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Adacel Technologies' share price bounces on award of $5.6 million contract

Last updated: 18:19 23 Apr 2018 EDT, First published: 18:00 23 Apr 2018 EDT

Picture at airport
There could be share price upside if Bell Potter’s price target of $2.75 is on the mark

Adacel Technologies Limited (ASX:ADA) has signed a multi-phase contract with Navegacao Aerea de Portugal.

Both Adacel and Bell Potter had earlier flagged a contract in excess of $5 million to be confirmed in the second half of fiscal 2018 and this has now been confirmed.

However, post the first half result, shareholders were disappointed with a contract loss and the company’s shares were sold down from about $2.40 to a recent low of $1.70.

In response to yesterday’s news, they hit a high of $1.95, but there could be more upside to come if Bell Potter’s price target of $2.75 is on the mark.

Upgrade of air traffic system

The $5.6 million contract involves a comprehensive upgrade and modernisation of its existing air traffic management (ATM) automation system.

The scope of works will include an upgrade of the existing Adacel Aurora ATM system used by Nav Portugal for oceanic, en route, approach and tower control within the Santa Maria Flight Information region.

Aurora automation technology is in operational use in numerous airspaces.

These include those controlled by Fiji, France, Iceland, New Zealand, Norway and the US, including approximately 80% of global oceanic airspace.

Contract underlines repeat revenue business model

Under the contract, installation of initial systems components will commence immediately and be progressively completed over a three-year period.

Adacel has an excellent track record in terms of winning repeat business and negotiating contract extensions.

It operates in a niche market for major players in the civil aviation and defence sectors where a record of reliable high-quality service is normally rewarded.

This contract also demonstrates the ongoing revenues that can be generated from maintenance, repairs and upgrades.

Consequently, the sell down that started some six months ago and accelerated in the last few months may have provided a buying opportunity.

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