Ten years ago, after a nine-month journey through space, NASA’s Mars Curiosity Rover landed on Mars and began to explore, sending back to earth remarkable pictures of the Red Planet, while showcasing how highly sophisticated engineering can operate in extreme conditions. The advent of commercial space tourism through the high-profile exploits of Elon Musk’s SpaceX, Jeff Bezos’ Blue Origin and Richard Branson’s Virgin Galactic has further whetted investor appetites over the last eighteen months.
Step back 53 years to the moon landing and consider the developments in space since then. From early satellites to space tourism, it’s a sector that continues to grow rapidly and is transitioning into a new era as long planned commercial investments are executed, and the supporting infrastructure is deployed.
The growing interest among investors in the commercialisation and eventual industrialisation of space is coinciding with a rise in the number of investment opportunities in the space technology sector. Currently, there are thousands of companies involved in the New Space economy and many are emerging as possible investments with a variety of business models and projects. Not all are going to succeed, and investors need to be careful in picking their vehicle.
In addition, space is a hostile environment and operational risks cannot be ignored. Russia’s war in the Ukraine is not just threatening to disrupt the collaborative environment but the increased level of space debris in LEO arising from its ASAT (anti-satellite) missile test last year represents a clear and present danger to the mission integrity of orbiting platforms including those yet to be launched.
Rise of ‘New Space’
Since the turn of the century the space industry has been undergoing a period of transformation as the traditional industry and its legacy technology faces increasing competition from the commercial New Space era of cost-efficient innovation enabled by technology developments especially in microelectronics and new, more affordable launch solutions. As the global demand for the timely acquisition and transmission of high-quality data continues to grow inexorably, the affordability of increasingly capable space-based solutions should play an increasingly important supporting role. Amongst an array of potential applications, navigation, communication, connectivity, weather forecasting, resource management, climate change and emergency disaster response should all benefit.
With origins that lie in the Cold War era, the traditional industry was dominated by governments and their space agencies, such as NASA, as well as the fixed and mobile satellite services companies. New Space is dominated by entrepreneurial private corporations, which are not necessarily directed by the political, military or ideological interests of superpowers. It should be noted that all of the incumbent space operators are participating to varying degrees in New Space developments.
Private sector investment has played an ever more important role, particularly during the past couple of decades with the emergence of the New Space sector. Companies plan to deploy tens of thousands of small satellites in LEO (Low Earth Orbit) networks for a variety of applications including connectivity, communication, earth observation and asset tracking.
The space economy is currently worth around $375bn and the data hungry world is driving deployment of lower cost, innovative and increasingly sophisticated technologies at an accelerating pace. It is forecast to top $630bn by 2030 according to the UK Government and possibly more according to some estimates.
That growth is helped by the clear interest from governments around the world to use the lower cost access to space to develop their own space programmes. For example, the UK government’s 2021 National Space Strategy provides a broad commitment to innovation in the space sector and a supportive environment for investment and further development within the industry. Later this year we should see the first deployment of a satellite into orbit from the new spaceport in Cornwall. Led by the UK Space Agency, the UK space sector is targeting a global market share of 10% by 2030. The space sector in the UK is worth more than £16bn and employs 45,000 people.
For the incumbent satellite service providers lead times were several years long for large satellites weighing several tonnes and costing hundreds of millions of dollars to build and tens of millions more to launch via a limited number of launch vehicles. Operational lives could be at least 15 years leading to sporadic advanced technology insertions. Orbital slots were limited, and operational rights remain regulated and protected. Due to the limited number of annual deployments and new satellite programmes, most of the infrastructure (ground, launch and space) was supplied by small parts of larger aerospace and defence corporations such as Boeing and Airbus. As good as these companies may be, pure space plays were few and far between.
The New Space era uses a greater number of smaller, cheaper small satellites (<500kg) which can be launched in networks to provide global coverage. It includes microsatellites weighing less than 100hg and nanosatellites of under 10kg. Lead times can be less than one year and payload technology can be spirally upgraded more frequently as operational life teams are around five years. In addition, due to their size, one rocket can carry as many as 120 units at a time to maximise efficiency.
Increasing New Space investment opportunities
While Mars and beyond may fire the imagination for long-term investors, most of the current investment activity is closer to Earth where the bulk of the revenues from the space economy lie. A decade ago, the scope for such investment was more limited. Just as they do today, NASA and other space agencies use hundreds of suppliers and contractors, including some of the new space companies. However listed space opportunities were limited to primarily satellite services companies such as Viasat, Inmarsat, SES, Eutelsat and others using predominantly GEO (Geostationary Earth Orbit) satellite networks.
The number of potential investments continues to increase with companies such as AAC Clyde Space, Avio, Gomspace, Mynaric and OHB SE all listed for several years. Private equity funding in space infrastructure companies approached $15bn in 2021, yet another record and more than three times the level of 2017. There were 10 space related listings on the Nasdaq and NYSE in 2021 using SPACs, adding to Virgin Galactic in late 2019, with two further listings earlier this year. A fourteenth is expected over the summer.
Investing in space funds is a clear alternative to direct investment and should help to manage risk. Reflecting the growing interest in New Space, the first UK-listed investment trust focusing purely on space ventures is an interesting new addition. The Seraphim Space Investment Trust, listed in London in July 2021 and has invested £170m in 23 opportunities, after considering a huge number and variety of New Space companies. It offers retail investors access to companies that are more difficult to invest in.
There are also a number of space-related ETFs such as SPDR S&P Kensho Final Frontiers ETF, Procure Space ETF, and ARK Space Exploration and Innovation ETF. However, it is important to qualify the underlying investment entities, which in some cases are not necessarily as space related as may be desired.
