Space industry expected to take off

Despite a slowing economy and some potential future funding obstacles, the space industry has nowhere to go but up, participants at a recent space industry conference said. Revenue from commercial satellites could take off in the very near future, according to Thomas W. Watts, managing director and senior research analyst for telecom at Cowen and Co. LLC of New York. He was one of the industry experts who addressed the Space Business Forum conference in New York on June 18. The conference, sponsored by the Space Foundation, focused on the future of the space sector and was designed for an audience of financial advisers, Wall Street analysts, investment bankers and high-risk insurers. Satellite service companies such as Greenwood Village, Colo.-based DirecTV Group Inc. and New York-based Sirius Satellite Radio Inc. are viewed by a growing number of investors as mainstream media companies, Mr. Watts told attendees. "There is a lot of interest in this area," he said. "Investors are waiting to see the takeoff." Last year, global revenue from commercial- and defense-related space ventures grew 11% to $251 billion, according to the Space Foundation. About 69% of the space industry's 2007 growth came from commercial activity.
The war on terrorism will drive revenue in space technology's military sector, said David Blain, president and chief investment officer of D.L. Blain & Co. LLC Private Wealth Management, based in New Bern, N.C. He is a graduate of the United States Military Academy in West Point, N.Y., and received a Bronze Star medal for serving in the Gulf War. Mr. Blain's private wealth management firm, which has $75 million in assets under management, has a stake in the White Oak Guggenheim Aerospace and Defense Fund, which is co-managed by the White Oak Group Inc. of Atlanta and Chicago-based Guggenheim Capital LLC, and has experience with satellite investments. "We see a lot of growth in that area," Mr. Blain said of space technology investments.

MEASURING THE MARKET

To keep advisers and investors up to date on the space sector's performance, the Space Foundation, a non-profit advocacy group based in Colorado Springs, Colo., created the Space Foundation index, which tracks the performance of 31 publicly traded companies that derive a significant portion of their revenue from space-related assets and activities. The index has grown 14% since its inception three years ago. That is a better track record than the Standard & Poor's 500 stock index and in line with Nasdaq Composite Index growth during that same time period. Last year the index grew 8.4% compared with 3.5% for the S&P 500, while the Nasdaq Composite fared slightly better with a 9.8% gain. The index started trending down at the end of 2007 and the beginning of this year, as the mortgage crisis took its toll, but rebounded in the second quarter, according to Space Foundation officials. Despite some aerospace industry concern that funding may be significantly reduced if or when the war in Iraq ends in a few years, defense spending is still expected to remain high because national security concerns have become a bipartisan issue, said Mark Oderman, managing director at Cambridge, Mass.-based CSP Associates Inc., who also participated at the conference. Rob Stallard, division director at Macquarie Capital Securities of Sydney, Australia, added that support from lawmakers, including presidential candidate Sen. Barack Obama, D-Ill., for increased broadband services will buoy space sector revenue, especially for satellite companies. However, NASA could face funding cuts because other issues have taken priority in Washington, Mr. Stallard said. "I wouldn't be surprised if it's a rocky road over the next couple years," he said. The space industry hasn't seen many initial public offerings, a scenario Mr. Watts doesn't see changing in the near future because many investors aren't yet sold on the sector. "Investors are open to it, but at the same time, I think there's a wait and see attitude," he said. "The market is a little bit hesitant." E-mail Andrew Coen at acoen@investmentnews.com.