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.
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