One"negative" (albeit very modest) in evidence was an issue relating tomanpower, which we expect to have resolved within a few weeks, after severalrounds of discussion before the Fair Work Commission. We understand that only afew individuals are involved, with all but about 4 persons (out of some 230persons) carrying on with their work as normal.

 

Anotherissue evident from the discussion was the growing pains of a companysimultaneously negotiating for, winning and implementing a large number of newhigh-tech activities. It was encouraging to hear pronounced positive views fromQHL on both the Australian aerospace sector and the potential of the stockitself.

 

Afterthe hard slog of recent years, management is now enthusiastically lookingforward to the year ahead when significant new contracts are expected to dropinto place. We expect that these will largely comprise of aerospace contracts,with a mixture of new clients and existing clients. The order book is expectedto move comfortably from $AUD 55-60M pa and exceed $AUD80 M per annum inFY2019. Indicative gross outstanding orders over the life of the projects areexpected to be in excess of $AUD1.0B.

 

Anotherchallenge is the growing demand for its work, which appears to be a dailyoccurrence. We remain of the view that QHL has the potential to become a leaderin the rapidly growing Australian aerospace industry. With rapidly expandingactivity in aerospace linked sectors such as jet fighters, commercial aircraft anda range of drones, we believe that Quickstep promises to be one of Australia'sleading aerospace stocks in the coming decades.

 

Quickstephas already placed its stamp on high-demand engineering activities, inconjunction with global industry leaders including Lockheed Martin, NorthropGrumman and Boeing, with additional brands due to join the queue.

 

Ifyou review the performance of the global sector leaders, as per the NYSE(companies such as Lockheed Martin), you see a capital gain of some 14 x, overthe most recent 19 years. This is clearly a quite a substantial return.

 

Focussingon the Joint Strike Fighter (JSF), just about every week now sees fresh(positive) new information on that aircraft's development. Recently the sale toJapan of 100 JSF aircraft has been the focal point.

 

Despitepreviously being "bagged" from all points of the globe, to date therehave been few operational mishaps in developing the JSF, which is mostencouraging. Meanwhile the new aircraft appears to be proving itself in action(including notably by the Israelis). In this media-aware world we would expectthat any other problems would have very quickly been made public. Mostrecently, the JSF 35 has been proudly shown completing take-off and landingsequences on various ships from a range of the JSF participant nations.

 

Anothersignificant contract in which QHL is engaged, the C130 project, has also beencomfortably meeting its contractual obligation, with a steady increase in itscontract volumes, indicating a high degree of satisfaction by the clients managingthat project.

 

TheJSF project will, when combined with participation in other projects by Boeing(F18 and F16) see QHL being involved with several companies on the first tierof US military aircraft, for at least a further 10 years.

 

Perhapsmore importantly, QHL is now involved with the top 3 western world globalfighter aircraft manufacturers: int the world - Lockheed Martin, NorthropGrumman and of course Boeing. Additionally, QHL is steadily building links& credibility with a broad-spread of other global manufacturers, andnumerous components involved.

 

Themost relevant matter is that we are now seeing an ongoing reduction in thecosts incurred by QHL. Following continued tinkering with the managementstructure, we are also of the view that QHL is steadily getting costs down. Itnow needs to demonstrate an increased factory utilisation rate, up from about50%, which is achievable in the next 18 months or so.

 

QHL’sgrowth opportunities are undeniable, due to increasing international demand fora broadening range of aircraft aerospace devices, and the fact that QHL alreadyhas under its belt multi-year supplier relationships with leading internationalaerospace manufacturers.

 

QHLcontinues to work with European car manufacturers, although this doesn't seemlikely to be a significant contributor to future growth when compared withaerospace. We understand that regular domestic vehicle manufacturers are in themiddle of adapting to new, more onerous emissions regulations in the EuropeanUnion, and that at the same time, they have been cautious with plans until theEU sorts its trade relationships with the US and the UK. Analysts seem positiveon the future of European vehicle manufacturing, while accepting currentconstraints.

 

 

QHLRecommendation: Long Term BUY @ 7.2 cps (Our Valuation by State One Analyst -David Brennan is +16 cps.)