Following a new acquisition, Beacon Securities analyst Gabriel Leung is maintaining his bullish stance on Firan Technology Group (Firan Technology Group Stock Quote, Chart TSX:FTG).
On Monday, Firan announced it had entered into an agreement to buy an American circuit board manufacturing firm that is focused on the defense and aerospace industries for approximately $4.0-million.
“FTG had identified a desire to add U.S. manufacturing capacity for standard technology product for aerospace and defence applications. This acquisition, if completed, will complement FTG’s existing facilities, add capacity and new customers,” CEO Brad Bourne said. “The increased capacity and product focus will enable FTG to continue to balance its work across existing facilities in Canada, the U.S. and China to allow all FTG facilities to better focus on technologies best suited for their site.”
Leung says this pickup adds much needed capacity for FTG.
“In our opinion, the rationale for this acquisition is for FTG to add manufacturing capacity to its Circuits division,” he explains. “As was discussed during its last conference call, the company is operating close to full utilization in its Toronto facility for standard circuit board manufacturing. While there is capacity in Chatsworth Circuits, we believe this facility is more focused on specialized circuit boards. As such, we believe there is an opportunity to significantly increase revenues (and margins) at the new facility, particularly through transfer of work from the Toronto facility. We also think the integration of this asset should be less difficult vis-à-vis its larger Teledyne acquisition.”
In a research update to clients Monday, Leung maintained his “Buy” rating and one-year price target of $5.00 on Firan, implying a return of 59 per cent at the time of publication.
The analyst thinks Firan will post EBITDA of $13.6-million on revenue of $116.3-million in fiscal 2019.