Brokers note, page-5

From Motley F.

Is Adacel Technologies Limited a buy at this share price?

Adacel Technologies Limited (ASX: ADA) has seen its share price sink from a high of $3.17 earlier this month to its current level of around $2.80 – despite a big 5% move last week.

The flight simulator and control systems developer saw its share price go virtually nowhere from a low of $2.35 on august 25 to around $2.54 on September 5, despite announcing an 83% increase in net profit after tax for the 2016 financial year on August 23.

But as soon as Adacel released its investor presentation on September 6, the share price has rocketed up. Perhaps it’s because the company said in its outlook that its opening orders book for the 2017 financial year was the strongest in the company’s history. Or because the company noted that the US Federal Aviation Administration (FAA) had recently started hiring 1,400 new air traffic control students – which will increase demand for training systems.

Or maybe it was because the US Navy has announced US$25 million of planned simulation system purchases over the next 3 years – and Adacel is already a provider to the US Navy.
Most likely it was a combination of all of those and the fact that the French government is expected to award a contract for a new Air Traffic Management (ATM) system in Martinique and Guadeloupe. Adacel won the first system in 2015 and is one of only three companies qualified to bid.

In other words, this financial year is shaping up as a strong year for the company.
Currently trading on a trailing P/E ratio of 24.2x earnings, broker Bell Potter is forecasting double-digit earnings growth for the next three years – which might even be understating Adacel’s potential.

The broker expects the P/E ratio to fall to around 15.4x in FY2019, but if the company continues to generate strong earnings per share growth, a share price above $4.00 is highly possible.

Foolish takeaway
Adacel has some very attractive features, including recurring revenues, international earnings, strong (and long) customer relationships backed up by a growing industry which should see demand for its products and services increase. Add this one to your watchlist.