Send your portfolio to the Moon

I had a fascinating space investment conversation (podcast) yesterday with Dr Andrew Barton, an engineer specialising in space technologies with a long career in both Australia and internationally.

For me, what is incredible is the pace of cost reductions being seen in the sector. Elon Musk’s SpaceX has brought the cost of launching equipment into space down by a factor of ten. And there is a realistic roadmap to bringing it down by another factor of ten.

These changes matter. Twenty years ago, solar power was a novelty. Bring solar costs down by a factor of ten, and suddenly it is transforming the energy sector. The question is, what sectors could be affected by a similar change? What emerging trends should we be watching today.

Note that prices are now low enough that space investment is no longer the exclusive domain of governments.

Some of the key points to listen in for:

  • Telecommunication companies should be on the lookout. The Starlink (SpaceX) network is gunning for your remote customers right now. It has plans for your gamers and international video/phone calls. Others are building similar networks, most notably Amazon, which is a long way behind but has big plans. 
  • Mapping, GPS and weather analysis services are all going private.
  • Space tourists are headlined by Jeff Bezos and Richard Branson. For me, tourism still seems a novelty for a long time. Andrew pointed out that tourism is going to be expensive for a while; the skills to launch inanimate things into orbit are not the same as the sub-orbital paths for billionaires.
  • There are a host of ancillary services, from refuelling to object mapping to clean-up to ultra-light materials. To re-iterate, the entry of private players and the drop in costs mean there is scope for a range of new services. 
  • The Sputnik launch in the late 1950s kicked off a US/Russia space race with incredible amounts of money spent in the sector. Andrew discusses what China is working on, and we speculate what might spark a similar race in the 2020s. 
  • We touched on space manufacturing. Some high-value items look like being worth manufacturing in space rather than on Earth. But it is very early days. 
  • Moon mining is more likely than asteroid mining in the short term. But it is expected to be for water, fuel and materials to build structures in space. Not to send materials back to Earth.
  • Asteroid mining has delivered the corpses of a few companies already. There will undoubtedly be more, as with any new technology. We talk about the rough economics and how long until mining is a reasonable proposition. It is mostly about weight. Gold and platinum at $30-60 million per ton will be profitable long before iron ore at $150 per ton.

 

Getting Exposure

How can you get exposure? Many of the larger US defence contractors (Boeing, Northrop Grumman, Lockheed Martin) have space divisions. But, space investment is only a part of a very large company. And, they are often not working on some of the cutting edge technology.

There is a space-focussed US-listed ETF (ticker: UFO) whose holding list might make a good place to start for investors looking for stocks:

space companies

Cathy Wood/Ark also has an ETF.

If you are looking for Australian stocks, then be prepared for some red ink on your P&L. Electro Optic Systems (EOS) is the biggest of the crew; Brainchip (BRN), Xtek (XTE) and Kleos Space (KSS) round it out. Keep in mind these are small companies where you need to be comfortable with the product and see a path to profitability.

The profitability of the smaller companies is often dramatically worse than the government-backed defence contractors. It is not the same type of investment. Don’t buy a dream! Make sure that you can see a path to genuine profitability. If there is another space race, you can expect most defence contractors to benefit. That will not be the case for smaller stocks.   

Space Investment Wrap up

The net effect is that the sector is undergoing step changes in terms of costs and the entry of private companies. Plus, it is an interesting hedge on the continued souring of US/China relations. If the space sector isn’t at least on your radar, it should be.  

 


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Damien Klassen is Head of Investments at the Macrobusiness Fund, which is powered by Nucleus Wealth.

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The information on this blog contains general information and does not take into account your personal objectives, financial situation or needs. Past performance is not an indication of future performance. Damien Klassen is an authorised representative of Nucleus Wealth Management, a Corporate Authorised Representative of Nucleus Advice Pty Ltd – AFSL 515796.

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Comments

  1. Space mining will be most useful in building space stations in space.

    Of course, you still have to throw a shitload of fuel at the problem to get the raw materials into an earth orbit, so it’s entirely possible it’s still cheaper to just launch it from earth – especially since most of the asteroids are beyond Mars. It will take many, many years before the first payload.

    The up side is that once it’s started, a decade or so down the line, the supply chain as it were could take years from A to B but still arrive every week.

    Latency matters a lot until the industry is established. I’d guess a minimum of 5 years between the first extraction and first delivery. That’s a long time for a company to survive without an income. So if it happens, it’ll be an existing megacorp.

  2. UpperWestsideMEMBER

    I am a space nut., as I sit in my office ( just home from seeing King Crimson perform at the Beacon ) I realize I am wearing a mission shirt (I think its STS-131 the last night launch which I took the wife and kids to ( it was her birthday).

    Interestingly I don’t have any of the space stocks you listed.

    I have been a past investor in SPCE , Virgin Galactic Holdings, bought for a giggle (coz well space) and sold when it was seriously over priced.

    I hold ASTR, another giggle stock , but I did no homework just heard there is a new space stock so I bought a chuckle quantity only to discover it was a pre closing SPAC, ARGGGH! a SPAC!. I single handedly ( well with help from my legal team) blew up most of the GCF era SPAC’s after I inherited a 10 digit book of them at 30 cents on the dollar ( very long story, another time) and I mistakenly bought a SPAC at more than NAV – just shoot me.

    I bought SPIRE Global when it went public, then took profit and flipped into theSPIRE warrants ( leverage ), sadly someone else figured out how cheap they were and drove them up. I should disclose that Spires CEO and Founder is Peter Platzer, was in a prop group that I may or may not have been manager of in a past life. I bought coz, space and Peter!.

    I also bought a wry smile quantity of Rocket Lab coz well space and Kiwi’s. Sadly Harry Hindsight would have loaded up biggly, instead I have a wry smile at an awesome short term trading return on small size.

    Interested in hearing of any new startups in the space.

    • As for local “space” investment ideas I like a local Robotic Arm company called Blueprint labs
      https://blueprintlab.com/
      It’s not an “outer space” company, it’s more of an inner space, Underwater company
      Still if this is the sort of investment you like then it’s worth keeping an eye on.
      There’s a huge opportunity in cheaper Underwater repair and inspection platforms to service offshore Wind generators.
      All these offshore Wind turbines need to be serviced semi regularly and the existing systems are very expensive (and overkill) because they were all developed / targetted at oil rigs out in the middle of the ocean but this application is near shore and does not require such deep dive / operation capabilities.
      Cheaper automated underwater robotics is definitely a growth area and Blueprintlabs has a good product however, It remains to be seen if they can turn this opportunity into a viable business.

  3. Worth mentioning that today’s “space race” is in reality a sort of Real estate race because apart from cost the most important business parameter is Location. As it turns out there’s a limited number of really good spots to “park” an array of satellites that you launch. Once the good locations are gone what’s left is a whole lot less desirable. Today’s game plan is get there cheaply (by all means) but equally important is get there first.
    Look at all the bad press that SpaceX’s recently launched satellites are getting for ruining ground based astronomy, but while there’s no rule against it Elon is going for it. Come along with the same idea in 10 years and there will be international agreement that you shouldn’t do it and rules that make it practically impossible. And btw SpaceX will already have their assets parked in these valuable orbit locations.

  4. Kleos Space is pretty interesting. A number of analysts have discussed it recently. Highly speculative at the moment but they have launched a number of satellites for the purposes of space-powered radio frequency reconnaissance. The data collected is currently used for border control including protecting against piracy, drug and people smuggling and illegal fishing. Military applications are also under investigation.
    https://kleos.space/

  5. I'll have anotherMEMBER

    Garmin and Trimble I have held and am familiar with.

    I think Trimbles key growth products are more in terrestrial mapping, especially in the form of robotics.

    Think robotic surveying total stations, but with 4 legs that allow it to walk from job to job, will eliminate much of the staff requirements for surveyors on sites, as robotic total stations without the automaton legs have already eliminated the role of chainman (the surveyors assistant).

    Their machine guidance, which has also eliminated many on site survey requirements, is the best in industry.

    They really do well in the software arena, with products such as Trimble business centre (a very popular choice for civil and surveying computations) and SketchUp, a 3d bim application.

    For a different choice, consider Topcon, which operates in the same market. They have a cheaper price point and inferior quality instrumentation, but are also popular. Personally I find them hard to deal with and I think in the longer term Trimble and Leica will take much of their market share, at least in Australia, because of this.

    That brings us to the other world leader in Geospatial, and my personal favourite, Leica Geosystems.

    The same Leica that makes the high end cameras also makes mapping technology. And it’s very good too. Quality on par with Trimble, Leica used to be the benchmark however. The leading curve is a bit steeper and generally only see surveyors going for their tech, contractors seem to avoid them due to either the price point (on par with Trimble) or the lack the f experience with their products. Trimble had / has an arrangement with caterpillar to have their guidance installed directly on the machine at the purchase point, meaning many of these systems are out there for Trimble. Leica, outside of niche survey software, is not as invested I to the software game.

    They had some advantage in Lidar scanning tech but competitors are catching them fast at this point.

    All 3 have failed to provide in the UAV sector a good, affordable product that can compete with anything from Chinese drone manufacturer DJI.

    My personal pick for geospatial? Hexagon (Hexagon (Nasdaq Stockholm: HEXA B) has approximately 21,000 employees in 50 countries and net sales of approximately 3.8bn EUR.)

    They control most of the Continuously Operating Reference Stations (CORS) the world over.

    I cannot think of a company set to gain advantage of the idea of “location as a service” more than these guys.

    The idea behind where applied geomatics is going, is positional based data will in the near future be considered a utility, similar to your power, internet and water. There will be cm level accuracy at your finger tips.

    To achieve these accuracies, the type of technology (and more importantly, know-how) that Hexagon possess is crucial.

    I don’t own any Hexagon, but I think I will get some at some point soon. Many upcoming catylists, including market dominance and heaps of areas they are still opening up into with heaps of new subscribers to capture.

    It ain’t cheap for the subscription either. I pay $3k / annum for the network corrections and consider it vital to my operations.

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