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Why invest in XTE?

XTEK expects at least $11.6 million of revenues this half-year

The upper limit of the defence supplier’s guidance this half-year is $21.6 million.
An armour plate based on XTclave technology
OVERVIEW: XTE The Big Picture
Commercial scale production capacity for XTclave product lines such as armour plates is a goal for 2019
  • Revenue in the December half-year of 2018 was up 59% when compared to the previous half
  • Revenue growth was underpinned by the initial delivery of the WASP AE SUAS (small unmanned aircraft system)
  • XTEK resells SUA systems as an authorised representative
  • Last half-year the company added $2.8 million to its cash holdings to end December with $6.6 million cash

What does XTEK Ltd do?

XTEK Ltd (ASX:XTE) is a high-quality security products provider in the heart of the nation, the Australian Capital Territory. The capital goods company is employing a strategy to transform its business from being primarily a value-added reseller into a creator and commercialiser of its own original design products.

Its multi-disciplinary team delivers a range of solutions to support, protect and sustain people and assets for defence forces and government agencies.

The Canberra-based company is led by managing director Philippe Odouard and executive director Robert Quodling.

Managing director Odouard is a defence-industries commercialisation specialist with 26 years of experience leading defence-related companies in Australia. Among Odouard’s achievements are developing Quickstep Holdings Limited (ASX:QHL) (OTCMKTS:QCKSF) from a start-up to a composite manufacturing and technology leader with annual revenues of $50 million.

Director and former Australian Army officer Quodling has extensive experience leading high-performance teams. He spent more than 19 years with the Army, holding a range of command and operational appointments and receiving a Conspicuous Service Medal (CSM) for service in Special Air Service Regiment.

How does XTEK draw in its revenues?

Capital goods company XTEK’s key assets include a range of security products and the technologies that helped create those products.

In February the company reaffirmed its 2018-19 financial year guidance of $20 million to $30 million, after record December 2018 half-year revenues of $8.4 million.

XTEK expects to achieve a net profit in the June half of 2019, as it banks another $11.6 million to $21.6 million in revenues this financial year.

The company is on an upward pattern of revenue growth, achieving an 59% increase in the December half when compared to the June half-year of 2018.

Gross profit increased by about 3% to $1.8 million in the December half.

Revenue growth had been underpinned by initial delivery of the WASP AE SUAS (small unmanned aircraft system), which had a lower value gross margin than other revenue sources.

The SUAS sales came in at higher levels than contracted figures, shifting the sales mix as they pushed pushed down overall gross margins to 21% as the company focused on developing higher value products based on its XTclave technology.

Composite products based on XTclave technology in the company’s product range include ballistic armour solutions (body armour and helmets), lightweight components, auxillary systems and carbon fibre composites.

Produced at development facilities in Canberra and the South Australian city of Adelaide, they draw upon the composite curing and consolidation technology first developed as a Small Arms Protective Inserts (SAPI) manufacturing process.

XTclave cures composites and consolidates them in resin systems during up to 180-degree cycles of ultra-high isostatic pressures of up to 300 bar.

The United States Department of Defense Foreign Comparative Testing Program-backed technology uses its isostatic pressure effect and high efficiency heat exchange to produce lighter, stronger and stiffer composite articles.

Fibre content of up to 75%, as measured by volume, has been achieved using XTclave without surface dryness or void content through thickness.

XTclave’s development history has included a 2013 US DoD FCTP contract for developing lightweight hard armour-plate solutions using XTclave.

Outputs of the project included significant increases in ballistic performance when compared to autoclave and axial-pressed articles.

A subsequent contract started in 2017 was for ballistic helmets.

XTEK is improving its XTclave income-generating capacity with the construction of an XTclave facility.

The facility is expected to improve production capacity for XTEK’s product lines such as armour plates and ballistic helmets.

Inflection points

  • XTclave facility construction and production milestones, especially for armour plates and ballistic helmets

  • Continued revenue growth, including from WASP AE SUAS sources and reselling contracts

  • June half-year increases in revenues to a forecasted range between $11.6 million and $22.6 million

  • Net profit expected in the June half-year of 2019

  • Future higher-margin returns sourced from original products and technologies that enhance revenue-generating capacity

  • Continued product innovations and contract milestones drawn from leveraging of networks

  • Tender awards and contract executions, including contract milestones documented at Australian Government procurement website AusTender

  • Significant contracts, transactions, capital raisings and investment decisions

Managing director Philippe Odouard affirms positive outlook

“Strong top-line growth reflects the implementation of the company’s strategy, with focus now on leveraging existing strategic networks and relationships to deliver shareholder value,” XTEK managing director Philippe Odouard said last month as he affirmed a positive outlook for the company.

“The [December] half results are in line with our expectations and reflect the well-established seasonal trends in procurement and shift in sales mix.

“The construction of the XTclave facility is progressing well to produce ballistic plates and helmets and XTEK continues to invest in development of proprietary products.

“The company is now on the cusp of achieving higher margin sales through repair and maintenance services.

“XTEK is looking forward to exciting times ahead and will continue to pursue higher margin revenue opportunities and grow our presence in key markets.”


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