AAC Clyde Space: Space Data as a Service - What is this game changer in the small satellite market?2021-07-13 15:27
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Space is the only place in the world that has not yet become commercial, but this is changing and as new technologies have developed, we are finally here. New Space is the name of the new commercialisation of space and Space Data as a Service is the big game changer! With a target price from Edison that in my opinion should be above 7SEK, AAC is very undervalued compared to industry peer Gomspace who don't even have a Space as a Service offering and have less order book.
In the past, it was a clear monopoly by various states because of the absurd cost of a previously limited technical capability, when satellites weighing several tonnes had to be built and their launches were extremely costly. Something that a commercial company could not demonstrate made economic sense.
This has changed drastically with the development of technology and what used to be possible on satellites weighing several tonnes can now be done on satellites weighing only a few kilos.
This means that the economic constraints have disappeared commercially and we are now seeing a commercial revolution in space where companies will dominate the sector in the future.
AAC Clyde Space is an international group consisting of the 5 merged companies ÅAC Microtec and Omnisys in Sweden, Clyde Space in Scotland, Hyperion in the Netherlands, Spacequest in the USA and operates in the so-called New Space sector.
The order book is currently at around SEK 335 million following the large order announced yesterday, 30 June, by Wyvern for SEK 100 million. xSPANCION project is not included in the order book.
This represents about 60% of the market capitalisation of about 560MSEK at the time of writing.
The most important market for space is of course the USA and through the acquisition of Spacequest, the AAC Clyde Space group now has an extremely important physical presence in the country with its own production facility where their small batch is "made in the US".
The company operates in the hottest part, the small sats market, providing subsystems for small satellites 1-100kg, doing missions and building finished satellites between 1-50kg and has by far the largest flight heritage where even subsystems and satellites accounted for 30-40% of all satellites in orbit.
The big game changer, however, is Space Data as a Service. And it is this that will generate the biggest revenues going forward with really good margins of at least 30-40% according to the company.
In comparison, the margins on missions and subsystems are about 10-15%.
We are now living in a period where some but not the masses are beginning to understand that oil is no longer the most valuable asset but information is.
The AAC Clyde Space group has understood this early on and has developed its Space Data as a Service offering to make it easier for companies that may not want or be able to put up the equity to launch their own satellites to access the information that space can provide in a much more seamless way by offering it as a service and charging for it as other SaaS providers in the tech industry do.
This means that it is no longer limited to one satellite constellation per customer, but that the information from a constellation of satellites can be sold to multiple customers or to individual customers with exclusive rights to the data.
Margins are thus increased somewhat enormously as the focus is on offering potential customers what they are actually looking for, i.e. the information that the satellites shoot down to earth.
Another interesting aspect from a strategic technical perspective for the Group is the recently acquired company Hyperion's excellence in laser communications.
In simple terms, this technology means that it will be possible to send information from satellites down to earth in an extremely much more efficient way via laser communications, and the more information that satellites create, the more efficiently it will need to be sent down to earth, especially as more satellites are launched.
So really interesting strategic acquisition of Hyperion and it will streamline Time to Value for the AAC group satellites and its information to be sent down but will also be needed in any other satellite projects that competitors will have in the future.
Another very interesting acquisition from a technical, strategic and commercial point of view is the acquisition of the Swedish company Omnisys Instruments which develops and manufactures measurement instruments for advanced space missions.
This acquired company has a very interesting technology as Omnisys develops sensors for, for example, weather data to create more reliable and accurate weather forecasts in a world where the climate is changing more drastically and faster than in the past. Thus, this data can also be sold to climate research.
The above are several interesting areas of AAC Clyde Space's planned growth in the area of Space as a Service where it sells data to end customers but operates and owns the satellites themselves.
Strategically, this acquisition of Omnisys means that AAC Clyde Space will be able to build the entire satellite together with the sensors streamlined and built into the satellite from the start, operate the satellite from their ground stations and it simply means that they have a complete offering in all aspects in this interesting area.
This is something that simplifies things for the customer as they don't have to build the sensors themselves but just place an order for the data that these satellites can send down to Earth.
Commercially, this paves the way for many different types of customers who have wanted to access this information but have not had the in-house expertise to develop the sensors themselves. This means that AAC Clyde Space has a good chance of selling this type of data to a wide range of customers in a wide range of industries.
Earlier in March, Omnisys was awarded a EUR 12.2 million (SEK 124 million) contract to supply microwave sensors for the ESA Artic Weather Satellite (AWS) project. AAC Clyde Space is the intended supplier of avionics systems for the same project. This is a pilot project to pave the way for an envisaged next phase for a constellation of 16 satellites.
As you can see above, Omnisys was awarded a contract of about 124MSEK by ESA and this is just the beginning of this pilot project. The next phase of 16 satellites would involve orders for much higher sums.
Space Data as a Service xSPANCION project
Returning to the Space Data as a Service concept again, let's take a look at the xSPANCION project which is a project where AAC Clyde Space will develop 10 satellites at a cost of 19.7MEUR, of which 9.9MEUR will be fully funded by ESA and the UK Space Agency and the remaining 9.8MEUR will be funded by AAC Clyde Space who at the time of writing are in negotiations with customers who wish to purchase the information from the satellites and thus the remaining costs of the project will be covered by the contracts that are concluded.
As I have written before, there is no limit to the number of customers to whom the information can be sold and this means that it will be possible to sell information to most customers for a value well in excess of EUR 19.7 million in order to achieve margins of at least 30-40%. Alternatively, you can also sell the information to an individual customer for a premium so that that customer is assured that only they have the rights to the data.
Also as I wrote before, the margins that the company itself has shared regarding Space Data as a Service are at least at 30-40% in a normal SDaaS project.
This means that if AAC sells information at a total value over the lifetime of the satellites of at least 30-40% margin on the 19.7MEUR cost of the project would normally mean a margin of 8.5-13.5MEUR. Thus it would need to sell information for 28.5-33.5MEUR to achieve the margins that the company itself has indicated are the minimum margins for SaaS.
Now, half of the project has already been funded by ESA & UK Space Agency, which means that the risks for this particular project are much lower than they will be in the future, given that AAC does not have to take all the funding itself.
I note that the UK Space Agency has through ESA signed a Public Private Partnership with AAC and how the revenues are shared I do not know but a standard is usually 50/50 when funding half each. But it may well be that AAC gets all the revenue but I leave that unsaid and we will find out more about this in the future.
Space Data as a Service is a game changer and when we look at the xSPANCION project where only 10 satellites are involved, it is easy to understand the sums involved when customers such as Orbcomm and SAAB in the future have objectives to want to get information from hundreds of satellites.
Space Data as a Service contract with Wyvern a game changer
AAC Clyde Space has entered into a contract worth approximately $100 million to provide high-resolution, multi-band, hyperspectral data from space to Canadian Earth observation company Wyvern Inc. over an initial four-year period, with a planned start in mid-2022.
Under the agreement, AAC Clyde Space will design, manufacture and own three 6U EPIC satellites equipped with a hyperspectral payload. Wyvern Inc. commits to subscribe to the data service for four years. After the first four years, the contract may be renewed on an annual basis. The first satellite is scheduled for launch in the first half of 2022, followed by two satellites scheduled for launch in the second half of 2022.
The satellites will deliver hyperspectral images, a method of capturing data from Earth across hundreds of bands, providing much more detail than the three colour bands captured by the human eye. Wyvern will initially offer the information to the agricultural sector, which can use it to optimise yields, detect invasive plants, diseases and changes in soil composition.
Luis Gomez CEO of AAC Clyde Space said:
"This is our largest Space Data as a Service agreement to date. I expect there will be many more, both large and small, as companies discover this cost-effective and convenient way to access data from space."
Extremely important for AAC Clyde Space to land the contract with Wyvern. It is the largest contract in the company's history and a Space as a Service contract which demonstrates to the market that SaaS is profitable and will generate large orders with really good margins of 30-40%.
AAC Clyde Space is the only one with Space Data as a Service among listed companies
Another interesting aspect is that AAC Clyde Space is unique in offering Space as a Service among other listed space companies such as competitor Gomspace which does not have such an offering and has smaller order backlog. Gomspace is strangely valued at more.
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