SpaceX & The Schiehallion Fund
The Trump win is a victory for the techno-optimistic accelerationists. Silicon Valley outsiders such as David Sacks, Marc Andreessen and, most prominently, Elon Musk form an overtly pro-risk, pro-innovation, and pro-growth strand to the Trump coalition. Unsurprisingly, Tesla has been the best-performing Mag Seven stock since November 5th. However, if any business is poised to benefit from this new era of accelerationism, then Musk’s real passion project, SpaceX, is it.
The Vision of SpaceX
Musk set up SpaceX to make humans a multi-planetary species, and he has remained committed to this ideal despite being dismissed as a deluded and selfish billionaire.
However, while the media obsessed with his ownership of X/Twitter, most missed the more profound implications of his Occupy Mars movement. The human brain does not easily cope with exponential change, and only recently has the world woken up to the consequences of Musk’s unshakable interplanetary belief.
The SpaceX mission is simple and challenging: “to revolutionise space technology, with the ultimate goal of enabling people to live on other planets.” Because gravitational force decreases with the square of the distance, its most significant challenge is getting off the Earth’s surface and into orbit. Once there, going anywhere else is cheap and easy. Therefore, reducing payload launch costs is critical.
Musk’s team estimates that one million tons of cargo must be landed on Mars’ surface to colonise it sustainably. To achieve this, SpaceX required a large re-useable rocket. The recent launch and recapture of the giant Starship reduces the cost of launching a kilogram of matter into orbit from over $1m a few years ago to the equivalent of domestic parcel delivery today. The consequences of this development are as profound as they are unappreciated. Let’s do some star gazing and speculate about a future space economy.
Dominating Global Communications
SpaceX’s most visible presence is its communications constellation, Starlink. Starship enables a far quicker deployment of Starlink’s scale and depth of product offering, giving it scope to become the world’s largest subscription business direct-to-device. The disintermediation of earth-based fixed and mobile networks for consumers, businesses and governments offers a multiple of what Netflix offers, which today boasts $33bn in revenue from 250 million subscribers and a market value of $400bn.
Baillie Gifford analyst Luke Ward pointed out that the US DoD recently increased its Low Earth Orbit satellite-based services program from $900 million to $13 billion due to surging demand for orbital connectivity from its forces in the field and explains why Trump dialled in Musk for his post-election call to Volodymyr Zelensky.
Space Manufacturing
A conventional company would think that an opportunity like Starlink might be sufficient. However, it is just a staging post when pursuing interplanetary colonisation. Beyond Earth-based communications, Starship’s scale also realises the dream of space manufacturing. With a payload equivalent to an Airbus A-380 and a radically lower cost structure, many new opportunities present themselves. These include chemical and industrial processing, the operation of data centres, solar power generation, and even moon or asteroid-based resource extraction.
Luke Ward, again
The International Space Station took about ten years and 36 Space Shuttle flights to build and assemble. The Starship’s cargo bay is big enough to launch something the same size in a single afternoon, potentially costing less than 0.1% of the ISS.
Orbital Travel and Transport
A cost-effective, reusable Starship also opens Earth-based orbital travel and transport opportunities. Consider the business and military potential of an orbital vehicle that can deliver 200,000 kg of goods or people anywhere on Earth in 40 minutes for $2m a trip.
Valuing SpaceX
So much for the stargazing; how can this opportunity be valued? Although privately held, SpaceX does have some valuation reference points, such as periodic fundraising and secondary liquidity events.
Bloomberg recently reported that,
SpaceX is in talks to sell insider shares in a transaction that would value the rocket and satellite maker at about $350 billion. This is a significant premium to a previously mulled valuation of $255 billion last month and the $210 billion in a tender offer earlier this year.
Going Dutch
SpaceX uniquely offers access to a new frontier for commercial development with an unassailable economic advantage, an opportunity not previously been seen since the days of the Dutch East India Company four hundred years ago. Like it or not, Musk’s dream to Occupy Mars presents a monopoly space economy opportunity fully endorsed by the new techno-optimist administration in DC. Over the coming years, SpaceX looks set to join the very largest of our Earth-based companies.
Staying Private
High-growth private companies have had increasing access to capital markets; to that end, companies like SpaceX have stayed private longer than they may have previously. This has meant that it has become increasingly difficult for investors to access this part of the market without high fees and tying up capital for extended periods. However, there is a means by which UK investors can access this space in a cost-effective and liquid manner, offering attractive exposure to SpaceX.
Written by Jeremy McKeown
Chart: THE SCHIEHALLION FUND – Monthly
Source: Bloomberg (11/12/2024)
Explanation
Named after a Scottish mountain in the middle of Scotland, Baillie Gifford manages the Schiehallion fund, which holds some of the best late-stage private companies globally. The fund can hold onto companies when they choose to go public, currently holding around 30% of the NAV in public companies. The top holding is SpaceX, standing at 9.7% of the NAV. While they do not disclose the valuation of the underlying holdings, we are aware they have not increased the valuation considering the company’s recent tender offer at a 40% premium to the previous round. At just 0.85% of NAV, the fund’s expenses are attractive and comparable to those of less management-intensive funds that invest in only public equities. Schiehallion trades on a c.15.5% discount to its Net Asset Value of 129.1 cents. The fund has a track record of conservative valuations for it’s holding companies and the average premium to NAV since launch in 2019 is 4%. Better yet, Prior to 2022, the last time the US IPO window was open, the fund averaged a 24% premium to its net assets. We are quietly confident on both the NAV progression and discount closing should the US IPO window open as currently expected in January next year.
Further Reading & Listening:
DISCLAIMER
This is for information purposes only and is not to be considered as advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. The information does not take into account a persons specific investment objectives, financial situation or particular needs of any specific recipient. Opinions expressed are our current opinions as of the date appearing on the document only.
Any working examples, forecasts or data are for illustrative purposes only. Dowgate Wealth does not make representation that the information provided is appropriate for use in all jurisdictions or by all Investors or other potential Investors. Parties are therefore responsible for compliance with applicable local laws and regulations. Dowgate Wealth will not be held liable for any loss or damage resulting directly or indirectly from the use of any information on this site.