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Tech
The defence market on a global scale is big business, taking into account production and maintenance of air, sea and land-based military equipment.
With a market value of US$474.69 billion in 2021 the sector is expected to reach US$687.84 million in 2026 at a CAGR 7%.
The defence sector is then expected to grown at a CAGR of 4% from 2026 and reach US$838.03 billion in 2031.
Earlier this year the Australian Federal Government released the Defence Strategic Review, considered the most significant Defence report since WWII, with the Federal Government making a commitment to work with Aussie industry to improve the nation’s defence capabilities.
Furthermore, the AUKUS deal announced in September 2021 was flagged as the most significant security arrangement between Australia, the US and Britain since WWII.
And then there’s the war in Ukraine and continued geopolitical pressures on a global scale, which has defence forces worldwide looking to improve their capabilities.
Titomic (ASX:TTT) head of sales and marketing Dominic Parsonson told Stockhead while war is not be to desired and the present geopolitical unrest is challenging, it is highlighting an important shift for Australian SMEs.
“Now, as our Government looks to be self-reliant by securing supply chains and onshoring capability yet at the same time ensuring a collaborative approach to development, we have a golden chance to enter the global arena,” he says.
Among major global companies in the defence market are Raytheon Technologies Corporation, The Boeing Company, Lockheed Martin Corporation, Northrop Grumman Corporation, BAE Systems, Airbus Group SE and Thales Group.
However, Parsonson says there are ASX companies proving their prowess in the defence sector, leading to global partnerships with some of the big players and showing their ability to compete on the world stage.
“These are companies delivering competitiveness based on a unique capability, rather than attempting to compete on volume or in commodity areas,” he says.
“A number of the large primes, for example, BAE Systems and Boeing to name a few, also have very active Australian industry content programs where they are actively working with SMEs to uplift their capabilities and introduce them into their broader supply chains.”
Parsonson says Australian Government backed Team Defence Australia is also helping companies grow globally in the sector.
Here are some of the ASX companies working in the defence manufacturing sector.
TTT has developed unique solutions around weapon barrel manufacture, ballistic protection and high temperature nozzles for rockets.
The company has a head office and manufacturing facilities in Melbourne along with a European office and factory in the Netherlands.
TTT has been working with the CSIRO to develop its Kinetic Fusion technology employing innovative near-net-shape manufacturing and cost-effective materials to create large-scale titanium and other alloy parts.
“When Titomic first started in 2014 defence was not on our radar and we were focused more on consumer products,” Parsonson says.
“However, as we grew we were getting many enquiries from the defence industry who realised our unique capabilities and we have largely pivoted to this sector.
“Working in the defence sector forced us to be a better operator due to the demand placed on us for cybersecurity, quality management and business controls.”
IPX is a vertically-integrated metals technology company focused on re-shoring critical material supply chains to the US and operates two primary business segments.
Its metals business is commercialising a portfolio of highly disruptive titanium metal processing and recycling technologies, and the minerals business is developing the fully-permitted Titan critical minerals project in Tennessee, containing the largest JORC-compliant titanium and rare earth mineral resource in the US.
IPX controls a patented and proprietary portfolio of low-cost and low-carbon titanium processing technologies that can enable the world’s first fully circular titanium supply chain.
The company is commercialising these technologies via the development of a first-of-its-kind, 100% recycled titanium metal powder production facility in the US state of Virginia, slated for first production in 2024 followed by further expansion to 1,125 tonnes per annum targeted in 2025.
IPX is actively engaged with a wide variety of prospective customers in the aerospace and defence sectors, both private and public, where titanium is prized for its superior material characteristics over competing metals like stainless steel and aluminium.
The company says increasing demand for titanium applications in the well-established defence and aerospace sectors is a key potential growth avenue for IPX, outside of disruptive new titanium markets and applications like consumer electronics.
IPX has established several collaborations across multiple industries, including four key partnerships in the defence and aerospace sectors.
QHL is a leader in delivering advanced composite solutions to the global aerospace and defence sectors, manufacturing components for aircraft such as the F-35 Joint Strike Fighter, C-130J and F/A-18. The company’s customers include Lockheed Martin, Boeing, Northrop Grumman and BAE Systems.
Furthermore, the company is also expanding its focus on the burgeoning drone market, which are increasingly being used by defence forces globally.
QHL managing director Mark Burgess says overall group revenue is expected to grow ~10% yoy in FY24, with Defence to account for ~80% of revenue in FY24.
“We are seeing an increase in demand for onshore maintenance, repair and overhaul (MRO) in the defence segment, including from US military aircraft assets in the region.”
Burgess says he anticipates further growth in QHL’s defence business mainly from the launch of its new US-based engineering and manufacturing facility in Wichita, Kansas.
“Missiles and guided weapons are expected to make a significant contribution to revenue growth in our defence business on both sides of the Pacific over the coming years,” he says.
EOS specialises in advanced technologies that enable the integration of weapon systems onto a diverse range of platforms used in both land, maritime and even space.
Its products include high-energy laser weapons, combat and force protection systems, space domain sensors as well as next-generation solutions for countering unmanned aerial systems (CUAS) and lethality systems for unmanned ground vehicles (UGV).
In its H1 FY23 results EOS reported the Ukraine conflict and increased geopolitical tensions are resulting in higher defence spending.
The company reported an increase in its defence revenue of 33% to $50.7 million in H1 FY23.
EOS in April announced two contracts to supply its Remote Weapons Systems (RWS) to Ukraine with a total value of more than A$180 million.
In June it also announced a contract to supply its RWSs to a Western European Government for ~$51 million.
Among the most established ASX companies operating in the defence sector is global shipbuilding company ASB, which operates shipyards in five countries including Australia, China, Philippines, the US and Vietnam and counts Twiggy Forrest as a substantial shareholder.
ASB recently announced NPAT loss for FY23 of $13.6 million, down from a profit of $79.6 million in FY22, stemming from provisioned losses on the US Towing, Salvage US Towing, Salvage (T-ATS) program.
Despite this EBIT loss, ASB says it has retained a strong financial and operational base, backed by a healthy balance sheet, to deliver an order book, worth up to $11.6 billion heading into FY2024.
“We are focused on getting the T-ATS construction program back on track while methodically building a diversified, sustainable, recurrent and earnings-accretive revenue stream via the support business, which sets us up very well for the medium to long-term,” ASB chief executive officer Patrick Gregg says.
Founded in 2014 and listed on the ASX in 2016, DRO offers cutting-edge artificial intelligence solutions designed to enhance counter unmanned aircraft system (C-UAS) defence (specifically drones).
The company says its advanced detection and counterdrone products are designed to bolster the security of a location and support security personnel in addressing the increasing and diverse range of UAS threats.
Professor of Anthropology at San José State University Roberto J. González says UAS are increasingly used in military conflicts.
He described a “hypermodern battleground where drones play a crucial role in surveillance, reconnaissance and combat missions”.
In its recent results DRO reported record contracts and rapidly growing cash receipts. Revenue was $11.5 million for H1 FY23, up 200% on pcp, while cash receipts were $15.3 million for H1 FY23, also up 200% on pcp.
DRN announce in July it had received a record $33 million order from a US Government agency, while NATO has added several of its products to a list of favoured weaponry.
The defence industry company operating as two distinct divisions – ballistics and technology. XTE’s Ballistics Division centres around its “HighCom Armor” brand and concentrates on creating, producing, and providing personal protection ballistic items to military, law enforcement, and first responder clients worldwide.
XTE’s advanced military technology branch delivers UAV and UGV solutions, detection and optical payloads, 3D mapping and modelling software, as well as tactical situation awareness software.
Among XTE’s clientele is the Australian Defence Force. XTE reported record revenue of $89.4 million in FY23, up 54% and record EBITDA of $10.9 million.
XTE says ongoing geopolitical instability in Eastern Europe and the South China Sea continues to generate global momentum and is prompting worldwide investments in defence.
“As a result, the outlook for international Defence suppliers remains positive,” XTE says.
XTE says the recent Australian Defence Strategic Review indicates preference for ‘Military-Off-The-Shelf capabilities positive for our Technology Division’.
“Internationally, our Ballistic Division’s growth potential is strong for foreseeable future, especially in the US, UK & EU,” XTE says.
3DA was established with the support of Monash University back in 2013 to take advantage of commercial opportunities identified by the Monash Centre for Additive Manufacturing (MCAM).
The company’s intellectual property has since expanded, leading to a new development plan that will see it become a global leader in titanium and specialty powder production and advanced manufacturing applications.
These products, and the intellectual property underlying them, will service the growing demands from across various sectors including defence for bespoke advanced metal powder solutions that enhance their manufacturing processes.
The metal powders will also be used across a wide range of technologies, including additive manufacturing, brazing, chemical, cutting and surface coating.
As part of this growth strategy, the company is developing a flagship titanium powder project in Tennessee, USA which will also house its research & development and corporate headquarters.
According to its website 3DA assists defence companies on various fronts including on-demand replacement for existing machinery, reduced manufacturing lead times, rapid prototyping, reduced component weights through innovative geometries and new patented materials along with stronger components with increased shear and tensile strength.
AML3D leverages an extensive knowledge of cutting-edge welding science, robotics automation, materials engineering, and proprietary software to create an automated 3D printing system operating in a freeform environment.
Its Wire Additive Manufacturing (WAM) process offers superior cost-efficiency and enhanced strength in comparison to conventional casting, forging, or billet machining techniques.
The company’s patented ARCEMY metal 3D printing technology is a point-of-need manufacturing solution, with a focus on industrial manufacturers in the US Defence, Marine and Aerospace industries.
AML3D is focusing on the US Defence sector and in particular the US Navy submarine industrial base and has secured lucrative contracts.
In August AL3 announced it had won a $2m contract to produce submarine parts for the US Navy, using its ARCEMY tech to manufacture parts that are no longer made by the original provider, solving a critical supply chain issue for the US Navy.
The company says the parts will use a nickel-aluminium-bronze alloy.
BIS produces different types of steel including armour plating for Australia’s ballistics, defence, naval, vehicles market and for overseas customers.
BIS says it’s Australia’s only processor of quenched and tempered high strength, abrasion resistant and armour grade alloyed steel plates.
BISALLOY ARMOUR steel is used to support Australia’s defence forces while BISALLOY PROTECTION steel has been designed to protect “life, valuables and property”.
“We provide steel for extreme conditions and environments and part of our business is defence and protection,” says managing director and CEO Rowan Melrose.
At Stockhead, we tell it like it is. While Iperion X and Quickstep Holdings are Stockhead advertisers, they did not sponsor this article.
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