70c valuation/strong buy, page-28

re: another contract/hot rod Hot Rod,
My main criticism of ADA management is that they held on to their loss-making Australian 'Business Solutions' segment for far too long. They exited this business completely last year, but in my opinion they should have done this 3 years ago. It seems that the CEO had a sentimental attachment to the B.Sol business because it was from this business that ADA was originally formed. Had they sold this part of their business three years ago, ADA would be trading north of $1 right now.

I know for a fact that the new board (strongly influenced by Thorney) is very focused on profits, and and there is a new sense of discipline within the company re keeping costs down. The CFO has a reputation as a cost-cutter, and seems to have reduced ADA's cost base by around $5mill this FY without sacrificing revenue.

You should also keep in mind that ADA now has an installed base of something like 200 simulators. This means that they are now getting more high-margin, support and servicing business. Support and servicing is reliable, continuing, cream business.

I remain cautiously optimistic that ADA will report a modest profit this FY, and a substantial profit in FY06. I think FY06 could be substantial because ADA is in poll position to receive a large contract (perhaps $100mill) from the FAA later this year (the FAA have already mooted this contract in public documents). Hence my 70c valuation leading up to the FY05 full year results and my $1 valuation leading up to the FY06 full year results.