Better-than-expected quarterly results from Firan Technology (Firan Technology Stock Quote, Chart, News TSX:FTG) are cause for a target lift, says Beacon Securities analyst Gabriel Leung, who reviewed the company’s Q2 in an update to clients on Thursday. Toronto-headquartered Firan, which makes electronics and subsystems for the aerospace and defense industries, announced its second quarter 2020 financials on Wednesday, featuring sales of $26.8 million and EBITDA of $4.5 million compared to $32.2 million and $5.5 million, respectively, in Q2 2019. Firan’s Circuits segment posted revenues of $19.6 million, up from $19.3 million a year ago, while Firan Aerospace saw sales drop to $7.2 million compared to $13 million a year earlier. On the quarter, the company said in the press release that Firan has a $3-million drop in simulator-related sales, a business which varies from quarter to quarter, with last year’s Q2 being especially strong. Sales from its Chatsworth business were down over $3 million as a result of “lower simulator sales, extended lead time for some components, other supplier issues related to COVID-19 and COVID-19 impact on operations.” At the same time, management spoke of a rebound in the simulator space coming up, saying, “Simulator revenues are expected to rebound in the second half of 2020 as the backlog in simulator work at the end of Q2 2020 was strong. The Aerospace sites were negatively impacted by extended component lead times, as a result of COVID-19 impacts on the supply chain.” For his part, Leung was calling for Q2 revenue and EBITDA of $26.1 million and $3.1 million, respectively, versus the realized $26.8 million and $4.5 million, respectively. In his comments, Leung noted that Firan achieved a book-to-bill ratio of 0.97x, which he called a positive given the current challenges in the aerospace market. “Furthermore, Firan ended Q2 with $50 million in backlog of which $28 million is due in fiscal Q3. Included in backlog is $6 million in simulator business, which should help to drive a healthy rebound in this division in H2 FY20,” Leung said. “While FTG’s backlog does provide good visibility for fiscal Q3, we acknowledge that its commercial aerospace business could continue to be impacted given lower OEM production rates (commercial aerospace is 40 per cent of revenues, while simulation is 10 per cent). Meanwhile, we expect FTG’s military business (~50 per cent of revenues) to remain stable as it has in previous cycles,” Leung wrote. Looking at the numbers, Leung is sticking with his “Buy” rating but raising his target price from $3.50 to $4.00, based on an 8x multiple of his fiscal 2020 EV/EBITDA estimates. “Given its current valuation of only 3.2x EV/EBITDA, we view shares of Firan as representing an interesting investment vehicle in anticipation of a demand rebound,” Leung said. The analyst thinks Firan will generate fiscal 2020 revenue and EBITDA of $102.2 million and $11.1 million, respectively. His $4.00 target represented at press time a projected 12-month return of 116 per cent. Year-to-date, Firan’s share price is currently down 56 per cent.