Technology business on 10x FY15 PE and Growing in FY16

ADA are a technology business providing Air Traffic Management and Simulation and Training systems with market leading positions and long term relationships with the likes of the US Defence Force, RAAF, the US Federal Aviation Administration, etc.

The company popped up on my radar with their announcements of strong contract wins underpinning growth and got me interested. The FY15 profit upgrade confirmed the impact to earnings would be significant and gave me more reason to start buying a bit more heavily.

It remains very cheap on FY15 forecast earnings. Ex their net cash of $7m its on a PE of just 10x. That PE is very conservative for a technology business with market leading positions in Air Traffic Management and Simulation and Training (their two main divisions). Note that todays contract announcement noted that it is additional to previously stated guidance, suggesting it should help push earnings to the top end of that range. There was a $0.8m one off bad debt expense in the 1H so when you take that out they are forecasting $5.3-$5.8m PBT for FY15. Market cap is just $47m.

The most exciting part is that in the preceding few months they have locked in contracts of more than $120m AUD to be delivered over the next several years. That provides them with huge revenue support and enough optimism for them to signal that FY16 will be a year of growth over FY15. Past performance has been lumpy owing to budget restraints for their key clients (US budget freeze, etc) but these contracts are now in place and provide a very good base to grow off. Just one division (Simulation and Training) has locked in US$95m of contracts over the next few years, with US$15m of that to fall in this year (and the reason for the strong profit upgrade last week). That is very significant given the 1H revenue was just $17m.

Thorney Group are the largest holder (run by Alex Waislitz, ‘Australia’s Warren Buffett’) and have one of their guys as Chairman. They are long term holders and bought a lot of their stock at prices around and above todays price of 60c.

Put it on a PE of 20x for FY15 and it is worth >$1. If the contracts come through in FY16 then it is much more. FY16 should also see a healthy dividend too. As everyone here says, DYOR, but I suggest ADA is one to look at.

Surprised there is no talk of ADA on Hot Copper yet, but I take that as a very strong positive as it remains under the radar.

There is more to the ADA story (one example of which is their newly released speech recognition technology) and I’ll post more in time, but this is a good starter to begin looking at it.