FLYHT Aerospace (TSX:FLY) is uniquely positioned to capitalize on a technology upgrade that may soon be mandated, says Global Maxfin Capital analyst Joseph MacKay.
In a research report to clients this morning, MacKay initiated coverage of FLYHT with a “Strong Buy” recommendation and one-year target of $1.00, implying a potential return of 69.5% at the time of publication.
MacKay says the disappearance of Malaysia Airlines Flight 370 will have him monitoring regulatory developments with regards to streaming black box data. He says FLYHT’s patent position and the costly and time consuming certification process create high barriers to entry for any would be competitors. For this reason, he sees FLYHT as a potential takeover candidate, noting that many of the company’s competitors, such as Rockwell Collins and Honeywell, have multi-billion dollar market caps.
But regardless of the potential for a takeover, MacKay says FLYHT offers a compelling return on investment for an airline now. He notes that the company installs its AFIRS solution in three or four days during routine maintenace for between $35,000-$60,000 and receives a recurring revenue stream of approximately $1200 per month. The payback period for an airline, which benefits from improved information for things like optimizing maintenance schedules, is between six and nine months, he says.
MacKay thinks FLYHT will generate EBITDA of $200,000 is fiscal 2014 on revenue of $13.9-milliom, numbers he expects will climb to $5.8-million on a $26.6-topline in fiscal 2015.