Firan Technology Group gets price target raise at Beacon

Aerospace and electronics company Firan Technology Group (Firan Technology Group Stock Quote, Chart, News TSX:FTG) has received a target price raise from analyst Gabriel Leung of Beacon Securities, who last Friday reviewed Firan’s third quarter financials.

Toronto-based Firan reported its fiscal Q3 ended August 30 on October 9, showing revenue of $28 million, which represented a 12-per-cent increase over last year’s third, and EBITDA of $4.3 million, a 55-per-cent increase over a year prior.

“The third quarter of 2019 was a solid quarter for FTG, particularly as this quarter can be slower due to summer holidays. We improved our balance sheet in the quarter and this resulted in $6 million of positive cash flow,” said Brad Bourne, President and CEO, in a press release. “We closed the acquisition of Colonial Circuits mid-quarter and this will add much needed capacity for standard circuit board manufacturing freeing up capacity in existing sites for higher-end product and expand our offering for the US defence market.”

Leung said the $28 million in revenue and $4.3 million in EBITDA were better than his estimates of $27.5 million and $3.8 million, respectively, with 15.3 per cent EBITDA margins better than his expected 13.7 per cent.

Firan has two segments, a printed circuit boards business to aviation, defence and high tech industries and an aerospace electronics segment to aerospace and defence equipment OEMs. The quarter saw Firan’s Circuits segment grow 11.8 per cent year-over-year in revenue to $18.3 million, representing four per cent year-over-year organic growth (excluding Colonial Circuits). The company’s Aerospace segment grew 11.7 per cent year-over-year in revenue to $9.6 million. Altogether, Leung says that grow in the US was a key growth driver, where revenue was up 21.4 per cent to $21.6 million.

The analyst points out that bookings were strong over the quarter at $34 million, with a quarter-ending backlog of $49.4 million, up from $43.7 million from the previous quarter. Leung calls Firan’s free cash flow a key highlight, coming in at $6 million and helping to take the company’s net debt to zero.

But the quarter was slightly tainted by the revelation (subsequent to quarter-end) that the company had been hit by a Ransomware cyberattack, says Leung. Although the company lost no orders nor did they pay the ransom, productivity was impacted by ten per cent of quarterly sales or about $3 million. Leung says that there will likely be a slight one-quarter impact, while the company plans to invest in new equipment and consultants to mitigate future attacks.

“Bottom-line, despite continued uncertainty around the China/US trade discussions, along with the one quarter revenue impact from the aforementioned cyberattack, we believe FTG continues to produce strong results thanks to its strong operational performance and leadership team. We also expect the integration of Colonial Circuits, along with future potential acquisitions to further augment FTG’s organic growth story,” writes Leung.

The analyst is maintaining his “Buy” rating while raising his price target from $6.50 to $7.50 per share, saying that the boost is “due largely to the passage of time.” The analyst is calling for fiscal 2019 revenue and EBITDA of $113.6 million and $17.0 million, respectively, and for fiscal 2020 revenue and EBITDA of $122.6 million and $20.0 million, respectively. His new target represents a projected 12-month return of 111 per cent at the time of publication.