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AeroVironment flying high
Defense Market Report
Exclusively for InvestorIdeas.com
By James Smith
February 20, 2007
Investors making a bet on the January initial public offering (IPO) of Monrovia, California-based AeroVironment have seen an almost 24 per cent gain on their money.
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The IPO included 4.54 million new shares, with the balance sold by existing shareholders. There is a greenshoe option for slightly over 1 million additional shares.
The Company plans to use net proceeds from the offering, which represents a 37 per cent stake in the company, for working capital and general corporate purposes, including research and development of new products, sales and marketing, acquisitions and other capital expenditures.
AeroVironment, a developer and manufacturer of small unmanned aircraft systems (drones) for the US military, launched an IPO of 6.7 million shares at US$17 per share – well above the expected range of US$14-16, through lead manager Goldman Sachs. Shares were trading at US$21.07 on the Nasdaq at close on 16 February. The Company also produces systems designed to eliminate battery changing for electric industrial vehicle fleets in factories, airports and distribution centers. Customers include Ford Motor Co and Southwest Airlines.
Both the military and commercial segments of AeroVironment’s business are in early development stage but offer significant upside potential. The unmanned aircraft product line appears attractive to investors as US defense forces move toward using smaller, more mobile equipment in the war against terrorism.
The Company has recently received major contracts from the US military to support operations in Iraq and Afghanistan.
The Company had a funded backlog of government contracts totaling US$64 million as of 28 October 2006 and an unfunded backlog of about US$492 million.
AeroVironment posted US$139.4 million in revenues for the fiscal year ending 30 April 2006 -- up 33 per cent against the previous year -- with net income of US$11.2 million. For the six months ending 28 October 2006, AeroVironment posted net income of US$6.3 million on revenues of US$76.7 million.
But the use of drones has far-reaching implications for military, homeland security and commercial applications, from patrolling US borders to monitoring activities at US seaports as well as such diverse activities as mapping and surveying, monitoring crowds and forest fires.
For example, under a pilot program in Arizona, the US Customs and Border Protection’s border patrol agents are using unmanned aircraft to curb illegal immigration and illegal activities. The Department of Homeland Security maintains that the drones have been successful in stopping the entry of illegal drugs from Mexico.
On the international front, AeroVironment unmanned aircraft have successfully completed sea trials for the Australian navy, which would use the drones to add surveillance capability to its patrol vessels.
Continued expansion into foreign markets is a key objective of the Company. Successful trials such as these with the Royal Australian Navy are early but important steps toward the realization of that strategy.
While lack of a diversified revenue stream has been cited as a disadvantage to investing in AeroVironment – over 80 per cent of the last fiscal year’s revenues emanated from government contracts – the US military now uses over 700 unmanned surveillance aircraft in the Iraq war, a jump from the dozen or so utilised by the US military before the war.
Although AeroVironment competes with a number of rivals, including prime contractors, the Company maintains that it is the sole provider of hand-launched unmanned flight systems.
The take-up of the AeroVironment IPO at a higher-than-expected price in the traditional slow period for IPOs should give some comfort to potential investors that the Company is on to something.
Disclaimer
James Smith is an independent columnist for this web site. James Smith may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment.
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www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article. James Smith is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.
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