Here’s why the Orbital (ASX:OEC) share price has tumbled 20% today

The Orbital (ASX: OEC) share price has plummeted after the company provided an update on its preliminary results for the first-half of FY21.
The post Here’s why the Orbital (ASX:OEC) share price has tumbled 20% today appeared first on The Motley Fool Australia. –

A businessman holds his glasses in concern, indicating uncertainly in the ASX share price

The Orbital Corporation Ltd (ASX: OEC) share price is among the worst performers on the ASX market today, plunging from $1.04 to a low of 81 cents in opening trade.

At the time of writing, the company’s shares have clawed back some ground and are now trading at 90 cents, down 20%.

This, after the advanced aerospace manufacturer provided investors with a business update on its preliminary results for the first half of FY21.

What did Orbital announce?

In today’s release, Orbital advised it achieved preliminary revenue of $19 million for the six months ending 31 December 2020. The company attributed this 67% increase on the prior corresponding period to strong output from its two engine production lines.

Orbital is the primary engine supplier for tactical unmanned aerial vehicles to Insitu Inc – a subsidiary of global behemoth, Boeing Co (NYSE: BA). Orbital runs operations in both Australia, and the United States.

Orbital CEO and managing director, Todd Alder, commented:

Throughout 2020 we proactively managed the additional risks brought about by COVID-19, managing our global supply chain and distribution network and implementing measures within our operations to keep our teams safe while continuing to manufacture.

So, what’s sinking the Orbital share price?

With the positive news at the top of the release, Orbital went on to mention that it has revised its 2021 full-year revenue guidance. The adjustment is due to Insitu Inc requiring a drop in production volumes from one of the two engine models. Recent challenging market conditions caused by COVID-19 were blamed for what will be a loss of potential revenue to the company.

As a result, Orbital altered its production targets up until June 2021. Revised revenue guidance for the FY21 is expected to fall between $30 million and $40 million.

Mr Alder touched on the renewed update, saying:

Taking into consideration reduced customer requirements, we have revised our forecast production targets for the second half of FY21. While this adjustment to our production schedule is regrettable, we continue to manufacture and progress our deliverables under the existing long term supply agreement with Insitu.

It’s worth noting that, Orbital has two of five engine models currently in production with Insitu Inc. A third engine model is currently in the development stage. It’s anticipated that the upcoming engine will be ready for production in Q4 FY21 at its Western Australia facility.

Customer diversification

To avoid stunted growth, the company is focused on diversifying its customer base. Orbital has been busy at work with Northrop Grumman and one of Singapore’s largest defence companies on engine development programs. It has scheduled the engine protypes to be sent to its retrospective customers in 2021 for further testing.

Said Mr Alder:

We continue to make good progress with our existing engine development programs and are advancing negotiations on additional Tier 1 defence opportunities.

With our superior heavy fuel patented technology and the current market opportunities that exist, we are confident in our ability to build our global customer base and create an exciting platform for long term growth in the rapidly evolving UAV industry.

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Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Orbital Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Here’s why the Orbital (ASX:OEC) share price has tumbled 20% today appeared first on The Motley Fool Australia.

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