Arotech Corp. is Diversified and Growing – Analyst Blog (ARTX)

Ken Nagy, CFA

Arotech Corp. is Diversified and Growing

Arotech Corporation (ARTX) is a defense and security products and services company, engaged in three business areas: interactive simulation for military, law enforcement and commercial markets; batteries and charging systems for the military; and high-level armoring for military and nonmilitary air and ground vehicles. ARTX has a very strong diversified revenue stream which cuts across both foreign and domestic military, municipalities, and private firms. In several of the business divisions the Company faces fragmented or often times no competition.

Training and Simulation Division
The division is further broken down into three product areas: Vehicle Simulation, Military Operations, and Use of Force; ARTX provides simulators, systems engineering and software products focused on training vehicle operators for cars and trucks. Customers include United States military, government, municipalities, and private industry through the FAAC name. The fully interactive driver-training systems feature state-of-the-art vehicle simulator technology enabling training in situation awareness, risk analysis and decision making, emergency reaction and avoidance procedures, and proper equipment operation techniques.

Battery and Power Systems Division
The Arotech Corporation Battery and Power Systems Division consist of three wholly owned subsidiaries of Arotech Corp. Electric Fuel Battery Corporation, Electric Fuel Limited, and Epsilor Electronic Industries. The Division manufactures and sells Lithium and Zinc-Air batteries (along with several other products) for defense and security products that have been used in both Afghanistan and in Iraq.  The Division’s main products include Lithium Ion Primary and Rechargeable batteries, Zinc-Air Batteries, Vest and Lifejacket safety lights, Chargers and State of Charge Indicators (SOCI) and batteries for sea, ground, air and space. One program in particular (SWIPES) holds promise

SWIPES
SWIPES is Arotech’s new patent pending technology that stands for Soldier Worn Integrated Power Equipment System. The system consists of a hub with 4 adapter leads and 1 power input lead. It is designed to be soldier worn in the protective vest outside the armor plate, but can also be used independently. The goal was to reduce the battery weight carried by soldiers by up to 30% on multi day missions. The Swipes system is a modular power distribution system that was designed for use with the Primary Zinc Air, BA 8180, ZA 8140 Short and the ZA 8140 Conformal batteries as the power source. The BA 5590, BB2590 or LI 145 may also be used.

•     Hub contains circuit protection
•     Hub and 5 connected 8” weigh approximately 6 oz.
•     Chargers weigh approximately 6 oz each.
•     Specialized applications can be developed upon request.

Armor Division
The ARTX Armor division specializes in armoring vehicles and manufacturing armor kits for aircraft and vessels by using state-of-the-art lightweight ballistic materials, special ballistic glass and advanced engineering processes. The Company fully armors military vehicles and civilian SUVs, buses and vans. This division also provides ballistic armor kits for rotary and fixed wing aircraft under the name Armour of America.
 
The Fight Against IEDs
According to the CRS report for Congress, since October 2001, Improvised Explosive Devices (IEDs, or roadside bombs) have been responsible for many of the more than 2,000 combat deaths in Iraq, and 178 combat deaths in Afghanistan.

Due to budget constraints and weak economic outlooks for many countries, 2011 will be a challenging year for all defense firms. However, due to the protective nature of Arotech’s products and their diversified revenue stream we feel the firm will outperform the overall defense industry. Beyond 2011 several products such as the Tiger and David armored vehicles, the underwater vehicle market, and the space satellite business has the ability to drive top and bottom-line growth for several years. We value the firm at $ 3.00 per share and initiate our outperform rating.
 

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