The numbers were off for Firan Technology Group (TSX:FTG) in its full year and fourth quarter results for 2017, but prospects look good going forward, says Daniel Kim, analyst with Paradigm Capital, who Monday gave the stock a “Buy” rating and a 12-month target price of $5.00, down from a previous $5.75.
The aerospace and defence electronics company ran into a number of issues during the reported quarter, including poor yields from acquired Teledyne printed circuit technology, one-time costs, underperformance from the Toronto Aerospace division and a rising Canadian dollar, but Kim says clear skies are ahead for FTG which has a number of growth drivers ready.
‘The silver lining in all this clutter is that it appears to be in the past and the macro picture continues to improve,” says the analyst in a report to clients on February 12. “Airbus is rumoured to be considering increasing its production rate on its high volume A320 platform. Firan’s historical content on this and the B737 are modest, but [Firan] is bidding on meaningfully more business on both of these platforms,” he says.
The company reported revenue, adjusted EBITDA and EPS of $22.9M, $1.7 M and $0.01 for Q4, down from Paradigm’s estimates of $27.6M, $4.4M and $0.13. Kim estimates the company’s organic revenue contracted by negative five per cent over the quarter and negative four per cent over the year.
“Defense spending is rebounding and several new programs are moving/increasing production [including] F35, JSF, helicopters and the C-series,” says the analyst. “We have reduced our top- and bottom-line estimates reflecting more modest ramp-ups in both organic revenue and acquired assets.”
Kim’s revised estimates include a 10x EV/EBITDA multiple to FY18 EBITDA of $13.5 million (formerly $19.0 million), which lowers his one-year target price to $5.00, representing a 56 per cent return on investment at time of publication.