Thread by @hareng_rouge

$RADA makes small tactical military radars. The recent sell off hasn't made it cheap but it has begun to bring it closer to GARP territory

It's a rare pure-play on a theme that's perhaps not yet widely appreciated and is hard to access directly but you can see it in the numbers

Here's where it trades on a forward sales multiple against some of the big diversified defence majors - has lost much of the premium and now sits a little off the top end. Brits bottom of the pile.

Same group of majors but here on forward EBITDA multiples and towards the bottom end excluding the UK companies.

Finally, although not too useful as comps imo, here it is against Edison's set from when they covered it; essentially just "exciting" US defence related names - it's again at the bottom.

Uncorrected forecasts for all the companies above. RADA stacks up well against both in terms of growth rate and margin. Take them for what they're worth, it's only for a sense of scale.

Some headline financials, not much torturing needed.

$444M cap, $358M EV. T9M was 17% margin, Q3 20%. FY21 will be a little over $120M and the story is that over the period in the table, they've gone from being an ad-hoc supplier to more of an established OEM in mil programmes.

Here's why I'm interested - meet the Bayraktar TB2.

A brief, little noticed war between Armenia and Azerbaijan earlier this year was a watershed that changed the rules of the game completely. Azerbaijan fielded these Turkish made drones - Armenia shot one down and one crashed.

In return, the Bayraktar destroyed 147 pieces of Armenian artillery, 59 multiple rocket launcher systems, 22 SAMs, 6 radars and 184 vehicles. Below is the kill list for tanks alone, that in addition to 126 armoured fighting vehicles it took out.

Armenia may not be in the first division of militaries but they had a modern Russian-made integrated surface to air network and electronic warfare defence system. In the words of the Armenian PM, "it simply did not work".

Again, one can debate the quality of Russian systems vs Western systems but my point is more to show that legacy military assumptions in peer nations are not holding up against new, cheap and asymmetric threats. The pasting continues in Libya

uawire.org/23-russian-mad…

Here's that tank kill list again and an excuse for a snuff video - those that weren't taken out by the Bayraktar were hit by the Israeli-made Spike guided missile.

An Azeri video showing the Spike in action but it may as well be shot on Salisbury Plain. This is what old gen v new gen looks like

Even basketcases like Iran can manage impressive accuracy with drone attacks, here on a Saudi oil facility. Brent futures jumped by 20%, the most since the start of the first Gulf War

Militaries worldwide have noticed; the phones are ringing off the hook for Bayraktar drones and they're not too far behind at RADA - in a couple of this year's PRs announcing new business wins it's clear that responses to such threats as above are driving the interest

There's no need to inventory here what RADA produce but it's enough to say they're the little round things, tactical radars - attached to a vehicle or some kind of installation in order to spot the incoming drone or missile.

Customer base has been broadening out and the majority of the business here and in the near to medium term is from the US

The current performance in revenue growth is being driven by the first of the two major programmes below. Q3/21 call mentioned the second to "significantly affect our top line in 2023"

Further out will involve similar for the Netherlands and for a UK equivalent, called MIPS. A possible easter egg is a suggestion from Jane's that they may even be involved in the development of a mobile version of Iron Dome

gov.uk/government/new…

janes.com/defence-news/n…

RADA is small, Israeli and by no means has a monopoly on tactical radars but exposure to what I think is probably now a secular growth area in defence tends to be private, state owned or hidden in a major - this is rare way in. In any event, I think it's one to keep an eye on.