HRouge Profile picture
Dec 22, 2021 19 tweets 8 min read Read on X
$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.

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More from @hareng_rouge

Nov 12, 2021
Naive view but I think Hunting #HTG may be on its way back to Covid lows because it's orphaned on the wrong market and there's an information disconnect - if so, my guess is that it's pretty oversold here. Image
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Three year chart to around May 2021: HTG in green vs several US oil services ETFs - as you can see, they trade in lockstep. Image
Same chart but on a 2021 YTD basis and it starts diverging somewhere around mid summer. Image
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Nov 9, 2021
IG Design #IGR was a ten bagger in the 5 years leading up to Covid. An update a fortnight ago dropped the shares by half and erased all the gains in the most recent five years. Knife catching and broken growth this soon is almost always a mistake but IG may be an exception here. ImageImageImage
My basic premise with it is that the accounts are a complicated nightmare (CTRL+f for "adjust" is 232 hits in the last FY report) but most immediately, that this is right now a gross margin story - I think there are grounds to at least consider whether IG can be given a pass here
Unfortunately, it does mean walking through it so grab a.. (just no) so anyway, here's the rough idea: Pre-covid in white, M&A growth darling, 20% gross margins. Forget the op margin for now - I'm stripping out the adjustments that made adjusted whatever go up and to the right Image
Read 20 tweets
Oct 5, 2021
Saw a one-line tweet the other day mentioning McColls #MCLS as one of 2 highest conviction names.

I think I see why: there's a metamorphosis happening underneath and reasonable path to PE and FCF multiples between 2-3 plus a growth narrative, all under that lovely grim exterior
Story is that they're shrinking. 1500+ stores 2 years back, to 1050 by the end of FY21

Also changing: culling small newsagent shops to focus towards larger, more profitable grocery-heavy stores. So far, so worthy - but the real interest is the transformation into Morrisons Daily
Company raised recently to accelerate a programme converting 350 stores into these Mini Morrisons. They're at 56 today, will be 350 by end FY22

Cost is £90K per shop, what they call "cash payback" is 2-3 years and so far they're providing pretty immediate LFL sales growth of 25%
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Sep 23, 2021
What does Sneller see to get such sudden FOMO for the old zombie that is Iofina #IOF? If you recall the name, it should produce revulsion but a few things have changed and there's a chance it may be about to make some money. ImageImage
IOF produces Iodine in the US via O&G brine. Iodine is a beneficiary of industrial recovery generally and covid specifically - the largest use is used as x-ray contrast which may benefit demand from catch up on delayed hospital treatment.

And because it's 2021, inevitably: Image
Production is trapped on the wrong side of the Pacific: the two major production centres are Japan and Chile - so you have the obvious logistics issues for both and potentially politics for the latter.
Read 12 tweets
Aug 20, 2021
I think it's worth revisiting Aquis #AQX here in light of a couple of data points that have since come out.

There are three main parts to the co: a stock exchange (AQSE); a tech licencing biz and their multilateral trading facility (AQXE) - it's this last one I want to look at.
First is the RNS from earlier this month announcing their MTF (investopedia.com/terms/m/multil…) had achieved 6.2% market share. Across the €53.6B traded on AQXE in July, this came out to €1.7B a day.

Those 6.2% and €1.7B are quite significant numbers and I'll come back to them later Image
In the period since the beginning of 2018 market share has risen from 1.72% to that 6.2% above. Here's how that value traded looks. Image
Read 15 tweets
Jun 10, 2021
Someone else has also since mentioned $JAKK to me - it's a (shitco) toy maker, similar to Character Group #CCT in the UK. CC's tweet mentions the refi, he has a point - I think there may be something here to play for, perhaps towards a double or so before the end of the year.
Company has cash of $80M + new debt of $99M (pink) repays difference on prior debt of $129M with cash on hand (green) so $50M cash + debt $99M

6,395 shares at $10.6, converts at $5.65 (purple) into $18.9M (blue) so + 3,345 shares = 9,740 / $103 cap & $20M prefs (grey) $172M EV
As you can see it's highly seasonal into Q3. Mgmt mentioned in the last (Q1) call that inventories are low. Typically they would be about $20M higher than here in Q2, so if we penalise the cash in the EV by that amount to account for inventory build we're at $192M
Read 12 tweets

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