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Quickstep Holdings (QHL) 7.5c
Quickstep’s recently-appointed CEO gives a succinct explanation for why shares in the Bankstown Airport based carbon composites maker are trading at close to record lows.
“We have been listed for 12 years and have never made a profit,” Mark Burgess says. “We have made a lot of promises and fuelled expectations, but not met them.”
Yep – that about sums it up. But in the words of Bob Dylan, the times are a changin’ and when Quickstep management talks about earnings these days it’s not just blowing in the wind.
Quickstep’s revenues derive from two key sources: long-term contracts to supply parts for the Joint Strike Fighter (JSF) and the Hercules C-130J, an updated version of the old warhorse of the skies.
The US JSF program is the biggest military project in history and worth so much that we have run out of noughts.
The sleek jets have been derided as inferior to those of our putative enemies -- we won’t be so crass as to name names, me old China – but we’ll never really know until there’s a combat situation.
Hopefully, we’ll never know.
Given Australia is a purchaser of JSFs – 72 at last count – Australian suppliers are entitled to a share of the spoils.
Hence local hero Quickstep wrangled contracts to supply 700 carbon parts on behalf of JSF lead contractor Northrop Grumman.
Quickstep has been producing the JSF parts – including doors, panels, skins and vertical tail parts – under a 14-year contract. The difference now is that the company is doing it in profitably, the result of a back-to-basics program called OneQuickstep.
The program was initiated by Burgess, a former Honeywell Aerospace and BAE Systems heavy who took over the role from David Marino in May last year.
Marino had an automotive background and it’s no coincidence that Quickstep’s ambition to supply the cut-throat car industry with lightweight parts has been wound back.
The OneQuickstep effort focused on the core Bankstown facility and head office, with measures including key executives from nine to five and halving the non-executive directors to three.
R&D spending was halved, including the closure of a German facility.
The proof of the pudding is that Quickstep’s March quarter revenues improved by 15 percent to $14.6m, with positive cash flow of $2.74m.
The company has reported quarterly surpluses before, but like Criterion’s footy team it has struggled to cobble two ‘wins’ in a row.
Quickstep also repaid a $2m director loan, but is still $13m in hock to the government export credit agency EFIC. Burgess expects further debt reduction, but adds that EFIC is an attractive alternative to a capital raising.
But management is confident of sustained earnings for the full year that will be maintained din 2018-19.
While often associated to lumbering white elephants, the JSFs are now rolling off the production lines at a decent clip.
The company expects peak JSF output of 160-170 units is expected in the early 2020s, but production scheduling means Quickstep experiences demand about 18 months beforehand.
In theory, the JSF order book is worth up to $1 billion for Quickstep up to 2030, the envisaged sunset date for the program.
Quickstep has some other irons in its high-tech furnace with some smaller jobs with Boeing and a tie up with Italy’s ATR Group.
Another specialist sideline is specialist parts for medical devices such as x-ray machines.
But it’s efficient delivery of the JSF and Hercules contracts that will determine whether this one, er, flies.