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Rocket Lab
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== Premium valuation warranted for highest quality listed space launch asset == Considering the space industry is truly a frontier market, Deutsche Bank looks at valuation from two different perspectives. Using a traditional framework, Deutsche Bank looks at the closest public comp, which, in its view, is Virgin Galactic (SPCE). While the businesses are very different (rocket launch vs. space tourism), Deutsche Bank believes the reputations (multiple successful launches establishing credibility), and investor profiles (aerospace, disruptive tech) share similarities and Deutsche Bank feels comfortable using Virgin Galactic's multiples as a reference point. SPCE is currently trading at 14.5x 2025E consensus EV/Sales and 39x EV/Ebitda. Due to consensus estimates being somewhat few (5 of them getting pulled into Bloomberg for 2025), and inherently volatile, Deutsche Bank takes a haircut and use a 12.5x multiple on its 2025E Sales, blended with 27.5x Ebitda, translating into a $19 share price. Deutsche Bank believes the long-term multiple will be predicated upon how much success Rocket Lab can achieve beyond small rocket launch (i.e., Neutron and Space Systems). Perhaps a more practical but subjective approach would be to triangulate the valuation based on recent private market round fundraising and deal transactions. Deutsche Bank believes rocket launch companies that are perceived to possess compelling technology and reputable management can fairly โeasilyโ garner a low $1bn market cap without having demonstrated orbital ability (e.g., ABL, Firefly). After reaching orbit, the valuation likely increases 2-3x depending on circumstances (Virgin Orbit seeking >$3bn listing). And then as the company continues to show progress, the valuation would rise based on consistency and platform differentiation. Relativity appears to be an exception at +$4bn even though it has not reached orbit due to its 3D printing technology having a much broader use case than just rockets. In this context, Deutsche Bank believes Rocket Lab should have a floor around the $5-6bn range (correlates to a $12 stock price) given its solid track record in rocket launch execution (90% success rate since inception). As it continues to demonstrate its satellite and potentially one day its application/analytics capabilities, this should add more value on top; success in Neutron could also give the valuation a boost. Deutsche Bank subjectively estimates this optionality could be worth another $2-2.5bn, implying a stock price of about $17. '''All in, Deutsche Bank initiates with a Buy rating and an $18 price target using a blended approach of 12.5x/27.5x 2025E Sales/Ebitda (taking a haircut to SPCE's multiples; implies a $19 stock price), and a ~$7.5bn market cap (equivalent to a $17 stock price) based on private and public comparables.''' Similar to many other SPACs, Rocket Lab has experienced considerable volatility in its share price. Deutsche Bank does believe for the stock to truly work, there will need to be greater long-term support from investors and this process could take time but Rocket Lab is, in Deutsche Bank's view, the highest quality publicly-traded space stock on the market now. Deutsche Bank sees the main risk for Rocket Lab being operational as it must execute on numerous launches coming up in 4Q/2022 and on the development of the larger Neutron rocket. Delays in the launch schedule and failed orbital attempts could hurt sentiment. In addition, there is political/regulatory risk considering space launch is still a highly-regulated industry. Industry-wise, the market for dedicated small launch rockets could turn out to be smaller than expected. {| class="wikitable" |+Figure 25a: Valuation methodology<ref name=":1">Source: Company reports, Deutsche Bank.</ref> ! !2025E |- |Ebitda |$237 |- |Multiple |27.5x |- |Enterprise value |$6,520 |- |Net debt (cash) |($623) |- |Equity value |$7,143 |- |Per/share |$16 |} {| class="wikitable" |+Figure 25b: Valuation methodology<ref name=":1" /> ! !2025E |- |Sales ($m) |$775 |- |Multiple |12.5x |- |Enterprise value |$9,682 |- |Net debt (cash) |($623) |- |Equity value |$10,305 |- |Per/share |$23 |} {| class="wikitable" |+Figure 25c: Valuation methodology<ref name=":1" /> ! !Per share value !Market cap ($m) |- |Rocket launch |$12 |5,402 |- |Space systems |$4 |1,666 |- |Apps & data |$1 ย ย ย |450 |- |Total |$17 |7,518 |}
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