Adacel Technologies: The best $100m+ market cap stock on the ASX with no broker coverage?

Investors could do worse than to follow Warren Buffett. In 1996 Berkshire Hathaway purchased FlightSafety International, the leading pilot training simulator business, for USD $1.5bn. FlightSafety’s recurring revenues and dominant market position were what caught Buffett’s eye. Closer to home, we recently stumbled across Adacel Technologies, an ASX-listed air traffic controller simulation and air traffic management software business that is flying under the radar of most institutional investors.
Pie Funds

Pie Funds

1331914488_Adacel Logo.png Much like FlightSafety, Adacel boasts a very strong market position, with a dominant market share of the air traffic control simulator training market in the US. 

Adacel is poised to benefit from strong industry tailwinds due to a severe shortage of air traffic controllers around the world, particularly in the USA. The Federal Aviation Administration is expected to invest significantly to increase air traffic controller numbers in the US by 50% over the next five years. Furthermore, over the next ten years, total expenditure on global air traffic management system upgrades is expected to top USD $120bn. This should keep Adacel’s order book at peak levels.

More than 50% of Adacel’s revenues are recurring in nature, almost all its earnings are USD denominated and the company will not be in a tax paying position for the foreseeable future. 

Since we’ve started following Adacel, we have noticed the company has a tendency to under-promise and over-deliver. Over the last twelve months, Adacel has issued a whopping four profit upgrades. The company is currently guiding the market to more than a 50% increasing in profit, putting it on roughly a FY16 PE ratio of 12x. We think that the company is still being conservative and chances are further earnings upgrades will follow. 

The best comparable company to Adacel is probably CAE Inc, which trades at a FY16 PER of 18x but has the disadvantage of $1B net debt on the books. 

Pie Funds has taken a sizeable position in Adacel. In summary, the company ticks a number of boxes for us, including:

  1. The lack of research coverage means Adacel is relatively unknown 
  2. The company stands to benefit from significant structural tailwinds 
  3. There are high switching costs for customers
  4. A strong balance sheet with net cash of $7.6m
  5. A dominant position in a niche market
  6. High levels of management ownership
  7. Disciplined capital management, having acquired competitor CSC’s simulation business at a bargain price 
  8. Strong profit growth momentum

2 topics

1 stock mentioned

Pie Funds
Pie Funds
Pie Funds

Pie Funds is a boutique Investment Manager. We are committed to our investment style and ignore the crowd. All our clients are treated with respect and we understand that choosing an investment manager is a big decision with important consequences...


No areas of expertise

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.


Sign In or Join Free to comment