Ahead of the company’s Q4 results, Paradigm Capital analyst Daniel Kim is feeling bullish about Firan Technology Group (TSX:FTG).
In a research update to clients today, Kim maintained his “Buy” rating, but raised his one-year price target on Firan from $5.00 to $5.75. The new target implied a return of 110 per cent at the time of publication, including dividend.
But Kim is not, in fact, more bullish on Firan’s upcoming quarter than the street is. The analyst explains that the target raise is a result of rolling forward his estimates to include fiscal 2018.
Kim believes Firan will post EBITDA of $1.7-million on revenue of $28-million in the fourth quarter. He explains that the company has had to hire additional staff to satisfy customer demand, and that its profitability will be affected by higher costs. But longer term, Kim thinks Firan’s margins are on the brink of a breakout as the company gains earnings leverage.
“Q3/FY16 was a solid first quarter that included both asset acquisitions, with revenue contribution ahead of expectations (albeit pre-normalized facility and qualifications),” says the analyst. “As integration is completed over the next two quarters (with resultant facility closure in April), we expect revenue growth to continue and EBITDA margin contribution to accelerate to the stated goal of 30%. We have introduced our FY18 estimates which better capture the full-year benefit to top- and bottom-line results. We note FTG’s shareholder base is migrating from “value” to “GARP” investors as it continues to demonstrate solid growth. Our estimates suggest that FTG is further separating itself from its printed circuit board (PCB) counterparts with a significantly higher-margin profile, now more akin to Aerospace peers, based on gross margin and EBITDA, who trade at 10x EV/EBITDA.”
Kim believes Firan will generate EBITDA of $13.2-million on revenue of $102.5-million in fiscal 2017. He expects these numbers will improve to EBITDA of $18.8-million on a topline of $114-million the following year.