The Speculator

Quickstep Holdings is cruising well below its peak level … and has just secured a major aerospace contract.

PORTFOLIO POINT: Aerospace sub-contractor Quickstep Holdings has confirmed a milestone contract to supply advanced components to America’s Lockheed Martin.

As the first of what is expected to become a string of commercially significant announcements from Quickstep (QHL), shareholders can hopefully look forward to a significant re-rating of the stock in the months ahead.

Quickstep shares are presently selling for less than half their 12-month high of 37.5c. At 17.5c the company’s 322.75 million shares carry a market capitalisation of almost $55 million, with remaining cash at mid-year of $3.7 million plus facilities to draw down debt if needed.

Last week’s announcement of a US$12 million purchase order from aviation group Lockheed is Quickstep’s largest firm production order yet. It covers the manufacture and delivery of composite carbon fibre wing flaps for 24 Lockheed Martin C-130J “Hercules” aircraft.

Lockheed Martin, of course, is the world’s largest defence contractor, and also the lead contractor on the massive US$400 billion joint strike fighter (JSF) program for the US Department of Defence.

Quickstep is ultimately expected to be Australia’s largest participant in the JSF, with likely orders exceeding US$700 million in revenues under long-term production agreements (LTAs) and memoranda of understandings.

Perth broker’s tip on future JSF orders

In a note to clients today, I see that Perth stockbroker and long-term follower of Quickstep, State One Capital, forecast that Quickstep will “soon be able” to report another LTA relating to the JSF, this time relating to Group III parts. This will be followed shortly after by the first purchase order for those parts. This group will be significantly larger than the Group I and II parts being delivered under initial purchase orders.

The broker adds: “For those that question the rate of progress on the previously maligned JSF program, the best indicator is the Lockheed Martin share price – it is now at a four-year high.”

Bankstown plant opened in June

Quickstep won its first interim agreement to make advanced carbon fibre fuselage parts for the F-35 Lightning JSF two years ago when Quickstep was initially headquartered in Perth. The company delivered its first production JSF part in October, 2011, and by June of this year an expanded production line had been established at Sydney’s Bankstown Airport on a site previously occupied by Boeing’s Australian subsidiary.

As well as Lockheed Martin, Quickstep is currently partnering some of the world’s largest aerospace /defence organisations on future development programs, including the US Department of Defense, Northrop Grumman, Airbus and EADS.

As a measure of how one potential contracting partner viewed the enterprise, Northrop Grumman sent the president of its Aerospace Division, Gary Ervin, to Australia for the opening of the Sydney plant.

Elsewhere in the aerospace sector, Quickstep in March, 2011, signed a MOU with Sikorsky relating to US$3 billion in contracts for the Australian federal government’s planned purchase of 24 Romeo Seahawk naval combat helicopters.

Under the MOU, Quickstep is set to become a participant of Sikorsky’s global supply chain and receive support from Sikorsky relating to the development of its patented Quickstep process. (This enables carbon fibre panels and parts to be produced on a semi-continuous basis instead of older, less efficient, practices using batch-moulding technology).

In the automotive sector the company’s sometime underwriter, State One Stockbroking, expects a follow-up soon on QHL’s Resin Spray Technology (RST) and its application to motor vehicles.

The company already has deals relating to research, development and commercialisation of car panel technology with Audi and others.

The Audi project is due to be completed in 2014, when it is expected the RST will gain fresh market interest, particularly after recent publicity about the massive grants that have been dished out to locally operating car companies in the past decade.

First State points out that carbon fibre composites fabrication is already a multi-million dollar industry worldwide, primarily due to aerospace and military, and extending into future motor vehicle production driven by legislation requiring tougher fuel economy in the next five years. BMW is set to release its first carbon-fibre massed produced car – the i3 city car – next year.

David Haselhurst writes a monthly column for Money magazine. Please note that he is not able to provide personal replies to emails.

The Speculator portfolio (as at October 2, 2012)

CompanyCodeNo of sharesBoughtPurchase priceCurrent priceCurrent value
Image ResourcesIMA*15,00031/12/2010* 0.362 av$0.270$4,050
Robust ResourcesROL6,00031/12/2010*$1.49 av$0.700$4,200
Scotgold ResourcesSGZ27,50031/12/2010*5.5 av$0.058$1,595
GoConnect LtdGCN250,00031/12/2010*0.034 av$0.016$4,000
Minemakers MAK20,00025/01/2011*0.425 av$0.135$2,700
Broken Hill ProspectingBPL30,00022/02/2011*0.132 av$0.096$2,880
Austpac ResourcesAPG40,0002/03/2011*$0.060$0.034$1,360
Potash West PWN11,05030/03/2011*$0.220$0.235$2,597
Cortona Resources CRC25,00013/04/2011*0.146 av$0.099$2,475
Golden Gate Petroleum GGP408,50020/04/2011*0.0145 av$0.008$3,268
TNT MinesTNT4,44022/07/2011*$0.000$0.250$1,110
Quickstep HoldingsQHL20,00023/11/2011*$0.185$0.175$3,500
Orpheus EnergyOEG19,25017/08/2011*0.164 av$0.063$1,213
Black Mountain ResourcesBMZ10,00017/04/2012$0.300$0.270$2,700
Chesser ResourcesCHZ12,00027/08/2012$0.360$0.440$5,280
Total value of portfolio$52,306
Owe the bank-$10,570
Portfolio change since January 3, 2012 (started with $50,000)-16.53%
All Ordinaries change since January 3 2012 (then 4155.22)7.14%
All Ordinaries close 2 October 20124451.9

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