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Rocket Lab’s Colin Canfield on the Space Investment Case

Colin Canfield, Investor Relations Manager at Rocket Lab, joins OPTO Sessions to discuss the space industry’s trajectory, including its potential for sustained growth. Canfield emphasises the value potential in space missions despite the high upfront costs.

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As Rocket Lab [RKLB] gears up for the next flight of its Electron small-scale launch vehicle — its 42nd launch to date — OPTO spoke with the firm’s Investor Relations Manager, Colin Canfield.

Canfield serves as the primary liaison between the company and the investment community. He is a key advisor to the leadership team and the lead on all investor relations initiatives.

Rocket Lab is an end-to-end space company. It handles launch services and space systems, with one-third of its revenue coming from the former, and two-thirds from the latter.

Space systems includes subcomponents such as solar reaction wheels, star trackers and software, but also full-scale satellite manufacturing. “We’re really proud of where we’ve taken that business over the last two years and where we can take it going forwards,” Canfield told OPTO.

Before he joined Rocket Lab, Canfield was an analyst on the institutional investors’ aerospace and defence team at Barclays, and worked in equity research and aerospace and defence at Citi. He graduated from Marquette University with a bachelor’s in business administration.

A Structural Growth Perspective

When considering Rocket Lab and the broader space industry, particularly in comparison to other investment categories, the higher multiple associated with space ventures implies a longer-term asset perspective. Moreover, factors such as interest rate sensitivity have influenced valuations.

While the original fundamentals of the space economy may have been based in the “lower for longer” rate environment of the mid-2010s, the sector is still a promising arena to catch potential shifts in the market. Even in tighter market conditions, the sector is driving value through areas in which it is at the forefront of innovation.

“At the end of the day, it’s really about labour supply. You have to have the right equity story — a pure-play, space growth cash engine — to attract the right talent and keep them on board.”

“Within that kind of environment, space can be a great aperture for driving structural growth trends. If you think about what that entails — people getting more communications, better intelligence, driving business effects — there’s a lot of opportunity to drive value,” says Canfield.

While the upfront costs may deter some, there is significant potential to create value. “The manufacturing domain requires a lot more upfront capital than people are comfortable with,” he explains. “But once you have that upfront capital in place, which we’ve already raised and are deploying very efficiently, then you can generate really healthy margins on the back of it. This stems from not just the value-add nature of the work, but the moat that comes with generating these businesses.”

Potential for Consolidation

Quasi-governmental entities are set to continue to dominate the heavy and medium launch domains, while consolidation is likely on the commercial side of the business. This trend could be contingent on the willingness of billionaires to fund such endeavours, with Canfield pointing to Elon Musk’s SpaceX and Jeff Bezos’ Blue Origin as key examples.

“There are other players out there that have limited launch heritage. I would argue that if they don’t have a vehicle that’s operational today, it’s going to be very difficult for them to seize on the looming satellite demand,” he says, noting that in a capital-constrained environment, the success of space missions depends on “mission assurance” — the overarching engineering process to identify and mitigate challenges to the success of a mission.

“This is definitely a long-term play. It’s a structural grower — you’re playing for something that can become almost commercial over a 10- to 20-year period.”

Shifting focus to other aspects of the space economy, such as satellite manufacturing, presents a more complex scenario. Many large satellite manufacturing components are integrated in defence and aerospace entities, making consolidation a long-term process.

“At the end of the day, it’s really about labour supply. You have to have the right equity story — a pure-play, space growth cash engine — to attract the right talent and keep them on board.”

With government budgets typically set for a period of five to seven years, investors can gain insight by connecting public funding figures to the scale of growth of companies within the arena. Nevertheless, Canfield emphasises that returns aren’t to be expected overnight.

“This is definitely a long-term play. It’s a structural grower — you’re playing for something that can become almost commercial over a 10- to 20-year period.”

Rocket Lab’s Ongoing Growth Journey

Rocket Lab listed on the Nasdaq in 2020, but Canfield still considers it an early-stage company.

“There’s a large wallet of addressable government opportunities between commercial, civil and defence. There’s going to be a good opportunity to take share because we’re commercially developed. Because we take on fixed-price exposure contracts, we can come in and add pressure to the pre-existing base.”

Rocket Lab, which has delivered 177 satellites into orbit to date, will send ‘The Moon God Awakens’ spacecraft into orbit for Japanese start-up iQPS this month. It will be the first launch since September, when a short in a battery pack led to the loss of a mission payload during launch. In a November press release, CEO Peter Beck attributed the failure to “a highly complex set of conditions”.

“We feel really good about getting that fix behind us,” Canfield says, noting that there were about 20 successful launches between the September failure and the previous “anomaly”. “We definitely view Electron as a hardened platform.”

Reflecting on the challenges of 2023, he is confident that risks will be more effectively mitigated in 2024. While Rocket Lab hasn’t posted any hard targets for 2024 launches, it currently has the capability to execute 22 missions next year.

Revenue Growth and Future Prospects

In the third quarter (Q3) of 2023 Rocket Lab’s revenue rose 7% year-on-year to $67.6m, in line with analysts’ expectations. However, “there’s still some work to be done”, says Canfield. This will involve further clarification on launch cadence, pricing dynamics and the landscape of satellite manufacturing.

To this end, Rocket Lab’s space systems unit — which contributed the majority of revenue, or $46.3m — will be key to the company’s growth in 2024. In Q1 2024, Rocket Lab is scheduled to deliver the first of 17 spacecraft buses under a $143m contract with Canada-based space mission firm MDA [MDA.TO], for the manufacture of spacecraft that will deliver Globalstar’s [GSAT] Low Earth Orbit satellites.

“With respect to the rest of the business and how we think about Globalstar, it should serve as a foundational piece, whereby if we can provide the best cost and schedule — and we have the talent that we think we do with respect to satellite design and operations — we should be able to lean into doing more stuff like Globalstar over time,” says Canfield.

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