For intrepid investors the final frontier is opening up; space itself. Fifty years after the first moon landing, there are stellar opportunities to make money from the growing space economy. Morgan Stanley estimates this booming sector will grow from around $350 billion to more than $1.1 trillion by 2040.
Although the commercial space industry has been around for a couple of decades, recent years have seen commercial investment more aligned with venture capital both from investment firms and billionaires, such as Elon Musk, Jeff Bezos and Richard Branson. According to Bryce Space and Technology, a consultancy specialising in this area, 2018 saw record investments of $3.2 billion into start-up space companies.
Pure Plays
For investors interested in this space (no pun intended) there are a growing number of pure play start-ups, but all of them are currently unlisted. Most of these minnows are focused on getting satellites into space and providing wireless data communications, but there are also niches in space tourism and space freight.
Undoubtedly the most high-profile of the bunch is Elon Musk’s Space X, which has successfully developed reusable space rockets. According to Morgan Stanley, this has reduced the cost of launching a satellite from approximately $200 million to around $60 million, with the aim of reducing it further to $5 million.
Space X has also begun to launch its own satellite broadband network and has plans to send someone to Mars in 2024. It is even anticipated that its rockets could challenge Fedex and DHL international freight services, by dramatically reducing the time it takes to move high-value freight around the planet.
Meanwhile, fellow billionaire Jeff Bezos, founder of Amazon, has created Blue Origin which has developed reusable rockets and plans to offer orbital flights and possibly help set up a base on the moon.
Certainly, space tourism and faster long haul travel is expected to be a growth area in the very near future. Billionaire Sir Richard Branson has created Virgin Galactic to develop reusable rockets focused on space tourism. Indeed, despite repeated delays to its launch, Branson has reportedly already booked tickets for more than 600 passengers on his galactic carriers’ inaugural commercial flight, at an eye-watering $250,000 each. The business recently announced plans to go public later this year, in a reverse takeover of NYSE-listed Social Capital Hedosophia, a move which would make it the world’s first publicly-listed space company.
While these start-ups are totally focused on space, for investors looking to spread their risk, there are also more established companies where space is just one of numerous sectors in which they operate.
Many large, publicly traded defence contractors are also involved in the space industry, helping to build satellites and even launch them. For example, United Launch Alliance is a joint venture from aerospace and defence giants Lockheed Martin and aircraft maker Boeing. The firm provides launch services for the US government. Boeing also builds satellites through its Boeing Satellite Development Centre subsidiary, while Airbus has a joint venture with OneWeb to build its satellites. Other US defence contractors with an interest in space satellites include Maxar Technologies and Northrup Grumman.
Fund Options
Retail investors can gain exposure to this racy sector by buying shares in listed aerospace, defence or satellite makers. Another option is to invest in technology funds that may target these areas or perhaps an investment trust with private space companies within its portfolio.
The Scottish Mortgage investment trust, for example, which has a Gold Morningstar Analyst rating, has a holding worth just over £56m in Space X. Morningstar analysts comment: “This isn’t a fund for the risk-averse but does have considerable merit for long-term investors seeking exposure to the potential winners of tomorrow within a broadly spread portfolio.”
Catharine Flood, client service director at Scottish Mortgage, explains the managers’ rationale for this investment: “While SpaceX may have been founded with lofty ambitions, it is grounded in pragmatism and the recognition that there needed to be significant improvements in both the cost and capability of rockets for the industry to make progress. The most notable aspect of its progress so far is perhaps the ability to regularly recover and reuse its rockets. Today the company focuses on launching satellites into orbit for government and corporate customers, but it continues to invest in its future growth. We are excited by the potential to unlock large revenue opportunities in global internet connectivity via its ‘Starlink’ satellite network.”
Direct Investments
For those willing to take on much more risk by investing directly in shares with exposure to the space economy, there are two which may be worth looking at:
Firstly, Google-owner Alphabet (GOOGL), which has a 9% stake in Space X. Morningstar analysts point out: “Alphabet dominates the online search market with Google’s global share above 80%, via which it generates strong revenue growth and cash flow”. Improved global coverage from satellites will bring billions more online increasing its internet penetration and driving up revenues and profits for its products: the Android ecosystem, paid search and YouTube.
Alternatively, mobile satellite service operator Inmarsat (ISAT) specialises in connectivity services for those in remote and difficult to access areas. For example, it supplies high-speed in-flight broadband services to airline passengers, data, broadband and safety communications to ships and data services for those organising disaster recovery operations.
