How investors can back the space race after Virgin Orbit’s crash

Shares in Sir Richard Branson’s Nasdaq-listed Virgin Orbit came crashing down to earth last week as it was forced to file for chapter 11 bankruptcy.

The dramatic collapse came after it was unable to secure long-term funding following the January failure of Virgin Orbit’s LauncherOne rocket out of one of Britain’s new spaceports in Cornwall.

Virgin Orbit had high ambitions to launch the UK into the global space economy, marking the country’s first launch of this kind and making the group one of just nine companies able to launch a satellite into orbit.

A repurposed Boeing 747 carrying Virgin Orbit’s LauncherOne which failed its first ever satellite mission in January. 

Fueling the ambitions of both investors and the UK Government, Morgan Stanley analysts estimate the global space industry will be worth $1trillion (£800million) by 2040.  

The global space economy grew by 9 per cent in 2021 and is now estimated to be worth $489billion, according to US non-profit the Space Foundation.

But many are wondering what the future of the UK space race is now, while some oinvestors may be wondering how to build exposure to the sector without risking it all on one company.

While UK equity markets are bereft of companies of this kind, with many still in private hands and others primarily listed on US exchanges like the Nasdaq, Britain’s investment trust sector offers opportunity.  

Seraphim Space Investment Trust is the world’s first listed SpaceTech investment company. It invests in an international portfolio of predominately early and growth stage unquoted SpaceTech businesses. 

But it actively avoids investment in launch companies. 

Seraphim Space CEO Mark Boggett said this is because there are already more then 150 launch companies with the majority market share (Space X), ‘so it just doesn’t fit our particular investment model.’

However, Seraphim has identified  a potential market disrupter in launch technology – Aigura Space – a company which is developing a kinetic launch system to cheaply launch satellites with rapid response. 

One of Seraphim’s top 10 holdings is Arqit which has emerged as the biggest creditor in Virgin Orbit. 

Mark Boggett, Seraphim’s chief executive officer says the company’s standout holding is ICEYE – the world’s largest constellation of small radar satellites. It provides actionable information on every square meter of earth every few hours.

Seraphim recently released details of its other holdings in its newsletter, SpaceTech.   

QuadSat, an automated testing and diagnostics solution for antenna/satellite calibration, has secured €9million (£7.9million) in funding. This will be used to expand a business that uses drones as stand-ins for satellites. 

Another portfolio company – AST – raised $104million net equity in Q4 and has cash reserves of £239million as at 31 December 2022. AST is the operator of the world’s first and only satellite which provides space-based cellular broadband.

Unfortunately for investors, Seraphim has not been immune to the volatility experienced in tech stocks and wider market. 

Last October, in its full-year results Seraphim recorded a £4.3million revenue loss after tax in its first year and said it didn’t anticipate recommending a dividend in the foreseeable future.

And while figures from the Association of Investment Companies (AIC) at the time showed Seraphim’s net asset value – the total worth of its investments – hadedged up 1 per cent, the share price had dived 51 per cent. 

On 13 April 2023, Seraphim’s net asset value was down 10.8 per cent over one year, but its share price had fallen 64.8 per cent.

Seraphim shares trade at a 60.1 per cent discount to NAV, which may sound tempting to bargain hunters but they must be aware that this deep discount indicates that the market has a very negative view on the prospects for those assets.

Experts regularly remind investors that a niche and volatile investment should only be a small part of a portfolio. This means that some prefer to gain exposure to themes such as space through broader funds or trusts. For example, popular global trust Scottish Mortgage invests a small part of its portfolio in SpaceX and Relativity.

Space industry creating UK jobs

The latest Size & Health of the UK Space Industry Report 2022 by the UK Space Agency indicates that the UK space industry grew income by more than £1billion last year.

Almost 1,800 jobs and 300 companies in the 2020/21 financial year were created despite the Covid-19 pandemic, outstripping the growth of the space sector globally.

Despite the global disruption caused by the pandemic, UK space organisations presented a robust picture, generating income of £17.5billion in 2020/21, compared to £16.5billion the previous year.

This is equivalent to 5.1 per cent growth, whilst the general UK economy, contracted by 7.6 per cent.

Secretary of State for Science, Innovation and Technology, Michelle Donelan, said: ‘With the global space economy expanding rapidly, investing in UK our space capabilities can unlock new opportunities, bringing more jobs, skills and businesses to the UK. 

‘The Government is committed to supporting this high-growth sector, boosting the UK’s reputation as a growing space power, and inspiring the next generation of professionals.’

This post first appeared on Dailymail.co.uk