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21 October 2021

Spacenomics

The groundwork for a fully-fledged space industry was laid many years ago across several decades in the mid/late 20th century when the US and the Soviet Union, the two cold war adversaries, fought for superior spaceflight ability of both manned and unmanned spacecraft. A desire to beat one another led to several significant milestones including the first artificial satellite launch of Sputnik 1 in 1957 and the first manned moon landing of Neil Armstrong and Buzz Aldrin onboard Apollo 11 in 1969. This eventually culminated in a cooperation between the two nations which still exists to this day and helps to further the innovation in space exploration.

When space was at the peak of its popularity, the potential for it to conquer further milestones and to become a viable business area were seen as a genuine possibility. However, it wasn’t until the early 2000’s that companies started emerging with proof of concept such as Elon Musk’s SpaceX successfully launching rockets and satellites, effectively creating a space industry.

As companies started to realise that space offered a viable business area, many of fledgling private companies started to grow rapidly, producing innovative products and solutions to aid the space industry’s growth. While we are certainly still in this phase of growth and many years away from maturity, the industry is at an all-time high and growing year over year, currently from US$350bn to over US$1tn by 2040. This growth is expected to come from a variety of sources including satellite launches and services to an array of consumer products such as broadband, tv and radio.

Even so called ‘space tourism’ will be a significant beneficiary of the outer space boom with UBS forecasting a US$20bn market within a decade. While this currently consists of billionaires such as Jeff Bezos and Elon Musk shooting off into outer space, many are pointing to the long-haul travel market, currently serviced almost exclusively by airlines, as the next to be disrupted by space travel with flights of more than 10 hours likely to be most impacted by the changes. While this is currently not possible and in fact extremely expensive, it is not unreasonable to believe that with the current pace of innovation that someday this would be a feasible opportunity.

Companies such as Blue Origin and Virgin Galactic have proved this is a possibility and that people, albeit limited to very rich individuals, are willing to pay for the opportunity with the latter receiving applications, and a US$250,000 fee, from almost 8,000 people, forcing them to stop taking requests given the high level of interest.

This proof of concept and high level of interest in recent years has prompted a wider array of investment products dedicated to the theme, or at least to ideas that utilise the theme as part of its strategy. In terms of a more indirect exposure, the UK’s largest, and one of its best performing, investment trusts, Scottish Mortgage (LON: SMT), has a long-standing holding in Elon Musk’s SpaceX alongside Relativity, a 3D printing company which manufactures rockets and their components with the help of autonomous factories and artificial intelligence (AI). This shows the broadening appeal for space assets across fund managers seeking innovative and exciting growth opportunities, with those possessing a much greater risk appetite also satisfied given the flurry of new direct stock investments such as Virgin Galactic and more established names such as Lockheed Martin. However, even the UK market has its own option with a brand-new investment trust called Seraphim, dedicated to investments in private space companies which covers satellites but also business software and security as it relates to space.

In fact, SpaceX’s Starlink venture, an internet services provider which aims to bring the internet to parts of the world that don’t already have access, has already begun to garner subscribers with its current 200,000 predicted to balloon in size to cover 14.4 million households in 2025. This will help to not only provide an alternative to traditional telecoms infrastructure, most of which the emerging world does not have adequate access to, but also provide the business with a regular stream of income which will help with both business continuity and also reinvestment into improvements of their servicing.

Given the growth in the industry and its current and future application, it is not unfeasible to believe that we could see a new sector of the economy created altogether. With the US Government creating a Space Force under President Trump and the continued increase in funding, business and investor interest, it puts forward the case for space to become part of our everyday lives. Whether it comes to providing under-served communities with fast internet or improving the quality of services across television or even travel, the possibilities are endless. And it’s just getting started.

This article was taken from the September 2021 Market Insight. To subscribe to our investment publications, please visit www.redmayne.co.uk/publications.
Spacenomics
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