broader macroeconomic environment.
Once financials are released, if the growth follows projections, we might see the market start to price estimated forward earnings. Redwire audaciously forecasted a 77% CAGR year-over-year until 2026. If this is realized, we could see price discovery dissociate itself from fundamentals and from there the company price-to earnings ratio get closer to the one in the Tech sector and other high growth and newer industries. If not, then current and lower price could be considered fair value.
In any case, good execution that support these forward earnings will decide on how the market value Redwire's IP and expertise moat, in the best possible outcomes, with the potential in space manufacturing medium-term and space exploitation long-term, Redwire certainly is positioning itself to be a front-running actor in what is expected to be the next gold rush at the new final frontier.
For more information, I suggest visiting Unearthly Invest channel on YouTube.
Disclaimer: We are long $RDW, not investment advice, not a registered professional. You could lose everything, buy at your own risks.
2022-01-29 Burlap's Gambles
Author: Burlap
This is the most intelligent analysis report on Redwire