How investors can back the space race after Virgin Orbit’s crash

Shares in Sir Richard Branson’s Nasdaq-listed Virgin Orbit collapsed last week when it was forced to file for Chapter 11 bankruptcy.

The dramatic collapse came after it was unable to secure long-term funding following the failure of Virgin Orbit’s LauncherOne rocket in January from one of Britain’s new spaceports in Cornwall.

Virgin Orbit had lofty ambitions to launch the UK into the global space economy, marking the country’s first launch and making the group one of only nine companies capable of launching a satellite into orbit.

To fuel the ambitions of both investors and the UK government, Morgan Stanley analysts estimate that the global space industry will be worth $1 trillion (£800 million) by 2040.

The global space economy grew 9 percent in 2021 and is now valued at $489 billion, according to the US nonprofit Space Foundation.

But many are wondering what the future of the UK’s space race is now, while some investors may be wondering how to build exposure to the sector without risking it all on one company.

While the UK stock markets are devoid of these types of companies, many of which are still privately owned and others primarily listed on US exchanges such as the Nasdaq, the UK’s investment trust sector offers opportunity.

Seraphim Space Investment Trust is the world’s first publicly traded SpaceTech investment company. It invests in an international portfolio of primarily privately held SpaceTech companies in early stage and growth stages.

But it actively avoids investing in launch companies.

Mark Boggett, CEO of Seraphim Space, said this is because there are already over 150 launch companies with the largest market share (Space X), “so it just doesn’t fit our particular investment model.”

However, Seraphim has identified a potential market disruptor in launch technology – Aigura Space – a company developing a kinetic launch system to cheaply launch satellites with a fast response.

One of Seraphim’s top 10 holdings is Arqit, which has emerged as the largest creditor in Virgin Orbit.

Mark Boggett, Seraphim’s chief executive officer, says ICEYE, the largest constellation of small radar satellites, is the company’s most important position. It gives useful information about every square meter of earth every few hours.

Seraphim recently released details about his other holdings in his newsletter, SpaceTech.

QuadSat, an automated test and diagnostics solution for antenna/satellite calibration, has secured €9 million (£7.9 million) in funding. This will be used to expand a business that uses drones satellite stand-ins.

Another portfolio company – AST – raised $104 million in equity in the fourth quarter and has a cash reserve of £239 million as of December 31, 2022. AST is the operator of the world’s first and only satellite to provide mobile broadband in space.

Unfortunately for investors, Seraphim has not been immune to the volatility experienced in technology stocks and the broader market.

Last October, in its full-year results, Seraphim posted an after-tax revenue loss of £4.3m in its first year and said it did not expect to recommend a dividend in the foreseeable future.

And while figures from the Association of Investment Companies (AIC) at the time showed that Seraphim’s net asset value – the total value of his investments – had risen by 1 percent, the share price had fallen by 51 percent.

As of April 13, 2023, Seraphim’s net asset value had fallen 10.8 percent in a year, but the share price had fallen 64.8 percent.

Seraphim shares are trading at a discount of 60.1 percent to NAV, which may sound tempting to bargain hunters, but they should be aware that this deep discount indicates that the market has a very negative view of the outlook for those assets.

Experts regularly remind investors that a niche and volatile investment should only be a small part of a portfolio. This means that some prefer to gain exposure to themes such as aerospace through broader funds or trusts. For example, popular global trust Scottish Mortgage invests a small portion of its portfolio in SpaceX and Relativity.

Aerospace industry creates jobs in UK

The UK Space Agency’s most recent Size & Health of the UK Space Industry Report 2022 indicates that the UK space industry grew by more than £1 billion last year.

Despite the Covid-19 pandemic, nearly 1,800 jobs and 300 companies were created in fiscal year 2020/21, outpacing the growth of the space industry worldwide.

Despite the global disruption caused by the pandemic, UK space agencies showed a robust picture, with an income of £17.5bn in 2020/21, compared to £16.5bn the previous year.

This equates to a growth of 5.1 percent, while the overall UK economy contracted by 7.6 percent.

Secretary of State for Science, Innovation and Technology, Michelle Donelan, said: ‘With the global space economy growing rapidly, investment in the UK can provide new opportunities for our space capabilities, bringing more jobs, skills and businesses to the UK.

“The government is committed to supporting this fast-growing sector, enhancing the UK’s reputation as a growing space power and inspiring the next generation of professionals.”