The Orbital Corporation Ltd. (ASX: OEC) share price leapt up by 19.25% on Friday. This was a due to a visit from the Minister for Defence, the Hon Linda Reynolds, reminding the market that Orbital is already an accomplished defence contractor. The company was founded by Ralph Sarich, inventor of the orbital engine. Until recently, the company has been a lacklustre performer on the ASX.
However, today the company is active in a range of areas. For instance, they are the world leader in the design and manufacture of propulsion systems and flight critical components for tactical unmanned aerial vehicles (UAVs). In addition, the company has a long-term agreement with Insitu Inc. (a Boeing Company) to supply engines across its entire fleet of military drones. At present, this encompasses three different models.
What moved the Orbital share price?
The Minister for Defence toured the company’s headquarters in Balcatta, Perth on Thursday 16 July. Moreover, this visit comes two weeks after the launch of the Australian Government’s 2020 Defence Strategic Update and 2020 Force Structure Plan. This plan includes potential investment of up to $700 million in tactical UAVs over the next decade as well as up to $1.3 billion in Maritime Uncrewed Aerial Systems between 2020 and 2040.
Orbital currently has contracts with some of the world’s largest Defence Prime Contractors, including Boeing subsidiary Insitu Inc., Textron Systems, and a recently announced contract with Northrop Grumman. For Northrop Grumman, Orbital has been tasked to design and develop a hybrid propulsion system. This will combine an electric motor with the company’s flight-proven engine.
Management commentary
“The announcements made within the 2020 Force Structure Plan highlight the increased relevance and strategic importance of tactical UAVs in Australia and mirrors the global growth that we have witnessed in this market in recent years,” said Todd Alder, CEO and Managing Director of Orbital UAV.
Orbital company performance
The company is on track to achieve FY20 revenue guidance of $25-$35 million and full-year profitability despite the interruptions caused by the coronavirus lockdowns. The Orbital share price has risen by approximately 234% in year to date trading. It has a market capitalisation of $98.5 million and does not pay a dividend.
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Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Orbital Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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