ADA Details

Awarded a USD 3.6 million Contract: Adacel Technologies Limited (ASX: ADA) is a leading global architect of air traffic management and training solutions. On 23 June 2021, the company was awarded a new contract from the Seychelles Civil Aviation Authority (SCAA) valued at over USD$3.6 million to modernize its air traffic management system. Under the contract, the current ATM system of SCAA will be replaced with ADA’s Air Traffic Management system and is expected to be executed over a 24-month period.

H1FY21 Result Highlights: For H1FY21, the company reported revenue of $20.58 million, up 4.4% on pcp. The company delivered a profit before tax (PBT) of $4.2 million in H1FY21 compared to $2.1 million for the prior corresponding period. During the half-year period, the implementation of some projects was affected by the COVID19 restrictions. The company’s services segment witnessed negative currency headwinds over the period and reported slightly lower revenue.  For the half-year, the company paid an interim dividend of 2.75 cents per share. As of 31 December 2020, the company had a cash balance of $5.2 million.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risk: The company is exposed to the risks and uncertainties caused by the COVID-19 pandemic. The renewal of contracts remains a risk that the company’s management and the Board continue to actively monitor and manage.

Outlook: For FY21, the company expects its profit before tax to be in the range of $7.00 million and $7.3 million. The company is in advanced negotiations with multiple new potential customers.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of ADA gave a positive return of 51.14% in the past nine months and a positive return of 127.58% in the past year. The stock is currently trading higher than the 52-weeks’ average price level than $0.405-$1.100. The stock of ADA has a support level of ~$0.88 and a resistance level of ~$1.1. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price with a correction of low single digit (in % terms). We believe that the company can trade at a slight discount than its peer median, considering its higher debt to equity ratio and lower current ratio in 1HFY21. For this purpose, we have taken peers like Skyfii Limited (ASX: SKF), Reckon Limited (ASX: RKN), Ansarada Group Limited (ASX: AND) and others. Considering declining revenue levels over the past few years, decent returns in the past nine months and in the past one year, current trading levels, and valuation, we give a ‘Sell’ rating on the stock at the current market price of $0.990 (as on June 25, 2021, 12:44 PM (GMT+10), Sydney, Eastern Australia).

ADA Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Technical Indicators Defined:  

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Disclaimer - This report has been issued by Kalkine Pty Limited (ABN 34 154 808 312) (Australian financial services licence number 425376) (“Kalkine”) and prepared by Kalkine and its related bodies corporate authorised to provide general financial product advice. Kalkine.com.au and associated pages are published by Kalkine.

Any advice provided in this report is general advice only and does not take into account your objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your objectives, financial situation and needs before acting upon it.

There may be a Product Disclosure Statement, Information Statement or other offer document for the securities or other financial products referred to in Kalkine reports. You should obtain a copy of the relevant Product Disclosure Statement, Information Statement or offer document and consider the statement or document before making any decision about whether to acquire the security or product.

You should also seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice in this report or on the Kalkine website. Not all investments are appropriate for all people.

The information in this report and on the Kalkine website has been prepared from a wide variety of sources, which Kalkine, to the best of its knowledge and belief, considers accurate. Kalkine has made every effort to ensure the reliability of information contained in its reports, newsletters and websites. All information represents our views at the date of publication and may change without notice.

Kalkine does not guarantee the performance of, or returns on, any investment. To the extent permitted by law, Kalkine excludes all liability for any loss or damage arising from the use of this report, the Kalkine website and any information published on the Kalkine website (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine hereby limits its liability, to the extent permitted by law, to the resupply of services.

Please also read our Terms & Conditions and Financial Services Guide for further information.

On the date of publishing this report (referred to on the Kalkine website), employees and/or associates of Kalkine do not hold interests in any of the securities or other financial products covered on the Kalkine website.