Quickstep Set For Take Off

This story features QUICKSTEP HOLDINGS LIMITED. For more info SHARE ANALYSIS: QHL

– Strike fighter demand set to surge
– Further opportunities to be exploited
– Cashed up and ready

By Greg Peel

FNArena first introduced readers to Quickstep Holdings ((QHL)) back in 2009 and last updated the company’s outlook in May, 2013 [Quickstep, And The New Frontier Of Composites]. The company was originally based in Fremantle but has since relocated to Bankstown in Sydney.

Quickstep fabricates carbon fibre composite panels via a proprietary rapid-cure system and supplies the aero, defence and automotive industries. The company’s longstanding customer, offering significant potential, is Northrop Grumann/BAE Systems, manufacturer of the F-35 Joint Strike Fighter military jet. Back in 2013, the JSF program was under a cloud of US defence cutbacks. Several countries were nevertheless ready to place orders for the jet.

Fast forward to today, and WA stockbroker State One suggests JSF parts production is set to take off on the back of a tripling of demand over the next four years. The broker forecasts 55% compound annual growth in demand between FY15 and FY19, resulting in a revenue increase for Quickstep to $123m in FY19 from $40m in FY15. Forecast earnings rise to $19m from breakeven.

Aside from the JSF, Quickstep also fabricates parts for Lockheed Martin’s C-130J military transport aircraft and has recently won its first automotive contract, for the fabrication of parts for the Australian army’s Hawkei military vehicle. The company is also targeting the commercial vehicle market and is in the process of expanding its Geelong production facility.

All of which costs money. To that end, Quickstep recently raised $22m in new capital, some of which will be used to pay down debt. The balance will be used to develop new business opportunities in the military and commercial aerospace and automotive industries, and to accelerate the development and commercialisation of in-house technologies.

With a recapitalised balance sheet, State One believes Quickstep is well positioned to take advantage of an “exciting” 4-5 year growth path. The broker rates the stock Buy (High Risk) and has set a 28c target. That target assumes an FY17 average Aussie dollar exchange rate of US80c from FY17 (Quickstep sales are in USD). That target would rise to 38c if US70c were assumed.

State One further notes it has not factored in any “blue sky” potential in that valuation. Quickstep is actively targeting the commercial light aircraft, unmanned aircraft (drones) and sports aircraft markets in the US, Europe and Asia (including China). Further opportunities also lie with existing relationships, given, for example, the Australian government has expressed interest in Northrop Grumann’s Triton military drone.

Moelis & Company is another stockbroker interested in Quickstep’s post capital raising growth trajectory. The broker has initiated coverage of the stock with a Buy rating and 21c target, representing 31% total shareholder return over the next twelve months (on an Aussie of US72c).

Moelis believes Quickstep is now at a turning point, with sufficient capital to fund growth capex and fulfil its existing order book volumes (A$130m firm over the next three years) and to further commercialise the company’s proprietary carbon fibre curing process. The medium term risk/reward outlook for investors is favourable, the broker suggests, notwithstanding execution risk.

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