In focus

Satellites: the route to invest in space?


The power of satellites could not have been made clearer than when the Ukrainian Vice Prime Minister asked Elon Musk if the country could use Musk’s Starlink. The satellites, bringing internet services to hard-to-reach locations, were able to re-establish digital access for Ukrainians as they defended themselves against the Russian invasion.

Vice Prime Minister Mykhailo Fedorov requested the satellites from Musk via Twitter on 26 February. Musk replied that day saying the satellites had been activated over Ukraine and Starlink terminals had arrived in Kyiv by 28 February.

The demand for space-related technologies has increased dramatically in recent years. Today, 9,000 satellites orbit the earth, but a whopping 25,000 are projected to launch over the next four years, according to Morgan Stanley.

Today, the space industry is worth around $380 billion (£288 billion) and 60% of that figure is commercial investment, according to Allied Market Research. That figure is projected to grow to $1 trillion by 2040, says the market research company.

These figures are perhaps unsurprising when you consider the power that satellites can wield, from bringing internet connection to warzones to operating driverless cars, robotics and the internet of things. The global satellite manufacturing market is currently valued at around $15 billion and is expected to reach $26 billion by 2030 – an annual growth rate of 5.6%, predicts the aerospace and defence brand ASD News. If we look in particular at the nanosat market, these being smaller satellites that are becoming increasingly popular, this market has a projected annual growth rate of roughly 20%, presenting plenty of value opportunities for investors.

The commercialisation of space

Space has traditionally had a high barrier to entry. Building and launching a satellite to collect data or enable communications used to cost hundreds of millions of dollars. In fact, space access became so expensive that the market actually began to shrink, going from roughly 140 launches per year back in 1967 (just before we landed on the moon) to just 54 in 2004 – at which point the space market was “in recession”.

It’s little wonder that only national governments were wealthy enough to invest in space. This can be seen today, with the establishment of the US Space Force military branch in 2019. This is expected to increase demand for space technology, as the world’s first specifically space-focused sector of an army.

However, recent years have seen a shift towards commercial investment. In 2011, President Obama set out a budget that encouraged commercial solutions to ferrying crews into orbit. NASA then turned to the commercial sector to fly its astronauts and cargo to the International Space Station, feeding the industry with billions of dollars in contracts.

At the same time, space started undergoing a paradigm shift with everything becoming cheaper. Seraphim Space, an investor in global space tech, has said that there has been somewhere between a 100 and 1,000 times cost reduction in access to space, primarily through lower satellite manufacturing and launch costs.

The cost of sending a kilogram into space has fallen considerably, going from about $85,000 a kilogram in the 1980s to only about $1,000 per kilogram today.

Why are satellite costs falling?

Elon Musk’s company SpaceX has played an important role in lowering these costs. It developed a vertically integrated production line that ended up being more reliable, adaptable and efficient than previous mechanisms and drove down the price of production.

The profits made by companies launching and manufacturing satellites are expected to trickle down to companies using satellites for their products and services.

For example, when the Space Shuttle operated in the 1980s, the payloads it launched cost $85,216 per kilogram. Compare this to SpaceX’s launch of the Falcon 9, used to access the International Space Station, which cost just $1,891 per kilogram, says Aerospace Ports, a civil space port organisation. By allowing other companies to send satellites into space at a lower cost, access is widened across the industry.

To put a satellite into space, it needs to hitch a ride on a rocket. At the moment, the launch market is dominated by private companies such as SpaceX, although some listed companies such as Northrop Grumman do have some exposure. However, the lower cost of launching, tied in with the increase in space launches – growing at an average of 8% per year for the past decade – means more companies can get their satellites into space.

Microchips are key to industry advances

As well as a cost reduction in launching satellites, manufacturing prices have also fallen for satellites. This is thanks to Moore’s law, the principle that the speed and capability of computers can be expected to double every two years as a result of increases in the number of transistors a microchip can contain.

This has allowed satellites to get smaller and smaller without a reduction in performance. Less material is needed to make them, and since they are lighter, there is less expense in launching them into space.

Robin Sampson, head of operations at NanoAvionics, an advanced small satellite bus manufacturer, told the BBC: “In the old days, we launched one satellite that had lots of different sensors on it. But today, we’ve launched hundreds of satellites that have the same sensor. That’s a much cheaper, repeatable way to do it with more consistent data.”

This means there are more opportunities to access space through the satellite market that are cheaper than ever before. The profits made by companies launching and manufacturing satellites are expected to trickle down to companies using satellites for their products and services.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

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This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.