The MoneyLetter recently surveyed a number of published securities analysts’ reports on technology stocks. It found a Toronto-based aerospace and defence technology stock and an Ottawa-based developer of software solutions for TV delivery systems that are both highly-regarded ‘buys’.
Acquisitions made last year led Firan Technology Group Corp. (TSX—FTG) to report 2017 first-quarter results that were ahead of estimates.
In the first quarter of 2017, the company reported revenue of $27.2 million. This was up 60.5 per cent year-over-year and beat Acumen Capital analyst Brian Pow’s estimate of $25.1 million. Both the circuits and aerospace divisions beat the analyst’s estimates by 6.5 per cent and 11.1 per cent, respectively.
Gross margin came in at 25.3 per cent versus the analyst’s estimate of 21.9 per cent, due to the better-than-expected integration of the acquisitions. As a result, Firan exceeded Mr. Pow’s free cash flow and earnings per share estimates. He stamped a ‘buy’ rating on the stock and a $5.30 12-month target share price.
Mr. Pow says: “Firan has done a commendable job transitioning the PhotoEtch and Teledyne acquisitions. Based on the company’s positioning and outlook, we believe Firan has the potential to deliver top-line growth in excess of industry levels in the foreseeable future from the addition of new programs and further penetration with existing programs.
“On the margin front, management is making progress that will see earnings before interest, tax, depreciation and amortization (EBITDA) margins returning to double-digit levels in the second half of the year. Longer term we think additional acquisitions will provide further market entrenchment.”
In early January, Firan announced a new three-year contract with a global original equipment manufacturer worth US$12 million. The contract is with an existing client for high-tech, printed circuit boards on several fixed-wing aircraft platforms. Firan’s Chinese operations got a boost on Mar. 25, when a committee of 63 aviation specialists from across China agreed that the C919 is ready for its maiden flight later in 2017.
“Given the state of the industry, there are significant acquisitions available, both in Canada and the United States.” At this time, the analyst is not expecting Firan to be an active buyer until the integration of Teledyne is finished. Based on this, Mr. Pow expects management to target acquisitions in the latter half of 2017.
“Near-term profitability will remain somewhat constrained as the transition will carry with it some additional costs, but ultimately Firan expects to realize contribution margins in excess of 30 per cent once the move is complete.”
Firan Technology is a world-class provider of avionics products for the aerospace and defence industries, and has two divisions: FTG Circuits and FTG Aerospace. The company has operations in Toronto, Chatsworth, California and Tianjin, China.
Internet TV software developer lands top director
Espial Group Inc. (TSX—ESP; US:OTC—ESPAF), the Ottawa-based company that designs and markets software programs that enable the delivery of Internet protocol TV, appears to be living up to the ‘go-big-or-go-home’ mantra as far as strengthening its board of directors.
The company recently announced the nomination of a true heavyweight in the global cable and telecom industry, Aamir Hussain. Mr. Hussain is the executive vice president and chief technology officer of integrated communications company CenturyLink Inc.
In addition to leading CenturyLink’s product, platforms, infrastructure, cloud, network operations and information technology, Mr. Hussain was previously employed as managing director and chief technology officer of Liberty Global plc, the London, UK-based cable company with operations in 13 countries.
Espial Chairman Peter Seeligsohn said that the addition of Mr. Hussain would enable Espial to further expand its presence in the European cable and telecom segments.
Beacon Securities analyst Vahan Ajamian says that adding Mr. Hussain to the board would send the right message about the company’s ambitious growth strategy and boost its stature in the sector.
“Mr. Hussain is another industry heavyweight that can help open doors for the company,” says Mr. Ajamian. “In our view, Mr. Hussain’s current employment with a telephone company nicely rounds out the experience of two of Espial’s other board members—Michael Lee and Michael Hayashi—whose industry experience is more cable-company focused and within North America.”
The analyst keeps his ‘buy’ recommendation and 12-month target share price of $3.50. All four of the analysts who cover Espial rate the company a ‘buy’.
This is an edited version of an article that was originally published for subscribers in the June 2017/First Report of The MoneyLetter. You can profit from the award-winning advice subscribers receive regularly in The MoneyLetter.
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