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Growth Portfolio: Adacel Technologies Ltd (ADA) - Buy


Published 09-JUN-2016 00:00 A.M.


1 minute read

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Overview: Adacel Technologies Limited ("Adacel", "the Company") is an Australian software company focused on civil aviation and air defence. The company’s products include air traffic control systems, training software, and voice recognition technology. Adacel’s software is being used in North America, Europe, the Middle East, and the Asia Pacific.

Catalysts: Adacel has a strong order pipeline and with 60% of revenue recurring in nature, income visibility over the medium-term is strong. The Company has increased revenue for the past two consecutive years and generates free positive cashflow. Adacel has $11.3 million in cash and no debt.

Hurdles: Adacel has an extended history of volatile sales and earnings, and there is no guarantee its recent momentum can be sustained. Its current valuation incorporates a degree of ongoing growth. With entry barriers falling in the software industry over recent years, there is a risk the Company could become subject to increasing competition.

Investment View: Adacel offers profitable exposure to demand for enterprise software. We are attracted to the company’s earnings momentum, balance sheet, and income visibility. Whilst the current valuation assumes a degree of ongoing growth, we anticipate that evidence of sustainability, the recent implementation of dividends, and enhanced liquidity could drive further capital growth. We initiate coverage with a ‘buy’ recommendation.

General Information Only

S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.

Conflicts of Interest Notice

S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.

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The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.

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