ADA – Adacel Technologies

Taylor Collison has also rated Adacel Technologies as an Outperform, despite a disappointing first half.

Adacel deals in air traffic management and air traffic control simulation in the global civil and military aerospace sector.

It has products and services including air traffic control simulators, air traffic management, a voice-activated cockpit system, speech recognition, support services, ATC environment, airport driver training and homeland security.

According to the broker, ADA has the opportunity to double its annual revenues over the next 18 months based on the award of six tenders.

Approximately 20 per cent of ADA’s contracted base is up for renewal over that same period, while nearly half of the revenue base is underwritten by a 12-year contract still in its first year.

“We view ADA as an asymmetric bet on tender success with limited downside risk,” said Taylor Collison.

On the current $US30 million revenue base, ADA generates around $US3 million in normalised net profit.

“We think incremental revenues will contribute 25 per cent EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin without any material increase in SG&A (selling, general and administrative) costs.”

The broker says the full effect of ADA’s contract wins will only start to flow through into the financials in FY25, due to the implementation requirements involved.

“ADA is fairly priced based on current operations, but we see option value for tender success.

“We think ADA will succeed on at least one of the six opportunities, driving operating leverage and a material earnings improvement.

“Based on the above we maintain our Outperform,” said the broker.

Taylor Collison did not publish a target price on ADA.