Defense contractors

[Saluki]

Is anyone familiar with French defense contractor Exail?  I just stumbled across it.  It makes imaging maritime stuff like Kraken Robotics or MIND, but I can't find a lot of info about it. Seems to be priced reasonably on an price/EBITDA multiple, but it's not profitable which is usually a hard pass for me on small companies with cool tech. It was formed via merger of two other companies in 2022.  Any idea how their imaging stuff compares to KRKNF or MIND?  And they also have stuff in photonics and aerospace, which is surprising considering how small the market cap is. 

[rogermunibond]

Anyone have thoughts on why HII is down?

 

IIRC they are mostly a naval shipbuilder and with the lack of active USN surface vessels shouldn't HII be getting a bid?

[Hektor]

https://www.washingtontechnology.com/companies/2025/02/trump-administration-asks-agencies-cull-consultants/403348/

 

Trump administration asks agencies to cull consultants

 

The Trump administration is asking agencies to review their consulting contracts with at least 10 large companies, including some global firms, as part of an effort to cut “non-essential consulting contracts.”

 

The acting head of the General Services Administration, Stephen Ehikian, asked “agency senior procurement executive[s]” to review their consulting contracts with the 10 companies the administration deemed the highest paid using procurement data — Deloitte, Accenture Federal Services, Booz Allen Hamilton, General Dynamics, Leidos, Guidehouse, Hill Mission Technologies Corp., Science Applications International Corporation, CGI Federal and International Business Machines Corporation — in a memo dated Feb. 26 obtained by Nextgov/FCW. 

[lnofeisone]

I was just about to pull the trigger on CACI. I think I'll hold back until this review is over. 

[Hektor]

That's prudent, I think. Interestingly, CACI is not in the top 10 targeted

[tnathan]

19 hours ago, rogermunibond said:

Anyone have thoughts on why HII is down?

 

IIRC they are mostly a naval shipbuilder and with the lack of active USN surface vessels shouldn't HII be getting a bid?

Also very interested in perspectives here ... I know some have a negative view of the company but it seems cheap even considering some bad news (and the backlog is huge)

[lnofeisone]

18 minutes ago, Hektor said:

That's prudent, I think. Interestingly, CACI is not in the top 10 targeted

SAIC and CACI are comparable in size (CACI is a tad bigger) but SAIC is mostly services. This latest development introduces a bit of uncertainty. I'm convinced that whoever is running the top 10 filter doesn't understand Gov't contracting and just picked "services" NAICS without knowledge that you can bundle services under non-service NAICS and there are nuances that come with every contract vehicle. 

 

 

[Hektor]

https://www.wsj.com/business/big-consulting-bosses-meet-with-trump-officials-to-save-contracts-8b2946f8

 

Big Consulting Bosses Meet With Trump Officials to Save Contracts

Executives from EY, Booz Allen and others are being told to ‘defend the spend’ on their work for the government—and identify possible cuts

In recent days, top executives at professional services firms including Ernst & Young and Guidehouse have met with officials including Josh Gruenbaum, the Federal Acquisition Service commissioner within the General Services Administration, according to people familiar with the discussions. A Booz Allen executive has also been in touch with Gruenbaum. 

The GSA has identified that the 10 highest-paid consulting firms are set to receive more than $65 billion in total fees across 2025 and future years. That is money that has yet to be spent, and comes from contracts tagged as “consulting services” within the Federal Procurement Data System from the top governmentwide vendors

 

In the meetings with consultants, Gruenbaum has emphasized to executives that the government sees value in consulting—particularly in rolling out advanced technology and modernizing government agencies. 
 

What may be frowned upon are contracts providing market research and analysis or supporting work on topics the Trump administration has de-emphasized, such as diversity, equity and inclusion issues. Gruenbaum has assured executives that the GSA wasn’t looking to put firms out of business

 

Consulting firms are being asked to “defend the spend,” by explaining which of their existing projects they see as mission critical to the government’s goals, and which could be cut. Firms may be asked to make pricing concessions on existing contracts, though Gruenbaum has told executives that they could make up for the cuts by also suggesting new projects or services to the government that could offer a demonstrable return-on-investment.

 

 

[lnofeisone]

Word on the street DOGE is looking for a 75% cut for all non-essential and non-mission-critical contracts. DEI, etc. 100% cut. The top 10 (and many others) are looking for sacrificial lambs (contracts) to surrender. BAH is in a particularly uncomfortable spot. Some also tried pitching services to DOGE at commercial rates (those are about 3x what Gov't rates would be). The Government taketh with left hand and giveth with right hand.  

[Paarslaars]

Meanwhile Rheinmetal and Saab keep going...

[Sweet]

8 minutes ago, Paarslaars said:

Meanwhile Rheinmetal and Saab keep going...

Some of these are 10+ baggers in 5 years.  Incredible.

[Luke]

 

Lets go!!!!

[formthirteen]

I think I will be buying VALE even though it could be the top of the cycle. Any iron ore experts here?

[Spekulatius]

39 minutes ago, formthirteen said:

I think I will be buying VALE even though it could be the top of the cycle. Any iron ore experts here?

Why do you think it’s top of the cycle? It trades at its lowest valuation since 2015 and is in a much better position since the situation  around the dam disasters is now getting settled slowly. A lot of tail has been removed with the legal settlements.

 

The shares have declined much more than the iron ore prices suggest. I bought some shares recently and I think I will add some more. The business is well run, won’t go anywhere and they are one of the lowest cost producers on the world.

[formthirteen]

19 minutes ago, Spekulatius said:

Why do you think it’s top of the cycle? It trades at its lowest valuation since 2015 and is in a much better position since the situation  around the dam disasters is now getting settled slowly. A lot of tail has been removed with the legal settlements.

 

You are correct. It's mostly macro worries, and I'm not an expert, so I don't care that much about the cycle when it comes to VALE.

 

China steel production was down 5.5% in 2024:

https://worldsteel.org/media/press-releases/2025/january-2025-crude-steel-production/

 

China's property crisis and peak steel demand:

https://www.mining.com/web/iron-ores-reset-to-100-heralds-chinas-new-economy-shift/

 

Quote

Iron ore can’t stay below $100 a ton for too long without higher cost producers shutting up shop. That would thin out supply and put a floor under prices in the near term. But it’s the long-term demand side of the equation that’s causing most concern. The government in Australia, China’s biggest supplier, expects free-on-board prices of $95 a ton this year, $84 next year, and then levels in the $70s out through 2029.

 

Overcapacity:

https://gmk.center/en/infographic/chinas-steel-market-in-2021-2023-overcapacity-and-export-growth/

 

Quote

Every year China increases steel capacity while reducing apparent steel consumption

 

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The EU protects its steel market through import quotas and anti-dumping measures. However, steel supplies from China to the EU grew by 97.5% y/y in 2022 and decreased by 0.1% y/y in 2023, despite many trade restrictions. This growth was caused by the difficult situation in the EU steel industry after Russia’s full-scale invasion of Ukraine. The bloc’s industry faced a sharp rise in energy prices, which, in turn, made it impossible for local products to compete with cheaper Asian ones.

 

Quote

The US is doing a much better job of protecting its domestic market from Chinese products. In particular, President Joe Biden recently instructed the U.S. Trade Representative to increase tariffs under Section 301 of the Trade Act of 1974 on $18 billion worth of imports from China. This step includes raising the tariff rate on certain steel and aluminum products of Chinese origin from 0.0-7.5% to 25% in 2024.

 

It's incredible to see Europe doing mostly nothing so far about their situation:

https://luxmetalgroup.com/global-steel-prices-plunge-unraveling-chinas-real-estate-crisis-and-its-ripple-effects/

 

Quote

 

United States

The US raised tariffs on certain steel and aluminum products from 0-7.5% to 25% earlier this year. This move aims to protect domestic producers struggling with the dual challenge of competing against cheaper imports and meeting stricter environmental regulations.

European Union

In the EU, anti-dumping investigations into Chinese steel imports have gained momentum. Policymakers are determined to level the playing field for local producers, who face significant cost disadvantages compared to subsidized Chinese exports.

 

[tnathan]

Does anyone have a sense for which smaller U.S. suppliers are very entrenched with the European Defense primes? There have to be some U.S. stocks that are selling off here but could actually be beneficiaries as Europe increases spend...

[tnathan]

1 hour ago, tnathan said:

Does anyone have a sense for which smaller U.S. suppliers are very entrenched with the European Defense primes? There have to be some U.S. stocks that are selling off here but could actually be beneficiaries as Europe increases spend...

After some research I ended up buying a 2% position in Moog