As the City digests the latest inflation figures and gilt yields wobble, a rather different sort of capital appreciation has caught my eye. Tom Mueller, SpaceX’s employee number one and a propulsion engineer who helped design the engines that now power its Falcon rockets, has been reflecting on the company’s long road to a potential market debut. Speaking to a small group of investors in London, Mueller noted that the space industry has become a 'capital-intensive beast' and that a public listing would be 'inevitable' for SpaceX to scale further.
The remark sent a ripple through the usual chatter about unicorns and exits. But for those of us who look at the bottom line, this is not just another tech IPO. It is a test of whether the market can value a firm that has already disrupted the launch business and now has its sights on Mars.
The usual metrics of discounted cash flows and earnings multiples seem quaint when applied to a company that has not yet turned a profit on its Starlink satellite internet venture. The market will have to weigh the risk of capital flight from a sector that has historically burned through cash against the promise of a monopoly in low-Earth orbit. Meanwhile, the UK Space Agency is eyeing a collaboration with SpaceX, according to sources close to the matter.
This is a shrewd move by a government that has been criticised for its fiscal responsibility in space spending. The agency’s budget has been squeezed by the usual demands of health and education, and partnering with a private firm like SpaceX could offer a cheaper route to launching British satellites. But the deal is not without its political risks.
Sir Richard Branson’s Virgin Orbit, which has been struggling with capital flight after its own market debut, might see this as a snub. And there is the question of how such a collaboration would affect the UK’s own space manufacturing base. The City will be watching the gilt yields closely, for any sign that the government is taking on more risk than the market deems acceptable.
Central bank policy is also in play: higher interest rates make it more expensive for space companies to finance their ventures, and the Bank of England’s recent hawkish stance has already rattled some growth stocks. But for now, the mood among space investors is cautiously optimistic. The UK Space Agency’s pivot towards private partnerships could be a model for other government bodies looking to stretch their budgets.
As one fund manager put it, 'In space, no one can hear you scream about the deficit.' The market will ultimately decide whether this is a prudent investment or another black hole for taxpayers’ money. For now, I’ll be watching the volatility in space stocks and the chatter around any potential SpaceX S-1 filing.
The bottom line: the final frontier is becoming a lot like the Square Mile, and that might not be a bad thing.
