adacel-positive signals

Thorney recently increased its holding in Adacel by 3%. This is significant because Thorney is run by Alex Waislitz, who also sits on Adacel's board. Indications are that Thorney is keen to increase its holdings further over the next few years and possibly take a controlling stake. My guess is that Thorney is increasing its holding for three key reasons.

First, in recent years, despite strongly performing North American operations, Adacel has been held back from acheiving a profit by poorly performing Australian operations, and, in the last FY, a strong $A. My guess is that Alex Waislitz knows that Adacel is likely to sell the remainder of its Australian business software operations sooner rather than later. He probably also recognises that the $A has peaked against the $US and Canadian dollars.

Second, Adacel's North American operations (air traffic control simulation systems) are expected to perform well over the next few years, boosted by increased military and civil aviation spending. Europe and Asia also look set to follow suit.

Third, and most importantly, Adacel was recently awarded a multi-year contract by Lockheed Martin to develop speech recognition software for the Joint Strike Fighter. This contract, which will run at least until 2010, is potentially worth hundreds of millions of dollars for Adacel (the company hasn't yet released any figures). Additionally, speech recognition technology is likely to become standard equipment in ALL military aircraft in the next few years. So the technology Adacel has developed (and is developing) for the Joint Stike Fighter will also have applications for existing military aircraft. If this technology is retrofitted on existing aircraft, as most experts predict, Adacel will be in line for a huge surge in revenue in the medium term. And if the technology is retrofitted on commercial aircraft as well, Adacel will become a billion dollar market cap company.

Summing up, while Adacel has disappointed the market for a few years now, insiders such as Thorney recognise the massive potential of this company and continue to pump money into it. For investors interested in a long term technology play, at current prices Adacel is a strong buy IMO.