Special Report: After a big year which saw its stock price triple, Orbital is focused on more global opportunities in the year ahead.

With a client base of leading global defence companies, advanced aerospace manufacturer Orbital UAV (ASX:OEC) is positioned for further growth in 2021.

Speaking with Stockhead on the year that was, CEO Todd Alder said 2020 marked the point at which years of groundwork paid dividends in the form of some marquee global contracts.

As a sector, defence is typically more resilient to major external shocks such as COVID-19 which meant OEC avoided the worst of the selloff.

And since March, the stock has risen from around 40c to well over $1 as investors assess the company’s capacity for growth as a supplier of proprietary engine technology for unmanned aerial vehicles (UAVs).

 

Global defence clients

OEC’s cornerstone customer is Insitu Inc., a subsidiary of global aerospace giant Boeing where Orbital has a long-term contract to get five different engine models into production.

“From the time we started working with Insitu in 2013, it’s been a journey to build that partnership and that confidence in our products,” Alder said.

“You need to be able to consistently demonstrate performance and reliability. It’s one thing to get that with our customers, but it’s another to get it with the end user in the field, i.e., US defence.”

“The 2020 financial year was when that happened for us and that’s really given us a boost into FY21.”

Alder highlighted that once OEC passed the end-user test with Insitu, feedback and enquiries started coming through from other big defence names.

Consequently, 2020 also saw the company book additional contracts with $US50bn aerospace company Northrop Grumman, as well as a confidential defence client in Singapore.

 

Looking ahead

For Alder, it’s not surprising that other defence companies came calling after the initial Insitu UAV rollout.

“Having overcome those initial high barriers to entry within defence, we are now exploring further opportunities. There’s positive noise in the industry around our engines and technology and, within defence, that reputation quickly builds among the prime contractors,” he said.

“Our current success is giving us a springboard to talk to more defence primes in the sector.”

Alder said that as Orbital builds out its client base, it’s also getting the opportunity to expand its knowledge base and intellectual property to meet a key area of need for major defence clients.

For example, the engine it’s developing with Northrop Grumman is a hybrid model that will be unique in the marketplace.

“It will still have our patented two-stroke fuel injection technology. But it will also have the additional element of the battery power, with the capacity for vertical takeoffs and landings,” Alder said.

“Obviously they’ve got a lot of resources and technology we can leverage. So it’s beneficial for us to develop some of that new tech and integration work jointly, with potential patent opportunities down the road.”

For now, Orbital is primarily focused on meeting the requirements of its long-term Insitu contract, where it has two production lines underway with a third one in development.

And as 2020 draws to a close, the Perth-based company is looking to capitalise on a growing global market opportunity.

Along with the opening of its US manufacturing base, Alder said OEC is also eyeing off potential opportunities in Europe.

“In terms of quality and capability, we know companies are very keen to work with Australian organisations,” he said.

“So it all combines to put forward a compelling argument for why you’d want to be working with a company like Orbital.”

“We’ve got our existing client base, but we think we can look further afield and continue to penetrate more global markets in the year ahead.”

Watch Orbital’s latest investor presentation here.

This article was developed in collaboration with Orbital UAV, 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.

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