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Updating as previous valuation for Adacel was stale.
This company provides flight simulation for pilots, airport ground simulation and air traffic services globally.
I don't expect this company to shoot the lights out in terms of future growth; but I do currently feel they are undervalued. They also pay a respectable dividend. In addition, the company has restarted its share buyback program.
I'm estimating earnings of 8m for FY2022 and PE of 16. This gives it a market cap of $128m. 76.64m shares outstanding gives a share price of $1.67.
Disclosure: owned in strawman and personal
Nice win for the company here with a FAA awarding a fresh contract worth $59m over 5 years.
Hopefully there are more wins to come and a consequent re-rate on the back of it for long-suffering holders.
Adacel doubles reported PBT in H1 FY2021, increases guidance for FY2021 and declares interim dividend
Highlights:
Presentation;-
https://assets.website-files.com/5da4a6db96a90c56ae7991c7/602e6e7b9734847a6224cbd8_H1-FY2021-Investor%20Presentation.pdf
Following up on the FY2021 results, my concern is the lack of both revenue growth and earnings growth guidance for next financial FY2022.
However, this sounds like it's related to increased spending in order to drive growth:
"Having solidified Adacel's operational, product, and financial foundation, this year we will invest in our sales capabilities to drive future growth. Moreover, we will continue to drive shareholder returns through our balanced capital management strategy, including dividends, share buybacks, and potential M&A activity."
I will continue to hold until I see any issues with this business statergy.
As someone who works in the industry I was surprised to find a listed ATM system provider listed on the ASX. I thought I would share my views as to why I won't invest in ADA to help other members better understand the industry.
ATM systems are not replaced very often due to the safety, organisational change and capital requirements of an ATM system. System lifecycles are normally at least a 10+ year commitment (for basic systems and 20+ years for complex) and will undergo continual upgrades during that time.
Adacel seems to play at the very bottom end in terms of scale and capability. There is definately a market for smaller Air Navigation Service Providers (ANSPs) to have off the shelf type solutions. However, once you get to an ANSP with any level of decent traffic the system is built to spec as per the ANSP requirements from a baseline software. For example, I was blown away that Seychelles can replace their current ATM system for only $3.6 mil US. Much larger providers would be spending 100x this to upgrade a system.
There are only so many of these small ANSP providers, with the long product lifecycles of the systems purchased from Adacel, long term growth is very limited in my opionion.
Adacel's simulators seem extenstively used worldwide including Australia. These appear to be very popular and the most interesting part of the business to me. However, again, there is only so many simulators required. Most ANSPs that need simualtors will already have one. There is no new market you can create so growth longer term is limited to replacement plus industry growth in the training of ATCs.
General observations:
Nice straw from @Dominator, with a lot of valid points raised.
However, one can argue that the current price of the company (even after the 4x from last year's lows) already accounts for the sluggish, lumpy growth and industry characteristics, by awarding the shares a multiple that is considerably below the market average (around 13x now after the post-earnings pop). In other words, they can continue to expand in their smaller niche and clip the ticket on service/project revenues in the meantime.
The renewed board and management seem to have righted the poorly managed ship of years past, and the company seems to be gradually returning to the market's good books.
They are coming off multiple earnings upgrades in FY21, and while guidance is a bit tepid for FY22, there is scope for the upgrade cycle to continue as the year progresses with the new found conservatism shown by the current operators. The company's financial position is also sound with ~ 11m of net cash on the balance sheet.
Adacel released their managements Long Term Incetive Plan. This applies to the:
- CEO
- Vice President of Business Development & Strategy
- Vice President of Operations
The company has agreed to issue 406,000 performance rights that will vest after FY24 results are relased.
Management are required to achieved an annual return on invested capital (ROIC) of 26% or greater over 3 years (25% rights vesting).
Managerment are also required to achieve an annual growth rate in revenue of 10% or greater over the 3 years (75% rights vesting).