A quarter that was better than it seemed is more evidence that Firan Technology Group (TSX:FTG) is undervalued, says Paradigm Capital analyst Daniel Kim.
Yesterday, Firan reported its Q1, 2016 results. The company earned $450,000 on revenue of $16.9-million, a topline figure that was a record for the company.
“We started 2016 with very strong operating performance for FTG as a result of past investments in technology, positive impacts from past key new program wins as well as the strengthening of the U.S. dollar,” said CEO Brad Bourne. “Growth is key to FTG to increase utilization across all facilities, particularly the new ones in Chatsworth, Calif., and Tianjin, China. The acquisition of Photo Etch, subsequent to our quarter-end, will enable us to transition work to our aerospace Chatsworth facility more rapidly than planned. Improved utilization will drive profitability due to high contribution margins on incremental revenues.”
Kim says the quarter was basically in-line with expectations, but was better than it appeared because, he says, the negative impact of U.S. dollar hedges masked Firan’s “terrific” earnings leverage. He notes that excluding this impact, EBITDA would have been $2.0-million instead of $1.3-million and the company would have earned five cents instead of two. The analyst detailed why he thinks the company is currently undervalued.
“FTG’s outlook is well supported on multiple fronts: 1) All key customers (particularly Airbus and Boeing) are bullish on platforms and volumes, coupled with increasing FTG content per airframe; 2) There is a geographical shift to Asia (up 25% y/y) as momentum grows with Chinese-based customers; 3) growing pipe of higher-margin control panel programs (especially with Photo Etch),” says Kim. “FTG is trading at 3.9x EV/EBITDA versus its peers at 6.8x.
In a research update to clients today, Kim maintained his “Buy” rating and one-year target of $4.00 on Firan Technology Group, implying a return of 74 per cent, including dividend.