The extra funding gives OEC a strategic advantage as it builds its global product development channels for UAV manufacturing.
Advanced engine manufacturer Orbital Corp (ASX:OEC) advised the market of a marquee capital raise on Tuesday, announcing a $6.5m pro rata entitlement offer.
Under the terms of the offer, eligible shareholders will be given the opportunity to acquire one new share for every six OEC shares they own. The offer is priced at 50c per share.
The funds will be deployed towards building out Orbital’s engine development programs, as it gains traction across a suite of tier-one clients in defence and aerospace.
Capital raise
Highlighting OEC’s capital raise were a number of confirmed commitments from its major shareholders.
Both UIL Limited and First Sentier Investors announced that they would take up their entitlement offer in full, alongside the directors of OEC which will raise a combined amount of $2.8m.
Strategically, the extra funding comes at an important time for the business as it consolidates its IP advantage in the manufacture of advanced UAV (unmanned aerial vehicle) engines for global defence and aerospace customers.
Along with its multi-engine deal with Insitu, a wholly owned subsidiary of Boeing Inc, OEC also has supply deals with aerospace giant Textron and Northrop Grumman, along with one of Singapore’s largest defence companies.
Earlier this week, OEC confirmed an additional engine contract with Textron Inc subsidiary Textron Systems to carry out upgrades on the company’s existing fleet of UAV engines, as part of the Aerosonde program.
The Orbital upgraded engine will be available in calendar year 2022, with production volumes dependent on the client requirements at that time.
Orbital CEO Todd Alder said the agreement is reflective of the company’s market-leading IP and its “growing relationship” with Textron.
“The additional engine upgrade contract with Textron Systems adds to our existing engine development programs, expanding the company’s production profile opportunity from two to six engine production lines over the next 24 months,” Alder said.
“To support this growth, we will be investing capital in contracted engine development programs; enhancing the company’s Australian production facility capabilities; and continued research and development opportunities.”
In that context, the funds raised provide OEC with an important development runway to build out its existing manufacturing programs, as well as drive ahead with additional R&D and enhance its Australian-based production facilities.
As part of its capital raise announcement, OEC said that it maintains a conservative volume outlook for its Insitu contract, stemming from a reduction in Intelligence, Surveillance and Reconnaissance (ISR) missions following the US military withdrawal from Afghanistan.
Its other two development programs with the large Singapore defence contractor and Northrup Grumman are both continuing as planned.
As part of the entitlement offer, Orbital will issue a maximum of just under 13m shares, bringing total shares on issue to around 90m.
The offer is available to all registered shareholders of Orbital UAV at 4pm (Perth time) on the record date who have a registered address in Australia, Bermuda, Hong Kong, Japan, Malaysia, New Zealand, Singapore or the United Kingdom.
Long-term growth
Looking ahead, Alder flagged a number of project leads where Orbital’s existing market position and IP in the construction of UAV engines leaves it well placed to execute on additional contract work.
“Further near term opportunities exist in the UAV market, including the largest global tactical drone fleet renewal, the US Army’s FTUAS program. That program is currently underway with Increment 1 evaluation,” Alder told Stockhead.
“In Australia, we’re tracking the Australian Army’s Land 129 Phase 3 opportunity – expected to be announced this calendar year, and the Royal Australian Navy’s SEA 129 Phase 5 program anticipated to progress in 2022.”
Those jobs are taking place amid broader tailwinds for the domestic and global defence sectors, amid the “largest defence modernisation program the Australian Defence Force has ever undertaken”, Alder added.
“Combined with a strong focus on developing Australia’s sovereign defence capability, we see a number of longer term growth opportunities within the domestic defence and aerospace sector.”
This article was developed in collaboration with Orbital Corp, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.