EQUITY RESEARCH - ASX · Earnings and Valuation: We forecast ADA to report NPAT of $8.2M in FY17e and $8.9M in FY18e, driven by sales growth. We expect 1HFY17e NPAT of $4.1M. We model

EQUITY RESEARCH

Information Technology

3rd February 2017

DISCLAIMER: Foster Stockbroking Pty Ltd does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Refer full disclosures at the end of this report.

Adacel Ltd (ADA.ASX)

David snaring Goliath

Event:

We initiate research coverage on Adacel Ltd (ADA).

Investment Highlights:

ADA is major global provider or air traffic management (ATM) and air traffic control (ATC) training simulation systems, as well as speech recognition products. The company employs real-time software, simulation, and voice activated control technologies in its core products.

Aurora is ADA’s ATM system to automatically monitor and manage aircraft in various airspace environments. Key benefits to customers are enhanced airline safety; efficiency gains by automation of air traffic control; improved communications and decision-making; and reduction of flight times and delays. ADA claims that Aurora systems account for managing 75% of oceanic airspace.

MaxSim ATC simulators – MaxSim - allow efficiencies in training of air traffic controllers by minimising the need for instructors, reducing training time, and simulating various conditions that may be encountered. There are over 341 MaxSim installations in over 30 countries. Major customers include the Federal Aviation Authority (FAA, 50 installations) and the United States Air Force (92).

The outlook for both ATM and simulation is positive. ATM is forecast to grow at 11.7% CAGR to US$87b in 2022e (source: MarketsandMarkets) while International Civil Aviation Organisation forecasts $12b p.a. of spend. Drivers include increasing passenger travel; increase in drones; increasing congestion; greater focus on safety; modernisation of airports and aircraft; and technology changes. The FAA has stated it wants increased training air traffic controllers, stating it is hiring 6,300 new controllers over 2015-2020e.

While provision of ATM and simulators is competitive, ADA has established a significant presence with some of the world’s leading military and civil aviation bodies including the FAA, USAF, and US Army. The company protects its product mostly via trade secrets. Giants Leidos and Lockheed Martin have relied on ADA to supply systems that they cannot provide themselves to the FAA.

Most customers opt for support services. Systems comprises one-off and lumpy type hardware and software sales, while Services includes more reliable and predictable sales generated from product maintenance; field services, and support. Most customers opt for multi-year support contracts.

Successful retention. The average age of ADA’s customers’ contracts is over 8 years, while that of the twelve oldest clients is 15. This reflects the clients’ satisfaction with ADA’s systems and the ongoing support provided.

Earnings and Valuation:

We forecast ADA to report NPAT of $8.2M in FY17e and $8.9M in FY18e, driven by sales growth. We expect 1HFY17e NPAT of $4.1M. We model ADA by DCF, and determine an NPV10 per share of $2.60 now and $2.79 in one years’ time.

Recommendation:

We initiate with a Buy recommendation on ADA and 12-month price target of $2.79/share based on our valuation. Catalysts for the shareprice include: 1) Increasing sales and earnings; 2) New customers: 3) Retention and enhancement of existing contracts; and 4) New products.

Recommendation Buy

Previous n/a

Price Target $2.79

Previous n/a

Risk Medium

Share price $2.38

ASX code ADA

52 Week Low-High $1.815-$3.55

Valuation $2.60 now; $2.79 in 12 mths

Methodology DCF

Capital Structure

Shares on Issue (M) 79

Market Cap (A$M) 189

Net Cash/(Debt) (A$M) 15.8

EV (A$M) 173

Diluted mkt cap (A$M) 189

12mth Av Daily Volume ('000) 324

Y/e Jun FY16a FY17e FY18e FY19e

Sales $M 47.9 52.4 58.5 65.3

EBITDA $M 11.9 12.9 14.1 15.7

NPAT Adj. $M 7.6 8.2 8.9 10.0

EPS adj c 9.6 10.3 11.3 12.6

DPS c 3.0 4.1 4.5 5.1

PER x 24.9 23.0 21.1 18.8

EV/EBITDA x 14.6 13.4 12.3 11.0

Yield 1.3% 1.7% 1.9% 2.1%

Board of Directors

Peter Landos Non-Executive Chairman

Julian Beale Non-Executive Director

David Smith Non-Executive Director

Silvio Salom Non-Executive Director

Natalya Jurchensin Non-Executive Director

Substantial Shareholders

Thorney Holdings 32.4%

Silvio Salom 9.9%

David Wallace Smith 7.1%

Share Price Graph

Analyst: Mark Fichera +61 2 9993 8162

[email protected]

The analyst owns 21,000 ADA shares.

This report was prpepared by Foster Stockbroking.

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

$1.80

$2.10

$2.40

$2.70

$3.00

$3.30

$3.60

Fe

b 16

Mar

16

Apr

16

May

16

Jun

16

Jul

16

Aug

16

Se

p 16

Oct

16

No

v 1

6

Dec

16

Jan

17

Volume ('000)Share Price

3rd February 2017 Level 25, 52 Martin Place, Sydney, NSW 2000 | +61 2 9993 8100 | www.fostock.com.au 2


Adacel Ltd (ADA)Ful l Year Ended 30 June

Profit and Loss A$M 2016a 2017e 2018e 2019e Financial Metrics 2016a 2017e 2018e 2019eSales revenue 47.9 52.4 58.5 65.3 Sales growth % 14% 9% 12% 12%Other revenue 1.3 1.4 1.6 1.8 EPS growth % 93% 8% 9% 12%

Operating Costs 37.3 40.0 46.0 51.4EBITDA 11.9 12.9 14.1 15.7 EBITDA margin 25% 24% 24% 24%

D&A 0.8 0.9 1.0 1.1 EBIT margin 23% 22% 22% 22%

EBIT 11.1 12.1 13.1 14.6 Gearing (ND/ND+E) nm nm nm nm

Net Interest exp / (income) 0.3 -0.3 -0.4 -0.5 Interest Cover (EBIT/net int) nm nm nm nm

Profit before tax 10.8 12.4 13.5 15.1Tax exp / (benefit) 3.2 4.2 4.6 5.1 Average ROE % 45% 36% 32% 30%

NPAT before minorities 7.6 8.2 8.9 10.0 Average ROA % 66% 53% 47% 43%

Minority interest 0.0 0.0 0.0 0.0Rep. NPAT 7.6 8.2 8.9 10.0 Wtd ave shares (M) 79.3 79.3 79.3 79.3

Significant items 0.0 0.0 0.0 0.0 Wtd ave share diluted (M) 79.3 79.3 79.3 79.3

NPAT attributable reported 7.6 8.2 8.9 10.0

Valuation multiples 2016a 2017e 2018e 2019eEPS diluted (c) 9.6 10.3 11.3 12.6 P/E x 24.4 22.5 20.7 18.4DPS diluted (c ) 3.0 4.1 4.5 5.1 EV/EBITDA x 14.2 13.1 12.0 10.7

EV/EBIT x 15.2 14.0 12.9 11.5

Cashflow A$M 2016a 2017e 2018e 2019e EV/sales x 3.5 3.2 2.9 2.6

EBITDA 11.9 12.9 14.1 15.7 Dividend yield % 1.3% 1.8% 1.9% 2.2%

Change in WC 2.7 -0.4 -0.1 -0.2Tax paid -3.3 -4.2 -4.6 -5.1 Equity Valuation - DCF Now 12 months timeNet interest 0.1 0.3 0.4 0.5 A$M A$/sh A$M A$/sh

Other 0.0 0.0 0.0 0.0 Enterprise value 187.7 2.37 198.0 2.50

Operating Cashflow 11.3 8.6 9.8 10.9 Net cash (debt) 18.2 0.23 23.4 0.30

Equity (NPV) 205.9 2.60 221.4 2.79

Capex -0.5 -0.6 -1.1 -1.2Investing Cashflow -0.5 -0.6 -1.1 -1.2

Shares on issue MEquity raising 0.0 0.0 0.0 0.0 Ordinary shares 79.3Dividends paid -2.0 -3.0 -3.4 -3.8Other -0.7 0.0 0.0 0.0

Financing Cashflow -2.7 -3.0 -3.4 -3.8 Major shareholders InterestThorney Holdings 32.4%

Net Cashflow 8.2 5.0 5.3 5.9 Silvio Salom 9.9%David Wallace Smith 7.1%

Balance Sheet A$M 2016a 2017e 2018e 2019e BoardCash 15.8 20.8 26.1 32.0 Peter Landos Non-Executive Chairman

Receivables 8.6 9.6 10.7 12.0 Julian Beale Non Executive DirectorPPE 1.7 1.4 1.5 1.6 David Smith Non-Executive DirectorIntangibles 1.0 1.0 1.0 1.0 Silvio Salom Non-Executive DirectorInventories 0.2 0.2 0.2 0.2 Natalya Jurchensin Non-Executive DirectorOther 5.0 5.0 5.6 6.2Total Assets 32.3 38.0 45.2 53.1

Accounts payable 4.9 5.2 5.9 6.6Provisons 0.4 0.4 0.4 0.5

Tax liabilities 1.9 2.1 2.4 2.6Borrowings 0.0 0.0 0.0 0.0

Advanced payments 2.3 2.6 2.9 3.3Other 2.5 2.6 2.8 3.2

Total Liabilities 12.0 12.8 14.5 16.2

Reserves and capital 74.0 74.0 74.0 74.0Retained earnings -53.8 -48.8 -43.3 -37.1Total Equity 20.3 25.2 30.7 36.9

Source: Company; Foster Stockbroking estimates

http://www.fostock.com.au/



GLOBAL PROVIDER OF AIR TRAFFIC MANAGEMENT AND SIMULATION SYSTEMS

Adacel (ADA) is a major global provider of air traffic management (ATM), air traffic control (ATC),

and training systems to the global airspace market including civil aviation authorities, airports,

military, aviation colleges and universities, and commercial enterprises.

ADA’s ATM systems are used by air traffic controllers to manage, assist, and control aircraft to

land and depart airports, as well as transit airspace. A key target is the safe and timely flow of

aircraft in and out of airspace and airports, such that it minimises risks of collisions while

maximising number of aircraft. The company’s ATC simulation systems are used for the training

of air traffic controllers.

ADA has employed real-time software, simulation, and voice activated control technologies in

its products which include simulation technology, visual scene generation, speech recognition,

safety critical software, pilot controller training, voice activated cockpit, airport driver training,

and homeland security.

The company has corporate, administration, and Asia Pacific headquarters in Melbourne; an

office in Orlando, Florida to serve the US; and Montreal, Quebec premises to serve other

international markets. ADA has 225 employees, with about 100 in Montreal, chiefly engaged in

engineering, software development, and product management. The balance of staff is mostly in

Orlando and focus on executive functions, support and administration.

AURORA – ADA’s AIR TRAFFIC MANAGEMENT SYSTEM

ADA’s core product for air traffic management is the Aurora ATM system, which comprises an

open architecture, modular, and satellite-based air traffic automation software. It provides

automated monitoring and management of aircraft in continental, oceanic, en-route, terminal,

approach, and tower regions airspace. It can be configured for a standalone workstation up to

multi-sector operation.

Air controllers use Aurora to manage high volumes of aircraft flights. Aurora can integrate with

data linked from various hardware such as satellite, radar and other surveillance technologies.

Aurora is flexible, allowing for handling different types of aircraft using both conventional analog

and NextGen satellite communications.

Aurora processes flight data and updates ATM in real-time

Key functions of Aurora include:

o Sophisticated flight data processing. Aurora processes route and information from

flight plans, automatic data surveillance (ADS) reports, and downlink requests to

generate flight profiles used for conformance monitoring, conflict probes, and

clearances. Aurora can incorporate a range of surveillance sources, such as radar, ADS,

controller pilot data link communications (CPDLC), and voice position reports.

o Performance based navigation;

o Advanced aircraft-to-aircraft conflict determination. Aurora analyses aircraft

equipment and airspace to ensure protection of aircraft by detecting any conflicts on

its route. The International Civil Aviation Organisation (ICAO) specifies that aircraft

must be kept separately by minimum distances both vertically and horizontally. Aurora

supports safety nets such as Short Term Conflict Alert (STCA), Area Proximity Warning

(APW), Wake Turbulence Category (WTC) and Minimum Safe Altitude Warning

(MSAW).

ADA supplies air

traffic management,

air traffic control,

and training

systems.

Real time software,

simulation, and

voice activated

control technologies

are key in ADA’s

products.

Aurora automates

air traffic

management,

aircraft conflicts

determinations, and

flight profiles.




o Update internal flight profiles. Using information from surveillance data Aurora can

perform conformance monitoring.

o Monitoring and calculating flight path position, altitude, and time. Involves modelling

routes, and other air traffic, and determining whether any conflicts occur.

o Automatic coordination between adjacent centres and airspace regions.

o Integrated display of all surveillance sources and data.

Figure 1: Example of Aurora’s Airspace Situation Display

Source: Company.

Enhances safety while reducing fuel and labour costs by determining optimal flight routes

Key benefits that Aurora provides include:

o Efficiency gains from automating air traffic control. Requiring less personnel and time.

o Ensuring airline safety by detecting any conflicts on aircraft route, approach, take-off,

and taxiing via increased surveillance and predictability leading to enhanced conflict

determination;

o Reducing controller workload and stress, through automation of processes;

o Minimise aircraft delays by more efficient routing ;

o Saving fuel consumption, reducing emissions. Can dynamically re-route during flight

for most efficient path;

o Reducing flight time by enabling more direct routing;

Benefits from

Aurora are

enhanced safety,

reduced controller

workload, fewer

delays, reduced

flight times, and fuel

savings.




o Greater flexibility and responsiveness to inflight requests through timely

communications. For example request to change flight route based on weather

changes;

o Increase airspace capacity through efficiency in managing aircraft and better airspace

utilization;

o Minimises processes and communications. For example on deciding and

communicating whether to give clearance or not to when an aircraft requests to alter

flight route; and

o Enhances decision-making. Aurora provides automatic data exchange with various

external systems such as airports, airlines, billing and meteorological systems to enable

collaborative decision making by air traffic controllers.

AURORA CUSTOMERS AND INCLUDE FEDERAL AVIATION AUTHORITY (FAA)

Used to manage over 75% of world’s non-radar controlled oceanic airspace

Aurora serves in over 75% of the world’s non-radar controlled oceanic airspace, or 41M square

miles, equivalent to 21% of the earth’s surface. It has an installation base of 9 ATM systems

across 7 countries.

Figure 1: Aurora Controlled Airspace

Source: Company

Aurora customers include:

o ISAVIA. National airport and air navigation provider of Iceland has installation at

Reykavik airport which services 5.4M sq kms in North Atlantic.

o NAV Portugal. Portugal’s air traffic and navigation service provider uses Aurora at

Santa Maria airport for the North Atlantic Oceanic (Santa Maria) flight region, which is

adjacent to US airspace. It is a single integrated system for oceanic, en-route, approach,

and tower control. In 2015 ADA was selected to upgrade NAV Portugal’s System

Atlantico (SATL) within Santa Maria Flight Region. SATL already employed Aurora

software. NAV Portugal has been ADA’s longest running contract, with a duration of

18 years.

75% of world

oceanic airspace is

managed by Aurora.




o Airways NZ. New Zealand’s air traffic service provider. Installed at Auckland Airport.

FAA largest customer via Leidos

o Federal Aviation Authority (FAA)/Leidos - USA. ADA partners with Leidos to provide

Aurora to manage airspace for the FAA, Aurora being the core software. The FAA is

ADA’s largest customer with revenues of ca. US$11.1M p.a. The contract with FAA has

been in place since 2001 and was renewed in 2014 for eight years. Since 2001 ADA

served the FAA contract in partnership with Lockheed Martin, until mid-2016 when

Leidos was spun out from Lockheed Martin. Since then ADA has continued with Leidos

to serve the FAA.

o FAA uses Advanced Technologies & Oceanic Procedures (ATOP) for air traffic

management of which Aurora software is a component. ATOP is used at all three of

the FAA’s oceanic sites – New York (NY), Oakland (California), and Anchorage (Alaska)

air route traffic control centres.

o ADA at end FY16 signed subcontract agreement with Enroute Computer Solutions (ECS)

on the FAA program. Besides ATM, ADA delivers research and mission analytics,

engineering, and technical services and strategic planning to FAA’s Next Generation air

transportation System (NextGen).

o Airport Fiji – Nadi. Deployed in partnership with SRA International Inc, it extends

Aurora from oceanic to terminal airspace and tower.

o Directorate of Air Navigation Services of France (DSNA) French Guiana. DSNA has

worked with ADA since 2010 to modernise ATM systems in overseas territories of

France.

o Norway’s Avinor. Used to control North Atlantic airspace adjacent to that controlled

by ISAVIA.

ATC SIMULATION SYSTEMS

MaxSim – ADA’s Leading Simulation and Training System

ADA’s ATC simulators allow air traffic controllers to develop higher proficiency and accelerate

their learning process during training and course studies. Controllers can interact with intelligent

virtual pilots in environments that simulate actual airfields. MaxSim is the core simulator

product. Key features include:

o Researching, planning and modelling of air traffic procedures and ATM technologies;

o Training for real life airfield environments with smart virtual (“pseudo”) pilots;

o Mimics airport accurately. MaxSim visuals include landscape, runways, and planes

queuing and taking off;

o Simulate different visual and environmental conditions including weather and

day/night;

o Modelling of airport expansions e.g. future airport modifications, extensions, and

operations;

o Scenario modelling e.g. can present various problems to trainee to experience such as

crisis, emergencies, and extreme weather conditions; and

FAA is served by

ADA via its

partnership with

Leidos, and

previously Lockheed

Martin.

MaxSim is ADA’s

ATC Simulator

primarily used for

training air traffic

controllers.




o Availability of communications packages including ADA’s speech recognition systems.

MaxSim is available in different configurations including:

o Full–scale tower with radar suite, including precision approach radar (PAR)

o 360 degree wrap around tower (tower-out-the-window LCD visuals ) ,

o Non-radar,

o Single-seat self-paced trainer.

o Portable,

o Small footprint tower,

o Table top, and

o Ruggedized mobile.

Figure 2: ADA MaxSim Simulator Products

Source: Company.

Reduces costs, simulates range of conditions, and accommodates different environments

o MaxSim offers a number of key benefits, including:

o Time to train can be reduced. Controllers do not need to wait for specific conditions

to occur but these can be simulated (for example extreme weather or poor visibility).

Also self-learning and portability means trainees can learn at flexible accommodating

times.

o Less need of instructors, due to self-learning capability; Traditionally air traffic

controllers have trained with one or two computer screens, 2 dimensional screens,

textbooks, on-job training and instructors being present. MaxSim can provide self-

learning with a 360 degree visual scenarios.

o Mobile and portable for staff who need to be moved frequently. This is especially

frequent in the case of the military.

o Can accommodate varying budgets, number of students, room configurations, space,

and training environments. For example, a 360 degree view can be processed to suit

limited space.

A variety of

configurations

means MaxSim can

cater to customers’

different

requirements.

Reduced training

time, less need of

instructors, and

ability to simulate a

wide range of

conditions are

benefits of MaxSim.




o Simulates all types of condition that may be encountered, providing students with

realistic hands-on practice and skills required to be a competent controller. Examples

include variable weather extremes, day and night, emergency, crisis, flocks of birds,

difficult pilots etc.

o Realistic landscape airport environment. ADA use GPS details and its own visual

database, upon contract award 1,000 to 1,500 digital picture so airfield at various times

of day top construct realistic airport visuals.

Over 341 installations globally in over 30 countries

ADA has an installation base of 341 air traffic simulation systems – MaxSim and NexSim - in over

210 locations in over 30 countries. Customers include civil aviation authorities, defence agencies,

international airports, commercial enterprises, colleges, and universities. Some of the major

customers include:

FAA – MaxSim over 90% market share of all US deployed simulators

FAA. More than 50 MaxSim towers already been installed for the FAA, and ADA expects it to

increase to approximately 100 systems deployed at various locations throughout the USA after

end of the current US$46M five year contract which runs from 2015 to 2019, making it one of

the world’s largest. ADA’s share of installed simulators in the USA is >90%. Major US airports

with installations include JFK, Chicago O’Hare, and Los Angeles International.

Additionally the contract will generate appx US$4M p.a. in support revenue for the FAA Tower

Simulation Systems (TSS) Program where ADA provides maintenance and sustainability. The FAA

also operates a Collegiate Training Initiative (CTI) program for which ADA has been a leading

supplier of MaxSim simulators. Along with NexSim – another ADA ATC simulator – ADA will have

systems at more than 90% of schools in the CTI program, giving it leading market share.

ENAV Italy – Italy’s civil aviation authority, and the largest international ex-USA contract for

ADA’s ATC simulators in terms of installations. 38 tower simulators installed including at Forli

and Rome’s Fiumicino Airport.

Other major civil airport bodies include USAF – 92 MaxSims

United States Air Force (USAF). The USAF is the largest customer of MaxSims with 92

installations in its airfields both in the US and globally including Turkey, Japan, and South Korea.

It commenced comprehensive software and hardware upgrades as part of a five year support

contract running from 2014 to 2018e under the USAF Tower Simulation Systems (TSS) Program.

ADA’s relationship with USAF dates back to 2002.

Other US Department of Defence organisations. MaxSim systems are used by US Navy, Marine

Corps, US Army, and Special Operations.

Universities and colleges. Some colleges use these to prepare student for FAA academy as the

FAA also uses systems.

Royal Australian Air Force (RAAF). 10 MaxSims are employed by RAAF, including at its School of

Air Traffic Control (SATC) in Victoria, one of largest and most comprehensive air traffic control

simulators in southern hemisphere. It includes 360-degree full immersion simulators, individual

task trainers, and a radar simulator. Deployment includes Newcastle, Darwin, and Townsville.

The contract with RAAF includes upgrade of existing simulators.

Other Defence – Lockheed Martin, Boeing, Raytheon, Singapore Technologies, and Alenia

Aermacchi.

Commercial – CAE, SRA International, and Airbus.

We estimate ADA

has over 90%

market share of

installed simulators

in the USA.

The USAF has the

largest installation

of MaxSims.




Figure 3: Global Presence of MaxSim systems

Source: Company.

OTHER PRODUCTS

ADA has a range of other products which have strong synergies with its core ATM and simulation

offering, notably cross-selling opportunities to existing customers.

SPEECH RECOGNITION PRODUCTS

ADA has speech driven and recognition systems for use in simulators and in cockpit voice

commands. Lexix is ADA’s name for its range of stand-alone speech recognition solutions. Both

MaxSim and aircraft cockpit domains currently include speech recognition technology as

software and/or hardware. Besides its own products, Lexix can also offered as a kit to third

parties to integrate into their own systems.

Integrated Communications Environment (ICE)

ICE is an automated air traffic control instruction and self-learning system and complements

ADA’s simulators. ICE uses ADA’s voice recognition technology to teach and assess proper

aviation communication procedures in controller and pilot training. It provides interactive, self-

taught lessons in a virtual ATC environment. It can also be used to competent other tools. For

example ICE is sold with ATC simulators in addition as a standalone system.

Providing students with correct aviation terms and phrases. ICE Provides training for the ICAO’s

English language requirements that private and commercial airline pilots, flight engineer,

navigators, and control tower operators must be proficient in the use of English language.

While English is standard, phraseology can vary between the various national civil aviation

authorities, as well as the military. ICE assists in aviation phrases and terms, procedures, and

proficiency. e.g. for emergency, taxiing, call signs, weather.

No need for instructor. Phraseology can be taught from the simulator as opposed to separate

instructor. ICE provide immediate feedback and corrections – reducing need for instructors by

either supplementing or replacing them, reducing training costs.

ADA’s speech

recognition products

are used as stand-

alone, or employed

with other products

such as simulators.




Accent neutral makes it truly global product. While English is the standard language for civil

aviation to fly and control planes, there exists a multitude of accents. ADA’s system can function

regardless of a person’s accent, due to unique recognition software, without need of

customisation or modifications. This has enabled ADA to have global footprint of its systems.

The product can also identify co-articulation: when the user enunciates words consecutively and

rapidly which tends to create a slurring effect. Other features include:

o Covers basic knowledge and full task training;

o Can be installed on a single laptop, desktop or network environment;

o Provides trainers with automated student assessment reports;

o Capability to edit speech recognition and course content;

o Shareable and reusable course content;

o Augments current ATC curriculum;

o Enable students to learn and practice at their own pace; and

o Developed as complement to the MaxSim tower

Customers include:

o USAF - Tower Simulation Program;

o FAA - Tower Simulation;

o North American University Customers;

o Tru Simulation – Flight Simulator ATC Environment;

o Lockheed Martin – Flight Simulation ATC for RAAF;

o Boeing Navy - Unmanned combat air vehicle aircraft carrier operations demonstration

system;

o Boeing Apache;

o US Navy - Simulator for training of mission operators in multi new aircraft;

o Italy’s ENAV; and

o Alenia Aermacchi M346 (now Leonardo-Finmeccanica).

Voice Activated Cockpit (VAC).

ADA has taken advantage of increasing human-to-computer voice interaction in aviation with

VAC for aircraft for commands. It is a fast and accurate speech driven solution for civil and

military cockpit control, for both aircraft as well as remote management of unmanned aerial

vehicles (UAVs). VAC has been implemented across arrange of aircraft and operating systems. It

can be offered as a software or full hardware solution.

Key benefits include:

o Eliminating manual input means that pilots’ eyes are focussed on surroundings, be it

weather, landing zone, terrain, or target.

o Frees both the pilots’ hands. For pilots the cockpit can be demanding environment

with work overload. VAC alleviates some of this – the manual work with hands and

controls - with voice commands. It allows pilots to compete tasks more efficiently in

Voice activated cockpit

reduces pilots manual

workload.




the air, significantly increasing safety and decreasing workload. A single voice

command can automate many tasks that would otherwise require multi step manual

inputs.

o Safety. System responses with aural feedback and command confirmation to pilot to

reinforce safety.

o Doesn’t matter whether speech pattern hesitant, slow or fast. . Voice command can

be issued without pauses between words.

o Can work in high noise environment. VAC can achieve high accuracy recognition rates

proven in operational high noise environments e.g. 120db.

o Real-time feedback. VAC provides real-time feedback and correction on grammar and

phraseology terms use by pilots.

ADA has already delivered speech recognition software for number of aircraft and customers

include the F35 Joint Fighter Strike Program, Airbus, Boeing, and CAE.

ADACEL TECHNICAL SERVICES (ATS) – FIELD SUPPORT

ADA has provided field support personnel to existing customers since 2003, and established ATS

as a separate business to manage field support. ADA employees are collocated with customers’

ADA products, including at locations in Australia, Portugal, and US Army, and FAA facilities in the

USA. This includes controller training contracts with clients to provide ATC instructors. ADA

manages personnel for two FAA regions in the USA, providing 45 employees at various FAA

locations via the SAIC under Controller Training Contract.

ATS provides preventative maintenance, correct installation, troubleshooting, training, and

education courses. Support is available 24/7. For those clients who do not have on-site ADA

personnel, the company can provide annual visits.

AIRPORT DRIVER TRAINING SYSTEMS AND GROUND VEHICLE OPERATIONS

Besides systems for training air traffic controllers and pilots, ADA also provides products to train

airport personnel involved in operating airport ground vehicles and security.

ADA Flightline Driver (AFDS) and Aerodrive

These are self-paced or instructor-led training products for airport driver familiarisation. AFDS

utilises existing MaxSim and 3D airport databases for site specific training, including lesson

scripting tools. Benefits are similar to that for controllers – lowering costs by reducing need for

instructors. The products include site specific 3D visual database depicting both airport and

landside environment, with optional modules including applications such as Airport Rescue and

Fire Fighting. A recent customer is Dallas Fort Worth (DFW) Airport – ca. US$450k p.a - to

upgrade driver training simulator systems for which ADA is providing AreoDrive.

SECURITY SIMULATION

Vulnerability Assessment and Simulation Tools (VAST). Given that airports are security

sensitive, ADA supplies VAST which is a tool for simulation for exercises concerning critical

infrastructure simulation. Besides airports, VAST has applications for other homeland security

such as military bases, fuel supply depots, railways, harbor ports, and nuclear storage facilities.

Sania National Labs utilises the simulator to train security forces at multiple US navy strategic

weapons (nuclear) facilities.

ADA’s support

encompasses field

services.




VISUAL SCENE GENERATOR

Insight Image Generator. Visual scenes are used across ADA’s product range especially in

simulators. However opportunities exist in other visual markets that comprise training. ADA can

introduce clouds, topographic, and structural features to land and airscapes that already feature

real terrain from its 3D Visual databases. Other products include virtual and augmented reality

support and air traffic environment for flight training.

INTELLECTUAL PROPERTY PROTECTED MOSTLY BY TRADE SECRETS

ADA holds IP to its core technologies mostly in the form of trade secrets, as well patents. ADA

spends about US$1.2M p.a. on research and development. The core IP has enabled ADA to

sought as a partner by much larger multinational industry players such as Leidos and Lockheed

Martin, offering them a competitive edge in their contracts which they could not provide

themselves.

ATM MARKET DRIVEN BY INCREASE IN AIR TRAFFIC AND TECHNOLOGY CHANGES

Market forecast to growth 11.7% CAGR to 2022e

ATM systems include air traffic control, meteorology, air navigation systems, GPS, satellite,

communications, data, radar and other surveillance technologies. Global air traffic systems and

management upgrades scheduled to occur over the next ten years will require US$120bn

investment, according to the ICAO, or US$12b p.a. on average. MarketsAndMarkets (2017)

projects the ATM market to grow from US$50.0b in 2016 to US$97.3b by 2022, at a CAGR of

11.7%, or US$7b p.a on average.

Positive outlook from increase traffic, drones, technologies and airport upgrades

Drivers for the anticipated double digit-growth in the ATM market are numerous and include:

o Increasing passenger travel, especially from the urbanisation and emerging middle

classes of developing countries requiring need for efficient management of airspace;

o Increase in unmanned aerial vehicles (drones);

o Increasing demand and strain on airport capacity, congestion and delays;

o Greater focus on safety improvements to reduce non-compliance whether near-

misses or terrorism;

o Increasing forecast growth in air traffic. Source: FAA Aerospace Forecasts FY2016-

FY2036 (cf. Figure 4). Air traffic has been increasing over the past few years following

headwinds such as 9/11 and the GFC. Globally there were 34M flights in 2015, with

aircraft flying 46.2b km (ICAO);

o Economic growth and accompanying rise in freight volume;

o Increasing use of voice recognition in communication technologies;

o Greater variable weather;

o Desire to reduce emissions; and

o Modernisation of airports, aircraft, and technology changes. Major example is the

transition from ground-based ATC to satellite-based air traffic control, and the

Eurocontrol SESAR Joint Undertaking and FAA Next Generation ATM Initiative.

ATM market

estimated to grow at

11.7% CAGR from

2016 to 2022 by

MarketsandMarkets.

Drivers for positive

outlook include

increasing passenger

travel, safety

improvements,

drones,

modernisation of

airports and

technology changes.




Figure 4: Forecast Air Traffic Growth 1997-2024

Source: FAA.

SIMULATOR MARKET – INCREASE IN CONTROLLERS ENHANCES OUTLOOK

FAA expects to hire 6,300 controllers over 2015-2020e

The outlook for the simulation market looks positive, especially in terms of the increasing use of

simulators in training air traffic controllers, and the hiring plans of the FAA.

Shortage of air traffic controllers worldwide. The number of fully certified air traffic controllers

in the USA has fallen to a 27 year low, according to National Air Traffic Controllers Association.

Part of this is the mandatory retirement age of 56 years. The FAA has stated it is hiring 6,300

new air traffic controllers over 2015-2020e, or just over 1,000 p.a. The military is also using

simulators, with the US Navy having announced US$25M of planned simulation purchases next

3 years.

Increased air traffic. As air traffic increases, so will the number of controllers required. For

safety reasons, air traffic controllers cannot handle too many flights at once so the number of

flights they control at any one time is limited. This limitation is a major reason for delays to

aircraft departing or landing as controllers can only process so many aircraft safely.

Decentralisation of training. The flexibility, portability, and mobility of simulators allows

trainees to train at their own pace, time, and even own location.

Greater recognition of benefits of using simulators in training. This includes lower costs, less

need for instructors, and speeding up the training process.

Desire by FAA to increase use of simulators

Such are the envisaged benefits of simulators that it is anticipated within the industry that one

day the FAA will legislate the recommended use of simulation training for all operators of all

vehicles in airport environments. The FAA stated in in its report Air Traffic Controller Workforce

Plan 2015-2024 that it is increasing, and wants increased, simulation used in training.

Simulator market

led by FAA’s

program for hiring

of controllers, and

desire to increase

use of simulators in

training.

Air traffic has increased in the last

few years, following the peak in

2000.




Despite ADA’s high market share, simulator market still has low penetration

FAA has implemented 50 simulators at airports, all exclusively from ADA. However there are

over 19k airports in the USA, of which 3,000 are part of the FAA’s National Plan Of Integrated

Airport Systems, and 600 classified as major airports – i.e. providing international, or at the very

least interstate and statewide flights. The FAA itself operates 316 ATC facilities, mostly being

towers at airports.

So while MaxSim has over 90% market share (with 50 installed) of existing civil simulator

installations, simulators have achieved only small penetration to date of all airport facilities. This

implies a large opportunity still exists for ADA just in the USA.

COMPETITVE LANDSCAPE – ADA’s TECHNOLOGY EDGE PROVIDES IT AN EDGE

ADA finds itself in a competitive market in both for its ATM and simulation products, competing

with some companies that are huge multinationals. However the company has succeeded to

date in achieving significant market share and growing sales. We believe this is due to its IP and

products’ technological edge. We note that some of the competitors do not compete directly

with ADA. Instead they may only offer some product packages for ATC and ATM, with those from

ADA being complementary, or filling in the gap. For example some competitors, such as

Raytheon and Leidos, are customers of ADA.

ATM

Around 50 companies supply various ATM products. The major players include Lockheed Martin

Corporation (US), Thales SA (France), Raytheon Company (US), Northrop Grumman Corporation

(US), Indra Sistemas (Spain), Frequentis (Austria), BAE Systems (UK), Saab AB (Sweden),

Honeywell International (US), and Harris Corporation (USA). Many of these supply just

particular components of ATM e.g. hardware communications systems, with only some

competing directly with ADA’s Aurora.

Simulators

ADA competitors in the simulation space include BAE Systems, KMW (Germany), VT MAK, Oktal

(France), Micro Nav (UK), ICZ Group (Czech Republic), Raytheon Company, and Indra Sistemas.

The company’s MaxSim products – with the flexibility in range, realism offered, and speech

recognition technology – has given it leading market share with the USAF and FAA vs other

players.

CORPORATE APPEAL

We believe ADA is could be an attractive potential M&A target, especially for some of the larger

multinationals. ADA would provide significant penetration into the simulator market within

both the FAA and the USAF. An example of recent activity in the ATM and ATC markets was

Harris Corporation’s US$4.75b acquisition of Exelis Inc in 2015.

While there exist a

number of

competitors, ADA’s

technology edge has

allowed it to carve

out a niche in its

markets.




REVENUE MODEL – MIX OF PREDICTABLE SERVICES AND ONE-OFF SYSTEMS SALES

Business performance reported as Systems and Services

ADA reports earnings under two segments – Systems and Services. This provides a guide to the

split between purchases which tend to be one-off and lumpy (Systems), and those that are

recurring, consistent, and more predictable (Services). The company sells its products mostly

denominated in US$, while its costs are mostly in C$ and to a lesser extent US$.

Systems - Hardware and software sales and upgrades

Systems revenue is that generated from hardware and software sales, including upgrades,

covering both operational control, simulation, and training. The average price of an Aurora

system is ca. €2M (US$2M, or A$2.7M), while that of simulators can range from US$250k to

US$3M, depending on the size and configuration (e.g. portable or full tower). While competitive

and lumpy, we understand that because of its Services revenue base having become larger, ADA

is now bidding more aggressively for System sales than in the past. 37% of FY16a revenue

reported was from System sales (Figure 5).

Figure 5: ADA Mix of Services and Systems Revenue FY16a

Source: Company; Foster stockbroking estimates.

Services – Support and field representatives

Services comprises recurring annuity revenue streams from system support such as field services

representatives, system and software maintenance, on-site technical services, onsite simulator

operators, scenario and creation training, ATC instructor services, software and hardware

extended warranties, and telephone support. 67% of ADA revenues were from Services sales in

FY16a (Figure 5).

Growing faster than Systems sales

Services revenue since 2015 has grown, and we believe is growing, faster than that of Systems.

Services revenue is being driven by the growing footprint of products and systems and the

broader need for onsite support.

Systems - ATM7%

Systems - ATC Sims & other

30%

Services- ATM30%

Services - ATC Sims & other

33%

Services account for

63% of ADA’s sales,

providing a more

reliable and

predictable earnings

stream.




Majority of customers opt for multi-year support

ADA’s business model is “end-to-end” products and services. Majority of clients in both areas

tend to opt for ongoing, and typically multi-year, support contracts. This should continue to

smooth out ADA’s revenue stream going forward, and its predictability. Services revenue can

run for several years, and comprise ca. 15%-20% of the initial systems purchase value on an

annual basis.

Long customer contracts reflect satisfaction with both products and services

The average age of ADA’s customer contracts is 8.3 years, while that of the 12 oldest clients is 15

years. This reflects the satisfaction of clients with not only ADA’s ATM and ATC systems, but also

the ongoing service that ADA has provided over the years. The average revenue of ADA’s top

ten contracts is US$3.1M p.a. Long-term recurring revenues account for 50% of forecast

revenues and ADA’s global footprint of ATM and simulators provides visibility and predictability.

The older contract customers include NAV Portugal, Lockheed Martin, US Army, Italy’s Enav, and

the USAF.

High switching costs

Given the critical infrastructure that ATM and ATC represent to flight safety and airport

operations, clients are reluctant to switch unless there is dramatic underperformance. Also

maintenance and upgrades are regular to maintain integrity and safety of aircraft, airports, and

airspace. We believe this is reflected in the lengthy duration of some of ADA’s key contracts.

Majority of

customers opt for

support, with service

revenue running at

15%-20% p.a. of an

initial systems sale.




EARNINGS FORECASTS

10% YoY growth in PBT; order book higher than a year ago

Forecasting ADA’s earnings is difficult, given the especially lumpy unpredictable nature of System

sales, albeit the significance of Services in recent years has mitigated it to a partial extent. ADA

stated its opening order book for FY17e is higher than a year ago and the strongest in company’s

history. At its AGM it expected FY17e to be another strong year of performance with 10% YoY

growth in PBT. However due to timing and a strong prior period, the 1HFY17e NPAT will be lower

than 1HFY16a. We forecast 1H FY17e NPAT to be $4.1M vs $5.7M in pcp.

However we agree that FY17e should deliver profit growth. The retention of key clients,

expansion of existing contracts, and addition of new ones should contribute to earnings growth.

In FY16a the company retained key clients and programs such as FAA, USAF, Lockheed Martin

(now Leidos) ATOP program, Nav Portugal, and Air Services Australia. New clients were French

territories.

We forecast ADA to report NPAT of $8.2M in FY17e, up 8% YoY, and $8.9M in FY18e, up 9% YoY.

We expect the YoY growth in sales of 9% in FY17e and 11.7% in FY18e to be the major reason for

NPAT growth.

Figure 5: ADA Profit & Loss A$M

Year end June 2016a 2017e 2018e 2019e

Sales revenue 47.9 52.4 58.5 65.3

Other revenue 1.3 1.4 1.6 1.8

Operating Costs 37.3 40.0 46.0 51.4

EBITDA 11.9 12.9 14.1 15.7

D&A 0.8 0.9 1.0 1.1

EBIT 11.1 12.1 13.1 14.6

Net Interest exp / (income) 0.3 -0.3 -0.4 -0.5

Profit before tax 10.8 12.4 13.5 15.1

Tax exp / (benefit) 3.2 4.2 4.6 5.1

NPAT attributable underlying 7.6 8.2 8.9 10.0

EPS diluted (c) 9.6 10.3 11.3 12.6

DPS diluted (c ) 3.0 4.1 4.5 5.1

Source: Foster Stockbroking estimates.

Our full earnings forecasts are detailed on page 2. We anticipate the main revenue sources and

opportunities for FY17e are:

FAA to add 50 more MaxSims over next few years. ADA has installed 50 MaxSims, and ADA

expects this number to increase to approximately 100 systems at the end of the five year contract

which finishes in 2019e. We expect some installations this fiscal year. Additionally, ADA has a

SE2025 sub-contracting agreement with Enroute Computer Solutions to provide FAA with

research and mission analysis, engineering and technical services (announced July 2016);

French Territories (DNSA). Another four systems are to be installed over the next three years by

DSNA, for which ADA is one of three companies pre-qualified by the French government to bid

on these projects. Support revenue would follow for lifetime of the system. The second is to be

installed CY17 in either Martinique or Guadeloupe.

USAF. Comprehensive software and hardware upgrade for its TSS program as part of a five year

support contract ending 2018e.

Others. We expect Services and Systems revenue from Nav Portugal, US Army, US Navy, DFW

Airport, Air Services Australia, RAAF, and other US aviation colleges.

ADA’s guidance is

for 10% growth in

PBT in FY17e.

Our profit forecasts

are based on ADA

growing its revenues

at high-single/low-

double digits.

Modernisation and

increasing

penetration of

simulators are key

drivers.




VALUATION

NPV of $2.60/share now and $2.79/share in 12 months.

We have modelled ADA’s cashflows out to FY34e and employed a DCF model (WACC 10%,

terminal growth 2.5%) to arrive at an NPV of $2.66/share now (Figure 6). Major assumptions we

have used are:

o Long-term EBIT margin of 22%;

o Sales growth of 9% in FY17e and 11.7% p.a. over FY18e-FY22e in line with industry

forecasts;

o Weighted average corporate tax rate of 34%. Assumes USA corporate rate of 37%,

Australia 30%, and Canada 27%;

o Dividend payout ratio of 40%;

o Long-term A$ of US$0.75; and

o 82% of revenues from USA.

Figure 6: ADA Valuation

Equity Valuation – DCF Now 12 mnths time

A$M A$/sh A$M A$/sh

Enterprise value 187.8 2.37 198.0 2.50

Net cash (debt) 18.2 0.23 23.4 0.30

Equity (NPV) 205.9 2.60 221.4 2.79

Source: Foster Stockbroking estimates.

BUY RECOMMENDATION -12 MONTH PRICE TARGET OF $2.79/SHARE

We initiate with a Buy recommendation on ADA and 12-month price target of $2.79/share based

on our valuation in 12 months’ time.

We envisage major catalysts for the shareprice to include: 1) Increasing sales and profit growth;

2) New customers; 3) Retention and enhancement of existing customer contracts; and 4) New

products.

We have modelled

ADA by DCF and

arrived at a

valuation of

$2.60/share and

$2.79/share in one

year.

We initiate with Buy

recommendation

and 12-month price

target of

$2.79/share.




RISKS

Contract risk. ADA may lose contracts with customers if its product underperforms or ADA does

not provide satisfactory maintenance and upgrades, rendering the technology obsolete and

unreliable. Also risk that ADA may lose contracts to aggressive price bidders once contract

expires and is up for renewal or tender.

Economic risk. Decline in global economic growth may negatively impact funding and budget

spending by governments and the military on ADA’s ATM and ATC systems and services, which

would negatively impact ADA’s earnings and growth.

Competitor risk. There are numerous competitors in ADA’s markets. These may supply

products which may be superior or priced more attractively than those offered by ADA, causing

the latter to lose market share and client contracts, as well as reducing ADA’s ability to win new

customers and tenders.

Currency risk. Any appreciation in the C$ or the A$ vs the US$ would negatively ADA’s earnings,

given the company has significant costs in C$ and translates its US$ earnings to A$.

Concentration risk. In FY2016, 69% of ADA’s sales were from three customers, each >10%, and

has been 66%-72% over past three years. These are all in North American segment. A loss of

just one of these customers could have a negative material impact on earnings

Technology risk. A major change in technology used to undertake ATM or ATC may make ADA’s

products obsolete, diminishing its growth prospects.

BOARD

Peter Landos, Non-Executive Chairman. BEc, Appointed Non-Executive Director 2009 and

Chairman since 2012. COO of Thorney Investment Group who has worked with since 2000. Prior

was with Macquarie Bank Ltd. Extensive business and corporate experience. Also Non-

Executive Director of Gale Pacific Ltd.

Julian Beale, Non-Executive Director. BE, MBA. Appointed 2003. Extensive international

business and capital market experience with private and public companies. Held senior positions

in companies including English Electric and Esso Australia (now Exxon). Was MD of resources

group with interests in petroleum production, minerals and pipelines. Was involved in successful

transition of Moldlfow, a software developer for moulding machines, to NASDAQ. Former

member of Federal Parliament 1984-1995.

David Smith, Non-Executive Director. BE, appointed Executive Director 1997, and Non-

Executive since 2000. Extensive experience in software development, project and operations

management on military, aviation, and transport.

Silvio Salom. Non-Executive Director. BEng. MD of ADA from incorporation in 1996 to 2006 and

Non-Executive thereafter. Founder and MD of predecessor Adacel Pty Ltd in 1987. Expertise in

information technology related to manufacturing, environmental, defence, transport and

telecommunications.

Natalya Jurchensin, Non-Executive Director. Appointed 2016. Senior financial leader

experienced in finance functions of companies. Over 25 years’ experience in finance, including

audit and assurance at Arthur Anderson (now part of EY) and 12 years as CFO with Circadian

Technologies and two years with Melbourne Symphony Orchestra.




FOSTER STOCKBROKING DIRECTORY

Name Role Phone Email

Stuart Foster Chief Executive Officer +61 2 9993 8131 [email protected]

Chris Francis Executive Director +61 2 9998 8167 [email protected]

Haris Khaliqi Executive Director +61 2 9993 8152 [email protected]

Martin Carolan Executive Director +61 2 9993 8168 [email protected]

Mark Fichera Executive Director +61 2 9993 8162 [email protected]

Mark Hinsley Executive Director +61 2 9993 8166 [email protected]

Darren Odell Research +61 2 9993 8121 [email protected]

Matthew Chen Research +61 2 9993 8130 [email protected]

Tolga Dokumcu Execution & Dealing +61 2 9993 8144 [email protected]

George Mourtzouhos Execution & Dealing +61 2 9993 8136 [email protected]

Foster Stockbroking Pty Ltd

A.B.N. 15 088 747 148 AFSL No. 223687

Level 25, 52 Martin Place, Sydney, NSW 2000 Australia

General: +612 9993 8111 Equities: +612 9993 8100 Fax: +612 9993 8181

Email: [email protected]

PARTICIPANT OF ASX GROUP Foster Stockbroking recommendation ratings: Buy = return >10%; Hold = return between –10% and 10%; Sell = return <-10%. Speculative Buy = return > 50% for stock with very high risk. All other ratings are for stocks with low-to-high risk. Returns quoted are annual. Disclaimer & Disclosure of Interests. Foster Stockbroking Pty Limited (Foster Stockbroking) has prepared this report by way of general information. This document contains only general securities information. The information contained in this report has been obtained from sources that were accurate at the time of issue. The information has not been independently verified. Foster Stockbroking does not warrant the accuracy or reliability of the information in this report. The report is current as of the date it has been published. In preparing the report, Foster Stockbroking did not take into account the specific investment objectives, financial situation or particular needs of any specific recipient. The report is published only for informational purposes and is not intended to be personal financial product advice. This report is not a solicitation or an offer to buy or sell any financial product. Foster Stockbroking is not aware whether a recipient intends to rely on this report and is not aware of how it will be used by the recipient. Before acting on this general financial product advice, you should consider the appropriateness of the advice having regard to your personal situation, investment objectives or needs. Recipients should not regard the report as a substitute for the exercise of their own judgment. The views expressed in this report are those of the analyst/s named on the cover page. No part of the compensation of the analyst is directly related to inclusion of specific recommendations or views in this report. The analyst/s receives compensation partly based on Foster Stockbroking revenues, including any investment banking and proprietary trading revenues, as well as performance measures such as accuracy and efficacy of both recommendations and research reports. Foster Stockbroking believes that the information contained in this document is correct and that any estimates, opinions, conclusions or recommendations are reasonably held or made at the time of its compilation in an honest and fair manner that is not compromised. However, no representation is made as to the accuracy, completeness or reliability of any estimates, opinions, conclusions or recommendations (which may change without notice) or other information contained in this report. To the maximum extent permitted by law, Foster Stockbroking disclaims all liability and responsibility for any direct or indirect loss that may be suffered by any recipient through relying on anything contained in or omitted from this report. Foster Stockbroking is under no obligation to update or keep current the information contained in this report and has no obligation to tell you when opinions or information in this report change. Foster Stockbroking and its directors, officers and employees or clients may have or had interests in the financial products referred to in this report and may make purchases or sales in those the financial products as principal or agent at any time and may affect transactions which may not be consistent with the opinions, conclusions or recommendations set out in this report. Foster Stockbroking and its Associates may earn brokerage, fees or other benefits from financial products referred to in this report. Furthermore, Foster Stockbroking may have or have had a relationship with or may provide or has provided investment banking, capital markets and/or other financial services to the relevant issuer or holder of those financial products. For an overview of the research criteria and methodology adopted by Foster Stockbroking; the spread of research ratings; and disclosure of the cessation of particular stock coverage, refer to our website http://www.fostock.com.au. Specific disclosures: The analyst owns 21,000 ADA shares at the time of this report. Diligent care has been taken by the analyst to maintain an honest and fair objectivity in writing the report and making the recommendation.


mailto:[email protected]





Review disclosure: The report was authored by the analyst named on the front page of the report and was reviewed and checked by Darren Odell, Research Analyst. Specific disclosures: The report was prepared solely by Foster Stockbroking Pty Ltd. ASX did not prepare any part of the report and has not contributed in any way to its content. The role of the ASX in relation to the preparation of the research reports is limited to funding their preparation, by Foster Stockbroking Pty Ltd, in accordance with the ASX Equity Research Scheme. ASX does not provide financial product advice. The views expressed in this research report may not necessarily reflect the views of the ASX. To the maximum extent permitted by law, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by ASX as to the adequacy, accuracy, completeness or reasonableness of the research reports. Disclosure review. All the disclosures in the report, including the specific disclosures pertaining to shares held by the analyst, Foster Stockbroking, its Executive Directors, and associated fund Cranport Pty Ltd have been reviewed and checked by Mark Hinsley, Head of Corporate.


EQUITY RESEARCH - ASX · Earnings and Valuation: We forecast ADA to report NPAT of $8.2M in FY17e and $8.9M in FY18e, driven by sales growth. We expect 1HFY17e NPAT of $4.1M. We model

Documents