03-Dec-2020:  Taylor Collison: XTEK (XTE): Q1 FY21 – Profits look set to grow

No analyst named in the report.  The report was authorised by Mark Pittman of http://www.taylorcollison.com.au

• Recommendation: Outperform
• Market Capitalisation: $43.9m
• Valuation (DCF derived): $0.92/share
• Share price: $0.62
• 52 week low: $0.39
• 52 week high: $0.91

Q1 FY21 – Profits look set to grow

Our View

Retain Outperform. XTE has built a variety of business lines in the defence area including body armour (XTclave) and SUAS (small unmanned aerial systems – drones) both of which are now being monetised. A recent contract win in Europe combined with the purchase of HighCom in the US shows that XTE has the distribution network to win contracts globally. One or two major contract wins within the body armour space could be the catalyst for a company re-rating.

The current valuation is reasonable, the business is now profitable and large new markets are being opened in part due to past investment in body armour. Underlying demand for XTE’s products continues to be solid, driven by defence spending, which has proven resilient to economic cycles and in the current COVID-19 environment.

In order to continue to grow the business XTE is required to win defence contracts, which no doubt played a part in the recent appointment of Christopher Pyne, former Australian Defence Minister, to the board of directors.

Key Points

Encouragingly, XTE continues to release positive news:

Recent contract win(s), capital raising and trading update

• Appointment of strategic advisor to the board, Brigadier Mark Smethurst DSC, AM (Ret’d)
• Completed first international order from the Finnish army for $2m of XTclave plates via distributor/ballistic manufacturer CPE Production OY.
• Raised fresh equity of $9.2m with an SPP of up to $2m. This provides timely capital for XTE to fund growth initiatives.
• Received first commercial order for XTclave plates from Australian law enforcement via Australian distributor TOTE Australia.
• Expectation for recurring US ballistic sales of AU$14m p.a. based on HighCom network.
• Expected near term opportunities of AU$70m across ballistic, SUAS and other solutions.
• Installed XTclave body armour plant in Adelaide in February 2020.
• Small unmanned aerial systems business continues to perform well underpinned by spare parts and maintenance work. XTE recently received a fresh $2.8m in contract value for further new units.

Balance sheet and valuation

• XTE’s balance sheet had $3.6m in cash as at 31 July 2020 before the August 2020 capital raising, after gearing up the Adelaide plant and some working capital spending.
• We have a DCF derived valuation of 92 cents per share.

--- click on the link at the top for the full update/report from TC on XTE ---

20-August-2020:  Taylor Collison: XTEK (XTE): Initiating coverage – call to action

• Recommendation:  Outperform
• Valuation:  92 cps (DCF derived)
• Current Price (28-Aug-2020):  70 cps

Our View:

We initiate coverage with an Outperform rating. XTEK has been assiduously building a series of new business lines over many years – with long lead times particularly within the body armour (XTclave) business and SUAS (small Unmanned Aerial Systems (drones)) that are now being monetized. One or two major wins within the body armour space would materially re-rate the business.

The valuation is reasonable, the business is set to be profitable and large new markets are set to be opened via past investment in body armour. Underlying demand remains solid, driven by defence spending, which is resilient to economic cycles and COVID-19 concerns.

In 2019, XTEK bought Highcom, a US-based body amour value-added reseller/manufacturer of security and defence related protection equipment. Highcom is profitable and was bought for a reasonable price. This acquisition was well-timed in that Australian developed armour can be sold via the US channel.

Key Points

XTEK continues to release strong news: -

Recent contract win(s), capital raising and trading update

• Raised fresh equity of $9.2m with an SPP of up to $2m. This provides timely capital to fund growth initiatives for XTEK.
• Provided FY20 earning update that showed a good rebound in EBITDA in the 2H20 and some further detail around FY21.
• Received first commercial order for XTclave plates from Australian law enforcement via Australian distributor TOTE Australia.
• Installed XTclave body armour plant in Adelaide in February 2020.
• First international order from the Finnish army for $1m worth of XTclave plates via distributor/ballistic manufacturer CPE Production OY. CPE might be able to sell further XTE products into Europe countries. Since upsized to $2m.
• We believe that the probability of winning new armour orders is high.
• Small unmanned aerial systems business continues to perform well underpinned by spare parts and maintenance work. XTEK recently received a fresh $2.8m in contract value for further new units.

Balance sheet and valuation

• The balance sheet has $3.6 m in cash as at 31st July 2020 before the recent capital raising, after gearing up the Adelaide plant and some working capital spending.
• We have a DCF derived valuation of 92 cents per share.

Risk factors

• Risks may include loss of material distributorships, technical problems with the body armour range, dependence of Australian Defence Department spending, and competition from major foreign players.

--- click on the link at the top for the full report from Taylor Collison ---

This is not the type of company I would invest in, but I have included this straw for the benefit of others who it might suit.