equity research - asx · earnings and valuation: we forecast ada to report npat of $8.2m in fy17e...
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EQUITY RESEARCH
Information Technology
3rd February 2017
DISCLAIMER: Foster Stockbroking Pty Ltd does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Refer full disclosures at the end of this report.
Adacel Ltd (ADA.ASX)
David snaring Goliath
Event:
We initiate research coverage on Adacel Ltd (ADA).
Investment Highlights:
ADA is major global provider or air traffic management (ATM) and air traffic control (ATC) training simulation systems, as well as speech recognition products. The company employs real-time software, simulation, and voice activated control technologies in its core products.
Aurora is ADA’s ATM system to automatically monitor and manage aircraft in various airspace environments. Key benefits to customers are enhanced airline safety; efficiency gains by automation of air traffic control; improved communications and decision-making; and reduction of flight times and delays. ADA claims that Aurora systems account for managing 75% of oceanic airspace.
MaxSim ATC simulators – MaxSim - allow efficiencies in training of air traffic controllers by minimising the need for instructors, reducing training time, and simulating various conditions that may be encountered. There are over 341 MaxSim installations in over 30 countries. Major customers include the Federal Aviation Authority (FAA, 50 installations) and the United States Air Force (92).
The outlook for both ATM and simulation is positive. ATM is forecast to grow at 11.7% CAGR to US$87b in 2022e (source: MarketsandMarkets) while International Civil Aviation Organisation forecasts $12b p.a. of spend. Drivers include increasing passenger travel; increase in drones; increasing congestion; greater focus on safety; modernisation of airports and aircraft; and technology changes. The FAA has stated it wants increased training air traffic controllers, stating it is hiring 6,300 new controllers over 2015-2020e.
While provision of ATM and simulators is competitive, ADA has established a significant presence with some of the world’s leading military and civil aviation bodies including the FAA, USAF, and US Army. The company protects its product mostly via trade secrets. Giants Leidos and Lockheed Martin have relied on ADA to supply systems that they cannot provide themselves to the FAA.
Most customers opt for support services. Systems comprises one-off and lumpy type hardware and software sales, while Services includes more reliable and predictable sales generated from product maintenance; field services, and support. Most customers opt for multi-year support contracts.
Successful retention. The average age of ADA’s customers’ contracts is over 8 years, while that of the twelve oldest clients is 15. This reflects the clients’ satisfaction with ADA’s systems and the ongoing support provided.
Earnings and Valuation:
We forecast ADA to report NPAT of $8.2M in FY17e and $8.9M in FY18e, driven by sales growth. We expect 1HFY17e NPAT of $4.1M. We model ADA by DCF, and determine an NPV10 per share of $2.60 now and $2.79 in one years’ time.
Recommendation:
We initiate with a Buy recommendation on ADA and 12-month price target of $2.79/share based on our valuation. Catalysts for the shareprice include: 1) Increasing sales and earnings; 2) New customers: 3) Retention and enhancement of existing contracts; and 4) New products.
Recommendation Buy
Previous n/a
Price Target $2.79
Previous n/a
Risk Medium
Share price $2.38
ASX code ADA
52 Week Low-High $1.815-$3.55
Valuation $2.60 now; $2.79 in 12 mths
Methodology DCF
Capital Structure
Shares on Issue (M) 79
Market Cap (A$M) 189
Net Cash/(Debt) (A$M) 15.8
EV (A$M) 173
Diluted mkt cap (A$M) 189
12mth Av Daily Volume ('000) 324
Y/e Jun FY16a FY17e FY18e FY19e
Sales $M 47.9 52.4 58.5 65.3
EBITDA $M 11.9 12.9 14.1 15.7
NPAT Adj. $M 7.6 8.2 8.9 10.0
EPS adj c 9.6 10.3 11.3 12.6
DPS c 3.0 4.1 4.5 5.1
PER x 24.9 23.0 21.1 18.8
EV/EBITDA x 14.6 13.4 12.3 11.0
Yield 1.3% 1.7% 1.9% 2.1%
Board of Directors
Peter Landos Non-Executive Chairman
Julian Beale Non-Executive Director
David Smith Non-Executive Director
Silvio Salom Non-Executive Director
Natalya Jurchensin Non-Executive Director
Substantial Shareholders
Thorney Holdings 32.4%
Silvio Salom 9.9%
David Wallace Smith 7.1%
Share Price Graph
Analyst: Mark Fichera +61 2 9993 8162
mark.fichera@fostock.com.au
The analyst owns 21,000 ADA shares.
This report was prpepared by Foster Stockbroking.
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3rd February 2017 Level 25, 52 Martin Place, Sydney, NSW 2000 | +61 2 9993 8100 | www.fostock.com.au 2
Adacel Ltd (ADA.ASX)
Adacel Ltd (ADA)Ful l Year Ended 30 June
Profit and Loss A$M 2016a 2017e 2018e 2019e Financial Metrics 2016a 2017e 2018e 2019eSales revenue 47.9 52.4 58.5 65.3 Sales growth % 14% 9% 12% 12%Other revenue 1.3 1.4 1.6 1.8 EPS growth % 93% 8% 9% 12%
Operating Costs 37.3 40.0 46.0 51.4EBITDA 11.9 12.9 14.1 15.7 EBITDA margin 25% 24% 24% 24%
D&A 0.8 0.9 1.0 1.1 EBIT margin 23% 22% 22% 22%
EBIT 11.1 12.1 13.1 14.6 Gearing (ND/ND+E) nm nm nm nm
Net Interest exp / (income) 0.3 -0.3 -0.4 -0.5 Interest Cover (EBIT/net int) nm nm nm nm
Profit before tax 10.8 12.4 13.5 15.1Tax exp / (benefit) 3.2 4.2 4.6 5.1 Average ROE % 45% 36% 32% 30%
NPAT before minorities 7.6 8.2 8.9 10.0 Average ROA % 66% 53% 47% 43%
Minority interest 0.0 0.0 0.0 0.0Rep. NPAT 7.6 8.2 8.9 10.0 Wtd ave shares (M) 79.3 79.3 79.3 79.3
Significant items 0.0 0.0 0.0 0.0 Wtd ave share diluted (M) 79.3 79.3 79.3 79.3
NPAT attributable reported 7.6 8.2 8.9 10.0
Valuation multiples 2016a 2017e 2018e 2019eEPS diluted (c) 9.6 10.3 11.3 12.6 P/E x 24.4 22.5 20.7 18.4DPS diluted (c ) 3.0 4.1 4.5 5.1 EV/EBITDA x 14.2 13.1 12.0 10.7
EV/EBIT x 15.2 14.0 12.9 11.5
Cashflow A$M 2016a 2017e 2018e 2019e EV/sales x 3.5 3.2 2.9 2.6
EBITDA 11.9 12.9 14.1 15.7 Dividend yield % 1.3% 1.8% 1.9% 2.2%
Change in WC 2.7 -0.4 -0.1 -0.2Tax paid -3.3 -4.2 -4.6 -5.1 Equity Valuation - DCF Now 12 months timeNet interest 0.1 0.3 0.4 0.5 A$M A$/sh A$M A$/sh
Other 0.0 0.0 0.0 0.0 Enterprise value 187.7 2.37 198.0 2.50
Operating Cashflow 11.3 8.6 9.8 10.9 Net cash (debt) 18.2 0.23 23.4 0.30
Equity (NPV) 205.9 2.60 221.4 2.79
Capex -0.5 -0.6 -1.1 -1.2Investing Cashflow -0.5 -0.6 -1.1 -1.2
Shares on issue MEquity raising 0.0 0.0 0.0 0.0 Ordinary shares 79.3Dividends paid -2.0 -3.0 -3.4 -3.8Other -0.7 0.0 0.0 0.0
Financing Cashflow -2.7 -3.0 -3.4 -3.8 Major shareholders InterestThorney Holdings 32.4%
Net Cashflow 8.2 5.0 5.3 5.9 Silvio Salom 9.9%David Wallace Smith 7.1%
Balance Sheet A$M 2016a 2017e 2018e 2019e BoardCash 15.8 20.8 26.1 32.0 Peter Landos Non-Executive Chairman
Receivables 8.6 9.6 10.7 12.0 Julian Beale Non Executive DirectorPPE 1.7 1.4 1.5 1.6 David Smith Non-Executive DirectorIntangibles 1.0 1.0 1.0 1.0 Silvio Salom Non-Executive DirectorInventories 0.2 0.2 0.2 0.2 Natalya Jurchensin Non-Executive DirectorOther 5.0 5.0 5.6 6.2Total Assets 32.3 38.0 45.2 53.1
Accounts payable 4.9 5.2 5.9 6.6Provisons 0.4 0.4 0.4 0.5
Tax liabilities 1.9 2.1 2.4 2.6Borrowings 0.0 0.0 0.0 0.0
Advanced payments 2.3 2.6 2.9 3.3Other 2.5 2.6 2.8 3.2
Total Liabilities 12.0 12.8 14.5 16.2
Reserves and capital 74.0 74.0 74.0 74.0Retained earnings -53.8 -48.8 -43.3 -37.1Total Equity 20.3 25.2 30.7 36.9
Source: Company; Foster Stockbroking estimates
3rd February 2017 Level 25, 52 Martin Place, Sydney, NSW 2000 | +61 2 9993 8100 | www.fostock.com.au 3
Adacel Ltd (ADA.ASX)
GLOBAL PROVIDER OF AIR TRAFFIC MANAGEMENT AND SIMULATION SYSTEMS
Adacel (ADA) is a major global provider of air traffic management (ATM), air traffic control (ATC),
and training systems to the global airspace market including civil aviation authorities, airports,
military, aviation colleges and universities, and commercial enterprises.
ADA’s ATM systems are used by air traffic controllers to manage, assist, and control aircraft to
land and depart airports, as well as transit airspace. A key target is the safe and timely flow of
aircraft in and out of airspace and airports, such that it minimises risks of collisions while
maximising number of aircraft. The company’s ATC simulation systems are used for the training
of air traffic controllers.
ADA has employed real-time software, simulation, and voice activated control technologies in
its products which include simulation technology, visual scene generation, speech recognition,
safety critical software, pilot controller training, voice activated cockpit, airport driver training,
and homeland security.
The company has corporate, administration, and Asia Pacific headquarters in Melbourne; an
office in Orlando, Florida to serve the US; and Montreal, Quebec premises to serve other
international markets. ADA has 225 employees, with about 100 in Montreal, chiefly engaged in
engineering, software development, and product management. The balance of staff is mostly in
Orlando and focus on executive functions, support and administration.
AURORA – ADA’s AIR TRAFFIC MANAGEMENT SYSTEM
ADA’s core product for air traffic management is the Aurora ATM system, which comprises an
open architecture, modular, and satellite-based air traffic automation software. It provides
automated monitoring and management of aircraft in continental, oceanic, en-route, terminal,
approach, and tower regions airspace. It can be configured for a standalone workstation up to
multi-sector operation.
Air controllers use Aurora to manage high volumes of aircraft flights. Aurora can integrate with
data linked from various hardware such as satellite, radar and other surveillance technologies.
Aurora is flexible, allowing for handling different types of aircraft using both conventional analog
and NextGen satellite communications.
Aurora processes flight data and updates ATM in real-time
Key functions of Aurora include:
o Sophisticated flight data processing. Aurora processes route and information from
flight plans, automatic data surveillance (ADS) reports, and downlink requests to
generate flight profiles used for conformance monitoring, conflict probes, and
clearances. Aurora can incorporate a range of surveillance sources, such as radar, ADS,
controller pilot data link communications (CPDLC), and voice position reports.
o Performance based navigation;
o Advanced aircraft-to-aircraft conflict determination. Aurora analyses aircraft
equipment and airspace to ensure protection of aircraft by detecting any conflicts on
its route. The International Civil Aviation Organisation (ICAO) specifies that aircraft
must be kept separately by minimum distances both vertically and horizontally. Aurora
supports safety nets such as Short Term Conflict Alert (STCA), Area Proximity Warning
(APW), Wake Turbulence Category (WTC) and Minimum Safe Altitude Warning
(MSAW).
ADA supplies air
traffic management,
air traffic control,
and training
systems.
Real time software,
simulation, and
voice activated
control technologies
are key in ADA’s
products.
Aurora automates
air traffic
management,
aircraft conflicts
determinations, and
flight profiles.
3rd February 2017 Level 25, 52 Martin Place, Sydney, NSW 2000 | +61 2 9993 8100 | www.fostock.com.au 4
Adacel Ltd (ADA.ASX)
o Update internal flight profiles. Using information from surveillance data Aurora can
perform conformance monitoring.
o Monitoring and calculating flight path position, altitude, and time. Involves modelling
routes, and other air traffic, and determining whether any conflicts occur.
o Automatic coordination between adjacent centres and airspace regions.
o Integrated display of all surveillance sources and data.
Figure 1: Example of Aurora’s Airspace Situation Display
Source: Company.
Enhances safety while reducing fuel and labour costs by determining optimal flight routes
Key benefits that Aurora provides include:
o Efficiency gains from automating air traffic control. Requiring less personnel and time.
o Ensuring airline safety by detecting any conflicts on aircraft route, approach, take-off,
and taxiing via increased surveillance and predictability leading to enhanced conflict
determination;
o Reducing controller workload and stress, through automation of processes;
o Minimise aircraft delays by more efficient routing ;
o Saving fuel consumption, reducing emissions. Can dynamically re-route during flight
for most efficient path;
o Reducing flight time by enabling more direct routing;
Benefits from
Aurora are
enhanced safety,
reduced controller
workload, fewer
delays, reduced
flight times, and fuel
savings.
3rd February 2017 Level 25, 52 Martin Place, Sydney, NSW 2000 | +61 2 9993 8100 | www.fostock.com.au 5
Adacel Ltd (ADA.ASX)
o Greater flexibility and responsiveness to inflight requests through timely
communications. For example request to change flight route based on weather
changes;
o Increase airspace capacity through efficiency in managing aircraft and better airspace
utilization;
o Minimises processes and communications. For example on deciding and
communicating whether to give clearance or not to when an aircraft requests to alter
flight route; and
o Enhances decision-making. Aurora provides automatic data exchange with various
external systems such as airports, airlines, billing and meteorological systems to enable
collaborative decision making by air traffic controllers.
AURORA CUSTOMERS AND INCLUDE FEDERAL AVIATION AUTHORITY (FAA)
Used to manage over 75% of world’s non-radar controlled oceanic airspace
Aurora serves in over 75% of the world’s non-radar controlled oceanic airspace, or 41M square
miles, equivalent to 21% of the earth’s surface. It has an installation base of 9 ATM systems
across 7 countries.
Figure 1: Aurora Controlled Airspace
Source: Company
Aurora customers include:
o ISAVIA. National airport and air navigation provider of Iceland has installation at
Reykavik airport which services 5.4M sq kms in North Atlantic.
o NAV Portugal. Portugal’s air traffic and navigation service provider uses Aurora at
Santa Maria airport for the North Atlantic Oceanic (Santa Maria) flight region, which is
adjacent to US airspace. It is a single integrated system for oceanic, en-route, approach,
and tower control. In 2015 ADA was selected to upgrade NAV Portugal’s System
Atlantico (SATL) within Santa Maria Flight Region. SATL already employed Aurora
software. NAV Portugal has been ADA’s longest running contract, with a duration of
18 years.
75% of world
oceanic airspace is
managed by Aurora.
3rd February 2017 Level 25, 52 Martin Place, Sydney, NSW 2000 | +61 2 9993 8100 | www.fostock.com.au 6
Adacel Ltd (ADA.ASX)
o Airways NZ. New Zealand’s air traffic service provider. Installed at Auckland Airport.
FAA largest customer via Leidos
o Federal Aviation Authority (FAA)/Leidos - USA. ADA partners with Leidos to provide
Aurora to manage airspace for the FAA, Aurora being the core software. The FAA is
ADA’s largest customer with revenues of ca. US$11.1M p.a. The contract with FAA has
been in place since 2001 and was renewed in 2014 for eight years. Since 2001 ADA
served the FAA contract in partnership with Lockheed Martin, until mid-2016 when
Leidos was spun out from Lockheed Martin. Since then ADA has continued with Leidos
to serve the FAA.
o FAA uses Advanced Technologies & Oceanic Procedures (ATOP) for air traffic
management of which Aurora software is a component. ATOP is used at all three of
the FAA’s oceanic sites – New York (NY), Oakland (California), and Anchorage (Alaska)
air route traffic control centres.
o ADA at end FY16 signed subcontract agreement with Enroute Computer Solutions (ECS)
on the FAA program. Besides ATM, ADA delivers research and mission analytics,
engineering, and technical services and strategic planning to FAA’s Next Generation air
transportation System (NextGen).
o Airport Fiji – Nadi. Deployed in partnership with SRA International Inc, it extends
Aurora from oceanic to terminal airspace and tower.
o Directorate of Air Navigation Services of France (DSNA) French Guiana. DSNA has
worked with ADA since 2010 to modernise ATM systems in overseas territories of
France.
o Norway’s Avinor. Used to control North Atlantic airspace adjacent to that controlled
by ISAVIA.
ATC SIMULATION SYSTEMS
MaxSim – ADA’s Leading Simulation and Training System
ADA’s ATC simulators allow air traffic controllers to develop higher proficiency and accelerate
their learning process during training and course studies. Controllers can interact with intelligent
virtual pilots in environments that simulate actual airfields. MaxSim is the core simulator
product. Key features include:
o Researching, planning and modelling of air traffic procedures and ATM technologies;
o Training for real life airfield environments with smart virtual (“pseudo”) pilots;
o Mimics airport accurately. MaxSim visuals include landscape, runways, and planes
queuing and taking off;
o Simulate different visual and environmental conditions including weather and
day/night;
o Modelling of airport expansions e.g. future airport modifications, extensions, and
operations;
o Scenario modelling e.g. can present various problems to trainee to experience such as
crisis, emergencies, and extreme weather conditions; and
FAA is served by
ADA via its
partnership with
Leidos, and
previously Lockheed
Martin.
MaxSim is ADA’s
ATC Simulator
primarily used for
training air traffic
controllers.
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Adacel Ltd (ADA.ASX)
o Availability of communications packages including ADA’s speech recognition systems.
MaxSim is available in different configurations including:
o Full–scale tower with radar suite, including precision approach radar (PAR)
o 360 degree wrap around tower (tower-out-the-window LCD visuals ) ,
o Non-radar,
o Single-seat self-paced trainer.
o Portable,
o Small footprint tower,
o Table top, and
o Ruggedized mobile.
Figure 2: ADA MaxSim Simulator Products
Source: Company.
Reduces costs, simulates range of conditions, and accommodates different environments
o MaxSim offers a number of key benefits, including:
o Time to train can be reduced. Controllers do not need to wait for specific conditions
to occur but these can be simulated (for example extreme weather or poor visibility).
Also self-learning and portability means trainees can learn at flexible accommodating
times.
o Less need of instructors, due to self-learning capability; Traditionally air traffic
controllers have trained with one or two computer screens, 2 dimensional screens,
textbooks, on-job training and instructors being present. MaxSim can provide self-
learning with a 360 degree visual scenarios.
o Mobile and portable for staff who need to be moved frequently. This is especially
frequent in the case of the military.
o Can accommodate varying budgets, number of students, room configurations, space,
and training environments. For example, a 360 degree view can be processed to suit
limited space.
A variety of
configurations
means MaxSim can
cater to customers’
different
requirements.
Reduced training
time, less need of
instructors, and
ability to simulate a
wide range of
conditions are
benefits of MaxSim.
3rd February 2017 Level 25, 52 Martin Place, Sydney, NSW 2000 | +61 2 9993 8100 | www.fostock.com.au 8
Adacel Ltd (ADA.ASX)
o Simulates all types of condition that may be encountered, providing students with
realistic hands-on practice and skills required to be a competent controller. Examples
include variable weather extremes, day and night, emergency, crisis, flocks of birds,
difficult pilots etc.
o Realistic landscape airport environment. ADA use GPS details and its own visual
database, upon contract award 1,000 to 1,500 digital picture so airfield at various times
of day top construct realistic airport visuals.
Over 341 installations globally in over 30 countries
ADA has an installation base of 341 air traffic simulation systems – MaxSim and NexSim - in over
210 locations in over 30 countries. Customers include civil aviation authorities, defence agencies,
international airports, commercial enterprises, colleges, and universities. Some of the major
customers include:
FAA – MaxSim over 90% market share of all US deployed simulators
FAA. More than 50 MaxSim towers already been installed for the FAA, and ADA expects it to
increase to approximately 100 systems deployed at various locations throughout the USA after
end of the current US$46M five year contract which runs from 2015 to 2019, making it one of
the world’s largest. ADA’s share of installed simulators in the USA is >90%. Major US airports
with installations include JFK, Chicago O’Hare, and Los Angeles International.
Additionally the contract will generate appx US$4M p.a. in support revenue for the FAA Tower
Simulation Systems (TSS) Program where ADA provides maintenance and sustainability. The FAA
also operates a Collegiate Training Initiative (CTI) program for which ADA has been a leading
supplier of MaxSim simulators. Along with NexSim – another ADA ATC simulator – ADA will have
systems at more than 90% of schools in the CTI program, giving it leading market share.
ENAV Italy – Italy’s civil aviation authority, and the largest international ex-USA contract for
ADA’s ATC simulators in terms of installations. 38 tower simulators installed including at Forli
and Rome’s Fiumicino Airport.
Other major civil airport bodies include USAF – 92 MaxSims
United States Air Force (USAF). The USAF is the largest customer of MaxSims with 92
installations in its airfields both in the US and globally including Turkey, Japan, and South Korea.
It commenced comprehensive software and hardware upgrades as part of a five year support
contract running from 2014 to 2018e under the USAF Tower Simulation Systems (TSS) Program.
ADA’s relationship with USAF dates back to 2002.
Other US Department of Defence organisations. MaxSim systems are used by US Navy, Marine
Corps, US Army, and Special Operations.
Universities and colleges. Some colleges use these to prepare student for FAA academy as the
FAA also uses systems.
Royal Australian Air Force (RAAF). 10 MaxSims are employed by RAAF, including at its School of
Air Traffic Control (SATC) in Victoria, one of largest and most comprehensive air traffic control
simulators in southern hemisphere. It includes 360-degree full immersion simulators, individual
task trainers, and a radar simulator. Deployment includes Newcastle, Darwin, and Townsville.
The contract with RAAF includes upgrade of existing simulators.
Other Defence – Lockheed Martin, Boeing, Raytheon, Singapore Technologies, and Alenia
Aermacchi.
Commercial – CAE, SRA International, and Airbus.
We estimate ADA
has over 90%
market share of
installed simulators
in the USA.
The USAF has the
largest installation
of MaxSims.
3rd February 2017 Level 25, 52 Martin Place, Sydney, NSW 2000 | +61 2 9993 8100 | www.fostock.com.au 9
Adacel Ltd (ADA.ASX)
Figure 3: Global Presence of MaxSim systems
Source: Company.
OTHER PRODUCTS
ADA has a range of other products which have strong synergies with its core ATM and simulation
offering, notably cross-selling opportunities to existing customers.
SPEECH RECOGNITION PRODUCTS
ADA has speech driven and recognition systems for use in simulators and in cockpit voice
commands. Lexix is ADA’s name for its range of stand-alone speech recognition solutions. Both
MaxSim and aircraft cockpit domains currently include speech recognition technology as
software and/or hardware. Besides its own products, Lexix can also offered as a kit to third
parties to integrate into their own systems.
Integrated Communications Environment (ICE)
ICE is an automated air traffic control instruction and self-learning system and complements
ADA’s simulators. ICE uses ADA’s voice recognition technology to teach and assess proper
aviation communication procedures in controller and pilot training. It provides interactive, self-
taught lessons in a virtual ATC environment. It can also be used to competent other tools. For
example ICE is sold with ATC simulators in addition as a standalone system.
Providing students with correct aviation terms and phrases. ICE Provides training for the ICAO’s
English language requirements that private and commercial airline pilots, flight engineer,
navigators, and control tower operators must be proficient in the use of English language.
While English is standard, phraseology can vary between the various national civil aviation
authorities, as well as the military. ICE assists in aviation phrases and terms, procedures, and
proficiency. e.g. for emergency, taxiing, call signs, weather.
No need for instructor. Phraseology can be taught from the simulator as opposed to separate
instructor. ICE provide immediate feedback and corrections – reducing need for instructors by
either supplementing or replacing them, reducing training costs.
ADA’s speech
recognition products
are used as stand-
alone, or employed
with other products
such as simulators.
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Adacel Ltd (ADA.ASX)
Accent neutral makes it truly global product. While English is the standard language for civil
aviation to fly and control planes, there exists a multitude of accents. ADA’s system can function
regardless of a person’s accent, due to unique recognition software, without need of
customisation or modifications. This has enabled ADA to have global footprint of its systems.
The product can also identify co-articulation: when the user enunciates words consecutively and
rapidly which tends to create a slurring effect. Other features include:
o Covers basic knowledge and full task training;
o Can be installed on a single laptop, desktop or network environment;
o Provides trainers with automated student assessment reports;
o Capability to edit speech recognition and course content;
o Shareable and reusable course content;
o Augments current ATC curriculum;
o Enable students to learn and practice at their own pace; and
o Developed as complement to the MaxSim tower
Customers include:
o USAF - Tower Simulation Program;
o FAA - Tower Simulation;
o North American University Customers;
o Tru Simulation – Flight Simulator ATC Environment;
o Lockheed Martin – Flight Simulation ATC for RAAF;
o Boeing Navy - Unmanned combat air vehicle aircraft carrier operations demonstration
system;
o Boeing Apache;
o US Navy - Simulator for training of mission operators in multi new aircraft;
o Italy’s ENAV; and
o Alenia Aermacchi M346 (now Leonardo-Finmeccanica).
Voice Activated Cockpit (VAC).
ADA has taken advantage of increasing human-to-computer voice interaction in aviation with
VAC for aircraft for commands. It is a fast and accurate speech driven solution for civil and
military cockpit control, for both aircraft as well as remote management of unmanned aerial
vehicles (UAVs). VAC has been implemented across arrange of aircraft and operating systems. It
can be offered as a software or full hardware solution.
Key benefits include:
o Eliminating manual input means that pilots’ eyes are focussed on surroundings, be it
weather, landing zone, terrain, or target.
o Frees both the pilots’ hands. For pilots the cockpit can be demanding environment
with work overload. VAC alleviates some of this – the manual work with hands and
controls - with voice commands. It allows pilots to compete tasks more efficiently in
Voice activated cockpit
reduces pilots manual
workload.
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Adacel Ltd (ADA.ASX)
the air, significantly increasing safety and decreasing workload. A single voice
command can automate many tasks that would otherwise require multi step manual
inputs.
o Safety. System responses with aural feedback and command confirmation to pilot to
reinforce safety.
o Doesn’t matter whether speech pattern hesitant, slow or fast. . Voice command can
be issued without pauses between words.
o Can work in high noise environment. VAC can achieve high accuracy recognition rates
proven in operational high noise environments e.g. 120db.
o Real-time feedback. VAC provides real-time feedback and correction on grammar and
phraseology terms use by pilots.
ADA has already delivered speech recognition software for number of aircraft and customers
include the F35 Joint Fighter Strike Program, Airbus, Boeing, and CAE.
ADACEL TECHNICAL SERVICES (ATS) – FIELD SUPPORT
ADA has provided field support personnel to existing customers since 2003, and established ATS
as a separate business to manage field support. ADA employees are collocated with customers’
ADA products, including at locations in Australia, Portugal, and US Army, and FAA facilities in the
USA. This includes controller training contracts with clients to provide ATC instructors. ADA
manages personnel for two FAA regions in the USA, providing 45 employees at various FAA
locations via the SAIC under Controller Training Contract.
ATS provides preventative maintenance, correct installation, troubleshooting, training, and
education courses. Support is available 24/7. For those clients who do not have on-site ADA
personnel, the company can provide annual visits.
AIRPORT DRIVER TRAINING SYSTEMS AND GROUND VEHICLE OPERATIONS
Besides systems for training air traffic controllers and pilots, ADA also provides products to train
airport personnel involved in operating airport ground vehicles and security.
ADA Flightline Driver (AFDS) and Aerodrive
These are self-paced or instructor-led training products for airport driver familiarisation. AFDS
utilises existing MaxSim and 3D airport databases for site specific training, including lesson
scripting tools. Benefits are similar to that for controllers – lowering costs by reducing need for
instructors. The products include site specific 3D visual database depicting both airport and
landside environment, with optional modules including applications such as Airport Rescue and
Fire Fighting. A recent customer is Dallas Fort Worth (DFW) Airport – ca. US$450k p.a - to
upgrade driver training simulator systems for which ADA is providing AreoDrive.
SECURITY SIMULATION
Vulnerability Assessment and Simulation Tools (VAST). Given that airports are security
sensitive, ADA supplies VAST which is a tool for simulation for exercises concerning critical
infrastructure simulation. Besides airports, VAST has applications for other homeland security
such as military bases, fuel supply depots, railways, harbor ports, and nuclear storage facilities.
Sania National Labs utilises the simulator to train security forces at multiple US navy strategic
weapons (nuclear) facilities.
ADA’s support
encompasses field
services.
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Adacel Ltd (ADA.ASX)
VISUAL SCENE GENERATOR
Insight Image Generator. Visual scenes are used across ADA’s product range especially in
simulators. However opportunities exist in other visual markets that comprise training. ADA can
introduce clouds, topographic, and structural features to land and airscapes that already feature
real terrain from its 3D Visual databases. Other products include virtual and augmented reality
support and air traffic environment for flight training.
INTELLECTUAL PROPERTY PROTECTED MOSTLY BY TRADE SECRETS
ADA holds IP to its core technologies mostly in the form of trade secrets, as well patents. ADA
spends about US$1.2M p.a. on research and development. The core IP has enabled ADA to
sought as a partner by much larger multinational industry players such as Leidos and Lockheed
Martin, offering them a competitive edge in their contracts which they could not provide
themselves.
ATM MARKET DRIVEN BY INCREASE IN AIR TRAFFIC AND TECHNOLOGY CHANGES
Market forecast to growth 11.7% CAGR to 2022e
ATM systems include air traffic control, meteorology, air navigation systems, GPS, satellite,
communications, data, radar and other surveillance technologies. Global air traffic systems and
management upgrades scheduled to occur over the next ten years will require US$120bn
investment, according to the ICAO, or US$12b p.a. on average. MarketsAndMarkets (2017)
projects the ATM market to grow from US$50.0b in 2016 to US$97.3b by 2022, at a CAGR of
11.7%, or US$7b p.a on average.
Positive outlook from increase traffic, drones, technologies and airport upgrades
Drivers for the anticipated double digit-growth in the ATM market are numerous and include:
o Increasing passenger travel, especially from the urbanisation and emerging middle
classes of developing countries requiring need for efficient management of airspace;
o Increase in unmanned aerial vehicles (drones);
o Increasing demand and strain on airport capacity, congestion and delays;
o Greater focus on safety improvements to reduce non-compliance whether near-
misses or terrorism;
o Increasing forecast growth in air traffic. Source: FAA Aerospace Forecasts FY2016-
FY2036 (cf. Figure 4). Air traffic has been increasing over the past few years following
headwinds such as 9/11 and the GFC. Globally there were 34M flights in 2015, with
aircraft flying 46.2b km (ICAO);
o Economic growth and accompanying rise in freight volume;
o Increasing use of voice recognition in communication technologies;
o Greater variable weather;
o Desire to reduce emissions; and
o Modernisation of airports, aircraft, and technology changes. Major example is the
transition from ground-based ATC to satellite-based air traffic control, and the
Eurocontrol SESAR Joint Undertaking and FAA Next Generation ATM Initiative.
ATM market
estimated to grow at
11.7% CAGR from
2016 to 2022 by
MarketsandMarkets.
Drivers for positive
outlook include
increasing passenger
travel, safety
improvements,
drones,
modernisation of
airports and
technology changes.
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Adacel Ltd (ADA.ASX)
Figure 4: Forecast Air Traffic Growth 1997-2024
Source: FAA.
SIMULATOR MARKET – INCREASE IN CONTROLLERS ENHANCES OUTLOOK
FAA expects to hire 6,300 controllers over 2015-2020e
The outlook for the simulation market looks positive, especially in terms of the increasing use of
simulators in training air traffic controllers, and the hiring plans of the FAA.
Shortage of air traffic controllers worldwide. The number of fully certified air traffic controllers
in the USA has fallen to a 27 year low, according to National Air Traffic Controllers Association.
Part of this is the mandatory retirement age of 56 years. The FAA has stated it is hiring 6,300
new air traffic controllers over 2015-2020e, or just over 1,000 p.a. The military is also using
simulators, with the US Navy having announced US$25M of planned simulation purchases next
3 years.
Increased air traffic. As air traffic increases, so will the number of controllers required. For
safety reasons, air traffic controllers cannot handle too many flights at once so the number of
flights they control at any one time is limited. This limitation is a major reason for delays to
aircraft departing or landing as controllers can only process so many aircraft safely.
Decentralisation of training. The flexibility, portability, and mobility of simulators allows
trainees to train at their own pace, time, and even own location.
Greater recognition of benefits of using simulators in training. This includes lower costs, less
need for instructors, and speeding up the training process.
Desire by FAA to increase use of simulators
Such are the envisaged benefits of simulators that it is anticipated within the industry that one
day the FAA will legislate the recommended use of simulation training for all operators of all
vehicles in airport environments. The FAA stated in in its report Air Traffic Controller Workforce
Plan 2015-2024 that it is increasing, and wants increased, simulation used in training.
Simulator market
led by FAA’s
program for hiring
of controllers, and
desire to increase
use of simulators in
training.
Air traffic has increased in the last
few years, following the peak in
2000.
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Adacel Ltd (ADA.ASX)
Despite ADA’s high market share, simulator market still has low penetration
FAA has implemented 50 simulators at airports, all exclusively from ADA. However there are
over 19k airports in the USA, of which 3,000 are part of the FAA’s National Plan Of Integrated
Airport Systems, and 600 classified as major airports – i.e. providing international, or at the very
least interstate and statewide flights. The FAA itself operates 316 ATC facilities, mostly being
towers at airports.
So while MaxSim has over 90% market share (with 50 installed) of existing civil simulator
installations, simulators have achieved only small penetration to date of all airport facilities. This
implies a large opportunity still exists for ADA just in the USA.
COMPETITVE LANDSCAPE – ADA’s TECHNOLOGY EDGE PROVIDES IT AN EDGE
ADA finds itself in a competitive market in both for its ATM and simulation products, competing
with some companies that are huge multinationals. However the company has succeeded to
date in achieving significant market share and growing sales. We believe this is due to its IP and
products’ technological edge. We note that some of the competitors do not compete directly
with ADA. Instead they may only offer some product packages for ATC and ATM, with those from
ADA being complementary, or filling in the gap. For example some competitors, such as
Raytheon and Leidos, are customers of ADA.
ATM
Around 50 companies supply various ATM products. The major players include Lockheed Martin
Corporation (US), Thales SA (France), Raytheon Company (US), Northrop Grumman Corporation
(US), Indra Sistemas (Spain), Frequentis (Austria), BAE Systems (UK), Saab AB (Sweden),
Honeywell International (US), and Harris Corporation (USA). Many of these supply just
particular components of ATM e.g. hardware communications systems, with only some
competing directly with ADA’s Aurora.
Simulators
ADA competitors in the simulation space include BAE Systems, KMW (Germany), VT MAK, Oktal
(France), Micro Nav (UK), ICZ Group (Czech Republic), Raytheon Company, and Indra Sistemas.
The company’s MaxSim products – with the flexibility in range, realism offered, and speech
recognition technology – has given it leading market share with the USAF and FAA vs other
players.
CORPORATE APPEAL
We believe ADA is could be an attractive potential M&A target, especially for some of the larger
multinationals. ADA would provide significant penetration into the simulator market within
both the FAA and the USAF. An example of recent activity in the ATM and ATC markets was
Harris Corporation’s US$4.75b acquisition of Exelis Inc in 2015.
While there exist a
number of
competitors, ADA’s
technology edge has
allowed it to carve
out a niche in its
markets.
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Adacel Ltd (ADA.ASX)
REVENUE MODEL – MIX OF PREDICTABLE SERVICES AND ONE-OFF SYSTEMS SALES
Business performance reported as Systems and Services
ADA reports earnings under two segments – Systems and Services. This provides a guide to the
split between purchases which tend to be one-off and lumpy (Systems), and those that are
recurring, consistent, and more predictable (Services). The company sells its products mostly
denominated in US$, while its costs are mostly in C$ and to a lesser extent US$.
Systems - Hardware and software sales and upgrades
Systems revenue is that generated from hardware and software sales, including upgrades,
covering both operational control, simulation, and training. The average price of an Aurora
system is ca. €2M (US$2M, or A$2.7M), while that of simulators can range from US$250k to
US$3M, depending on the size and configuration (e.g. portable or full tower). While competitive
and lumpy, we understand that because of its Services revenue base having become larger, ADA
is now bidding more aggressively for System sales than in the past. 37% of FY16a revenue
reported was from System sales (Figure 5).
Figure 5: ADA Mix of Services and Systems Revenue FY16a
Source: Company; Foster stockbroking estimates.
Services – Support and field representatives
Services comprises recurring annuity revenue streams from system support such as field services
representatives, system and software maintenance, on-site technical services, onsite simulator
operators, scenario and creation training, ATC instructor services, software and hardware
extended warranties, and telephone support. 67% of ADA revenues were from Services sales in
FY16a (Figure 5).
Growing faster than Systems sales
Services revenue since 2015 has grown, and we believe is growing, faster than that of Systems.
Services revenue is being driven by the growing footprint of products and systems and the
broader need for onsite support.
Systems - ATM7%
Systems - ATC Sims & other
30%
Services- ATM30%
Services - ATC Sims & other
33%
Services account for
63% of ADA’s sales,
providing a more
reliable and
predictable earnings
stream.
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Adacel Ltd (ADA.ASX)
Majority of customers opt for multi-year support
ADA’s business model is “end-to-end” products and services. Majority of clients in both areas
tend to opt for ongoing, and typically multi-year, support contracts. This should continue to
smooth out ADA’s revenue stream going forward, and its predictability. Services revenue can
run for several years, and comprise ca. 15%-20% of the initial systems purchase value on an
annual basis.
Long customer contracts reflect satisfaction with both products and services
The average age of ADA’s customer contracts is 8.3 years, while that of the 12 oldest clients is 15
years. This reflects the satisfaction of clients with not only ADA’s ATM and ATC systems, but also
the ongoing service that ADA has provided over the years. The average revenue of ADA’s top
ten contracts is US$3.1M p.a. Long-term recurring revenues account for 50% of forecast
revenues and ADA’s global footprint of ATM and simulators provides visibility and predictability.
The older contract customers include NAV Portugal, Lockheed Martin, US Army, Italy’s Enav, and
the USAF.
High switching costs
Given the critical infrastructure that ATM and ATC represent to flight safety and airport
operations, clients are reluctant to switch unless there is dramatic underperformance. Also
maintenance and upgrades are regular to maintain integrity and safety of aircraft, airports, and
airspace. We believe this is reflected in the lengthy duration of some of ADA’s key contracts.
Majority of
customers opt for
support, with service
revenue running at
15%-20% p.a. of an
initial systems sale.
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Adacel Ltd (ADA.ASX)
EARNINGS FORECASTS
10% YoY growth in PBT; order book higher than a year ago
Forecasting ADA’s earnings is difficult, given the especially lumpy unpredictable nature of System
sales, albeit the significance of Services in recent years has mitigated it to a partial extent. ADA
stated its opening order book for FY17e is higher than a year ago and the strongest in company’s
history. At its AGM it expected FY17e to be another strong year of performance with 10% YoY
growth in PBT. However due to timing and a strong prior period, the 1HFY17e NPAT will be lower
than 1HFY16a. We forecast 1H FY17e NPAT to be $4.1M vs $5.7M in pcp.
However we agree that FY17e should deliver profit growth. The retention of key clients,
expansion of existing contracts, and addition of new ones should contribute to earnings growth.
In FY16a the company retained key clients and programs such as FAA, USAF, Lockheed Martin
(now Leidos) ATOP program, Nav Portugal, and Air Services Australia. New clients were French
territories.
We forecast ADA to report NPAT of $8.2M in FY17e, up 8% YoY, and $8.9M in FY18e, up 9% YoY.
We expect the YoY growth in sales of 9% in FY17e and 11.7% in FY18e to be the major reason for
NPAT growth.
Figure 5: ADA Profit & Loss A$M
Year end June 2016a 2017e 2018e 2019e
Sales revenue 47.9 52.4 58.5 65.3
Other revenue 1.3 1.4 1.6 1.8
Operating Costs 37.3 40.0 46.0 51.4
EBITDA 11.9 12.9 14.1 15.7
D&A 0.8 0.9 1.0 1.1
EBIT 11.1 12.1 13.1 14.6
Net Interest exp / (income) 0.3 -0.3 -0.4 -0.5
Profit before tax 10.8 12.4 13.5 15.1
Tax exp / (benefit) 3.2 4.2 4.6 5.1
NPAT attributable underlying 7.6 8.2 8.9 10.0
EPS diluted (c) 9.6 10.3 11.3 12.6
DPS diluted (c ) 3.0 4.1 4.5 5.1
Source: Foster Stockbroking estimates.
Our full earnings forecasts are detailed on page 2. We anticipate the main revenue sources and
opportunities for FY17e are:
FAA to add 50 more MaxSims over next few years. ADA has installed 50 MaxSims, and ADA
expects this number to increase to approximately 100 systems at the end of the five year contract
which finishes in 2019e. We expect some installations this fiscal year. Additionally, ADA has a
SE2025 sub-contracting agreement with Enroute Computer Solutions to provide FAA with
research and mission analysis, engineering and technical services (announced July 2016);
French Territories (DNSA). Another four systems are to be installed over the next three years by
DSNA, for which ADA is one of three companies pre-qualified by the French government to bid
on these projects. Support revenue would follow for lifetime of the system. The second is to be
installed CY17 in either Martinique or Guadeloupe.
USAF. Comprehensive software and hardware upgrade for its TSS program as part of a five year
support contract ending 2018e.
Others. We expect Services and Systems revenue from Nav Portugal, US Army, US Navy, DFW
Airport, Air Services Australia, RAAF, and other US aviation colleges.
ADA’s guidance is
for 10% growth in
PBT in FY17e.
Our profit forecasts
are based on ADA
growing its revenues
at high-single/low-
double digits.
Modernisation and
increasing
penetration of
simulators are key
drivers.
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Adacel Ltd (ADA.ASX)
VALUATION
NPV of $2.60/share now and $2.79/share in 12 months.
We have modelled ADA’s cashflows out to FY34e and employed a DCF model (WACC 10%,
terminal growth 2.5%) to arrive at an NPV of $2.66/share now (Figure 6). Major assumptions we
have used are:
o Long-term EBIT margin of 22%;
o Sales growth of 9% in FY17e and 11.7% p.a. over FY18e-FY22e in line with industry
forecasts;
o Weighted average corporate tax rate of 34%. Assumes USA corporate rate of 37%,
Australia 30%, and Canada 27%;
o Dividend payout ratio of 40%;
o Long-term A$ of US$0.75; and
o 82% of revenues from USA.
Figure 6: ADA Valuation
Equity Valuation – DCF Now 12 mnths time
A$M A$/sh A$M A$/sh
Enterprise value 187.8 2.37 198.0 2.50
Net cash (debt) 18.2 0.23 23.4 0.30
Equity (NPV) 205.9 2.60 221.4 2.79
Source: Foster Stockbroking estimates.
BUY RECOMMENDATION -12 MONTH PRICE TARGET OF $2.79/SHARE
We initiate with a Buy recommendation on ADA and 12-month price target of $2.79/share based
on our valuation in 12 months’ time.
We envisage major catalysts for the shareprice to include: 1) Increasing sales and profit growth;
2) New customers; 3) Retention and enhancement of existing customer contracts; and 4) New
products.
We have modelled
ADA by DCF and
arrived at a
valuation of
$2.60/share and
$2.79/share in one
year.
We initiate with Buy
recommendation
and 12-month price
target of
$2.79/share.
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Adacel Ltd (ADA.ASX)
RISKS
Contract risk. ADA may lose contracts with customers if its product underperforms or ADA does
not provide satisfactory maintenance and upgrades, rendering the technology obsolete and
unreliable. Also risk that ADA may lose contracts to aggressive price bidders once contract
expires and is up for renewal or tender.
Economic risk. Decline in global economic growth may negatively impact funding and budget
spending by governments and the military on ADA’s ATM and ATC systems and services, which
would negatively impact ADA’s earnings and growth.
Competitor risk. There are numerous competitors in ADA’s markets. These may supply
products which may be superior or priced more attractively than those offered by ADA, causing
the latter to lose market share and client contracts, as well as reducing ADA’s ability to win new
customers and tenders.
Currency risk. Any appreciation in the C$ or the A$ vs the US$ would negatively ADA’s earnings,
given the company has significant costs in C$ and translates its US$ earnings to A$.
Concentration risk. In FY2016, 69% of ADA’s sales were from three customers, each >10%, and
has been 66%-72% over past three years. These are all in North American segment. A loss of
just one of these customers could have a negative material impact on earnings
Technology risk. A major change in technology used to undertake ATM or ATC may make ADA’s
products obsolete, diminishing its growth prospects.
BOARD
Peter Landos, Non-Executive Chairman. BEc, Appointed Non-Executive Director 2009 and
Chairman since 2012. COO of Thorney Investment Group who has worked with since 2000. Prior
was with Macquarie Bank Ltd. Extensive business and corporate experience. Also Non-
Executive Director of Gale Pacific Ltd.
Julian Beale, Non-Executive Director. BE, MBA. Appointed 2003. Extensive international
business and capital market experience with private and public companies. Held senior positions
in companies including English Electric and Esso Australia (now Exxon). Was MD of resources
group with interests in petroleum production, minerals and pipelines. Was involved in successful
transition of Moldlfow, a software developer for moulding machines, to NASDAQ. Former
member of Federal Parliament 1984-1995.
David Smith, Non-Executive Director. BE, appointed Executive Director 1997, and Non-
Executive since 2000. Extensive experience in software development, project and operations
management on military, aviation, and transport.
Silvio Salom. Non-Executive Director. BEng. MD of ADA from incorporation in 1996 to 2006 and
Non-Executive thereafter. Founder and MD of predecessor Adacel Pty Ltd in 1987. Expertise in
information technology related to manufacturing, environmental, defence, transport and
telecommunications.
Natalya Jurchensin, Non-Executive Director. Appointed 2016. Senior financial leader
experienced in finance functions of companies. Over 25 years’ experience in finance, including
audit and assurance at Arthur Anderson (now part of EY) and 12 years as CFO with Circadian
Technologies and two years with Melbourne Symphony Orchestra.
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Adacel Ltd (ADA.ASX)
FOSTER STOCKBROKING DIRECTORY
Name Role Phone Email
Stuart Foster Chief Executive Officer +61 2 9993 8131 stuart.foster@fostock.com.au
Chris Francis Executive Director +61 2 9998 8167 chris.francis@fostock.com.au
Haris Khaliqi Executive Director +61 2 9993 8152 haris.khaliqi@fostock.com.au
Martin Carolan Executive Director +61 2 9993 8168 martin.carolan@fostock.com.au
Mark Fichera Executive Director +61 2 9993 8162 mark.fichera@fostock.com.au
Mark Hinsley Executive Director +61 2 9993 8166 mark.hinsley@fostock.com.au
Darren Odell Research +61 2 9993 8121 darren.odell@fostock.com.au
Matthew Chen Research +61 2 9993 8130 matthew.chen@fostock.com.au
Tolga Dokumcu Execution & Dealing +61 2 9993 8144 tolga.dokumcu@fostock.com.au
George Mourtzouhos Execution & Dealing +61 2 9993 8136 george.mourtzouhos@fostock.com.au
Foster Stockbroking Pty Ltd
A.B.N. 15 088 747 148 AFSL No. 223687
Level 25, 52 Martin Place, Sydney, NSW 2000 Australia
General: +612 9993 8111 Equities: +612 9993 8100 Fax: +612 9993 8181
Email: contact@fostock.com.au
PARTICIPANT OF ASX GROUP Foster Stockbroking recommendation ratings: Buy = return >10%; Hold = return between –10% and 10%; Sell = return <-10%. Speculative Buy = return > 50% for stock with very high risk. All other ratings are for stocks with low-to-high risk. Returns quoted are annual. Disclaimer & Disclosure of Interests. Foster Stockbroking Pty Limited (Foster Stockbroking) has prepared this report by way of general information. This document contains only general securities information. The information contained in this report has been obtained from sources that were accurate at the time of issue. The information has not been independently verified. Foster Stockbroking does not warrant the accuracy or reliability of the information in this report. The report is current as of the date it has been published. In preparing the report, Foster Stockbroking did not take into account the specific investment objectives, financial situation or particular needs of any specific recipient. The report is published only for informational purposes and is not intended to be personal financial product advice. This report is not a solicitation or an offer to buy or sell any financial product. Foster Stockbroking is not aware whether a recipient intends to rely on this report and is not aware of how it will be used by the recipient. Before acting on this general financial product advice, you should consider the appropriateness of the advice having regard to your personal situation, investment objectives or needs. Recipients should not regard the report as a substitute for the exercise of their own judgment. The views expressed in this report are those of the analyst/s named on the cover page. No part of the compensation of the analyst is directly related to inclusion of specific recommendations or views in this report. The analyst/s receives compensation partly based on Foster Stockbroking revenues, including any investment banking and proprietary trading revenues, as well as performance measures such as accuracy and efficacy of both recommendations and research reports. Foster Stockbroking believes that the information contained in this document is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made at the time of its compilation in an honest and fair manner that is not compromised. However, no representation is made as to the accuracy, completeness or reliability of any estimates, opinions, conclusions or recommendations (which may change without notice) or other information contained in this report. To the maximum extent permitted by law, Foster Stockbroking disclaims all liability and responsibility for any direct or indirect loss that may be suffered by any recipient through relying on anything contained in or omitted from this report. Foster Stockbroking is under no obligation to update or keep current the information contained in this report and has no obligation to tell you when opinions or information in this report change. Foster Stockbroking and its directors, officers and employees or clients may have or had interests in the financial products referred to in this report and may make purchases or sales in those the financial products as principal or agent at any time and may affect transactions which may not be consistent with the opinions, conclusions or recommendations set out in this report. Foster Stockbroking and its Associates may earn brokerage, fees or other benefits from financial products referred to in this report. Furthermore, Foster Stockbroking may have or have had a relationship with or may provide or has provided investment banking, capital markets and/or other financial services to the relevant issuer or holder of those financial products. For an overview of the research criteria and methodology adopted by Foster Stockbroking; the spread of research ratings; and disclosure of the cessation of particular stock coverage, refer to our website http://www.fostock.com.au. Specific disclosures: The analyst owns 21,000 ADA shares at the time of this report. Diligent care has been taken by the analyst to maintain an honest and fair objectivity in writing the report and making the recommendation.
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Adacel Ltd (ADA.ASX)
Review disclosure: The report was authored by the analyst named on the front page of the report and was reviewed and checked by Darren Odell, Research Analyst. Specific disclosures: The report was prepared solely by Foster Stockbroking Pty Ltd. ASX did not prepare any part of the report and has not contributed in any way to its content. The role of the ASX in relation to the preparation of the research reports is limited to funding their preparation, by Foster Stockbroking Pty Ltd, in accordance with the ASX Equity Research Scheme. ASX does not provide financial product advice. The views expressed in this research report may not necessarily reflect the views of the ASX. To the maximum extent permitted by law, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by ASX as to the adequacy, accuracy, completeness or reasonableness of the research reports. Disclosure review. All the disclosures in the report, including the specific disclosures pertaining to shares held by the analyst, Foster Stockbroking, its Executive Directors, and associated fund Cranport Pty Ltd have been reviewed and checked by Mark Hinsley, Head of Corporate.
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