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Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Research from Water Tower Research

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<h3>KEY POINTS</h3>
<ul>
<li>Following the continued progress of the UK efforts (see report&nbsp;<a href="https://www.watertowerresearch.com/content/start-me-up-uk-s-first-orbital-launch-hardware-is-headed-to-cornwall" target="_blank" rel="noopener">here</a>), Virgin Orbit announced an&nbsp;<a href="https://investors.virginorbit.com/news-events/press-releases/detail/56/virgin-orbit-and-luxembourg-minister-of-defence-sign" target="_blank" rel="noopener">agreement</a>&nbsp;with Luxembourg and its NATO partners. Numerous EU countries are interested as they do not have the geography for a traditional launch. The UK effort is the furthest along with its&nbsp;<a href="https://www.businesswire.com/news/home/20221010005791/en/" target="_blank" rel="noopener">Start Me Up</a>, which is expected to launch in November.</li>
<li>The UK effort in Cornwall is the highest profile, but others are progressing. In addition to the UK and Luxembourg, Virgin Orbit has signed deals with&nbsp;<a href="https://investors.virginorbit.com/news-events/press-releases/detail/52/wagner-corporation-collaborates-with-virgin-orbit-to-bring" target="_blank" rel="noopener">Wagner in Australia</a>,&nbsp;<a href="https://investors.virginorbit.com/news-events/press-releases/detail/49/j-space-partners-with-virgin-orbit-to-bring-sovereign" target="_blank" rel="noopener">J-Space in South Korea</a>,&nbsp;<a href="https://investors.virginorbit.com/news-events/press-releases/detail/35/japanese-radar-constellation-iqps-selects-virgin-orbit-for" target="_blank" rel="noopener">iQPS in Japan</a>, and the&nbsp;<a href="https://investors.virginorbit.com/news-events/press-releases/detail/29/poland-launches-cooperation-with-virgin-orbit-to-advance" target="_blank" rel="noopener">Government of Poland</a>. It also now has an&nbsp;<a href="https://investors.virginorbit.com/news-events/press-releases/detail/42/virgin-orbit-formally-establishes-new-brazilian-subsidiary" target="_blank" rel="noopener">operator’s license</a>&nbsp;for launches in Alcantara, Brazil.</li>
<li>Cornwall is expected to be a space port. Air Vice Marshal Paul Godfrey (Commander, UK Space Command) said, “Developing new launch capabilities will build on the strengths of our space sector and attract companies from around the world to benefit from these commercial opportunities. This will catalyze investment, bring new jobs to communities and organizations right across the UK, as well as inspiring the next generation of space scientists and engineers.”</li>
<li>Virgin Orbit operates in three markets and its $72 billion TAM is part of a growing $1.1 trillion space economy. Its markets include: (1) Small-Satellite Launch Market – $25 billion TAM in commercial, civil, and national security launches, primarily targeting low Earth orbit; (2) Space-Based Connectivity Market – $30 billion TAM in specialized Internet-of-Things (IoT) applications like ship management, pipeline monitoring, intelligent agriculture, and connected aircrafts; and (3) National Security Market – $17 billion TAM in missile defense targets and hypersonic applications.</li>
<li>Read all our reports on&nbsp;Virgin Orbit&nbsp;on our website.</li>
</ul>
<h3>COMPANY OVERVIEW</h3>
<div></div>
<p>Virgin Orbit has developed a proprietary air-launch technology coupled with outstanding manufacturing infrastructure and a proven team to transform space access for a diverse and global customer base. Since its founding in 2017, Virgin Orbit has developed the world’s first air-launched, liquid-fueled launch system, making it a premier satellite launch service.</p>
<p>Virgin Orbit uses a customized 747 aircraft as a mobile launch site, a flying mission control, and a fully reusable first stage vehicle. By beginning each mission at approximately 35,000 feet above sea level and already travelling at a high speed, the simple and reliable LauncherOne rocket achieves a significant performance advantage over grounded launch sites, while reducing local carbon emissions and acoustic impacts at the launch site when compared with a traditional ground launch.</p>
<p>The mobility of the system also allows Virgin Orbit to bring launch capabilities to dozens of nations that currently have space agencies and satellite industries but no domestic launch capability. The company has been selected by the United Kingdom and Brazil to bring launch to those nations’ shores, in addition to an announced launch site in Japan.</p>
<p>Virgin Orbit’s ability to launch responsively from any location around the world also gives it a valuable national security role in ensuring the resiliency and replaceability of critical satellite infrastructure assets.</p>
<h2>VALUATION</h2>
<h2>VORB Trading at a 36% Discount to Its Comps</h2>
<p>The company’s comparables are space-based companies of a similar size and growth rate. Its comps have an average 2025e EV/EBITDA of 2.9x, while VORB is trading at 1.9x, a 36% discount. Virgin Orbit’s 2025 estimated EBITDA margin of 32% would make it significantly more profitable than Rocket Lab at 22%. Rocket Lab is the only small launch competitor to have also reached regular commercial operations, making it the best comp.</p>
<p>Figure 1: Virgin Orbit Holdings Comp Table</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/304/254/original/image_59180641341666225104567.png?1666225106" class="editor-image img-responsive" data-smartkarma-image-id="304254"></figure>
<div class="content-remarks">
<p>Sources: YCharts, Virgin Orbit; as of October 19, 2022</p>
</div>
<p>Figure 2: Comparables’ Stock Price Performance – Past Six Months</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/304/255/original/image_429417418351666225129339.png?1666225130" class="editor-image img-responsive" data-smartkarma-image-id="304255"></figure>
<div class="content-remarks">
<p>Source: YCharts</p>
</div>
<h3>DISCLOSURES</h3>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>John Roy, PhD, who is the writer of this report, covers the Technology sector for WTR. Mr. Roy, PhD and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS

Following the continued progress of the UK efforts (see report&nbsp;here), Virgin Orbit announced an&nbsp;agreement&nbsp;with Luxembourg and its NATO partners. Numerous EU countries are interested as they do not have the geography for a traditional launch. The UK effort is the furthest along with its&nbsp;Start Me Up, which is expected to launch in November.
The UK effort in Cornwall is the highest profile, but others are progressing. In addition to the UK and Luxembourg, Virgin Orbit has signed deals with&nbsp;Wagner in Australia,&nbsp;J-Space in South Korea,&nbsp;iQPS in Japan, and the&nbsp;Government of Poland. It also now has an&nbsp;operator’s license&nbsp;for launches in Alcantara, Brazil.
Cornwall is expected to be a space port. Air Vice Marshal Paul Godfrey (Commander, UK Space Command) said, “Developing new launch capabilities will build on the strengths of our space sector and attract companies from around the world to benefit from these commercial opportunities. This will catalyze investment, bring new jobs to communities and organizations right across the UK, as well as inspiring the next generation of space scientists and engineers.”
Virgin Orbit operates in three markets and its $72 billion TAM is part of a growing $1.1 trillion space economy. Its markets include: (1) Small-Satellite Launch Market – $25 billion TAM in commercial, civil, and national security launches, primarily targeting low Earth orbit; (2) Space-Based Connectivity Market – $30 billion TAM in specialized Internet-of-Things (IoT) applications like ship management, pipeline monitoring, intelligent agriculture, and connected aircrafts; and (3) National Security Market – $17 billion TAM in missile defense targets and hypersonic applications.
Read all our reports on&nbsp;Virgin Orbit&nbsp;on our website.

COMPANY OVERVIEW

Virgin Orbit has developed a proprietary air-launch technology coupled with outstanding manufacturing infrastructure and a proven team to transform space access for a diverse and global customer base. Since its founding in 2017, Virgin Orbit has developed the world’s first air-launched, liquid-fueled launch system, making it a premier satellite launch service.
Virgin Orbit uses a customized 747 aircraft as a mobile launch site, a flying mission control, and a fully reusable first stage vehicle. By beginning each mission at approximately 35,000 feet above sea level and already travelling at a high speed, the simple and reliable LauncherOne rocket achieves a significant performance advantage over grounded launch sites, while reducing local carbon emissions and acoustic impacts at the launch site when compared with a traditional ground launch.
The mobility of the system also allows Virgin Orbit to bring launch capabilities to dozens of nations that currently have space agencies and satellite industries but no domestic launch capability. The company has been selected by the United Kingdom and Brazil to bring launch to those nations’ shores, in addition to an announced launch site in Japan.
Virgin Orbit’s ability to launch responsively from any location around the world also gives it a valuable national security role in ensuring the resiliency and replaceability of critical satellite infrastructure assets.
VALUATION
VORB Trading at a 36% Discount to Its Comps
The company’s comparables are space-based companies of a similar size and growth rate. Its comps have an average 2025e EV/EBITDA of 2.9x, while VORB is trading at 1.9x, a 36% discount. Virgin Orbit’s 2025 estimated EBITDA margin of 32% would make it significantly more profitable than Rocket Lab at 22%. Rocket Lab is the only small launch competitor to have also reached regular commercial operations, making it the best comp.
Figure 1: Virgin Orbit Holdings Comp Table


Sources: YCharts, Virgin Orbit; as of October 19, 2022

Figure 2: Comparables’ Stock Price Performance – Past Six Months


Source: YCharts

DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  John Roy, PhD, who is the writer of this report, covers the Technology sector for WTR. Mr. Roy, PhD and members of his household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

International Progress Continues with Luxembourg/NATO, UK, and Others