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ADA, ADACEL TECHNOLOGIES LIMITED
nipper
post Posted: Aug 27 2018, 10:32 AM
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Adacel Technologies Limited (ASX: ADA) share price fell 7% to $1.68 after the company released its annual results last week. Revenues grew 25% to $53 million and net profit after tax fell 10% to $8.4 million.

Net profit before tax was up 30%, slightly ahead of revenue growth, however net profit after tax fell this year because the previous year’s results were inflated by carried forward tax losses. In simple terms, Adacel paid less tax last year (due to tax credits from historical losses) and paid more tax this year, which is why profits fell.

Management stated that, at current tax rates, Adacel has $11.8 million and $10.1 million in unused tax losses available in Australia and Canada respectively. This will likely reduce the company’s tax payable for the next 2-3 years.

Adacel reported 10.64 cents in earnings per share and declared ordinary dividends of 4.5 cents per share during the year, plus an additional special dividend of 5 cents per share. The company ended the year with $12.5 million in cash and no debt.

During the year Adacel announced that it lost part of a supply contract with the US Federal Aviation Administration (FAA) to a small business competitor. Adacel is contesting this contract loss. Elsewhere, Adacel reported encouraging new contract wins and customers in Morocco, Algeria, Sri Lanka, and China.

Management commentary suggested the company has a strong outlook and was sufficiently confident in its financial position and business to declare 5 cents per share in special dividends. Elsewhere, Adacel reported that it expects strong interest from smaller countries which will be looking to upgrade their outdated systems.
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fredsmart
post Posted: Aug 24 2012, 03:11 PM
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Greetings to Adacel followers after a long period of hibernation,

That statement looks pretty good. The numbers are better than I expected (or perhaps feared) --especially given the weakness in Europe, and the insipid recovery and budgetary constraints in the US.

This time, however, the linguistics are the real surprise. There are no carefully worded cautions, no excuses or apologies, and generally no negatives whatsoever. Instead, there are words that make me think that the directors are telling us something, or at least are drinking a stronger brew of coffee with a caffeine kick.

Fred


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remlif
post Posted: Dec 8 2011, 08:40 AM
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In Reply To: fredsmart's post @ Dec 7 2011, 11:20 PM

Agree with your musings fredsmart. Its an intriguing situation. Could be the basis of an exam question for post grad business students.

Some more thoughts to add to the confusion of the mix.

1. Julian Beale is 77 and has just been re-elected for another term. He is struggling both physically and mentally. He no longer seems to be enjoying the job as Chairman or indeed as a board member. This suggests to me that he has been persuaded to carry on with the understanding that he wont be required to go the full term. i.e. Don't rock the boat just yet!

2. My guess is that Thorney, David Smith and Silvio Salom would be only too happy (perhaps even anxious) to cash in their chips, but as you say, its a question of how.

3. I believe that the scenario of Smith and Salom selling out to Thorney and the same offer being made to the minorities can be ruled out unless it were to be part of a 2 stage process with Thorney then unloading entirely. Both Smith and Salom are ex senior managers of Adacel and Thorney relies on their expertise and knowledge. Also, Thorney are an investment group and would (should) baulk at running a highly technical American based company from their small office in Melbourne by themselves.


I come to the same conclusion as you.


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fredsmart
post Posted: Dec 7 2011, 11:20 PM
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Remlif, thanks for directing our attention to that interview . Thanks again too for your post from the AGM.

I agree that Adacel will not be taken over by a Chinese co. I imagine that the successful suitor would be one of the US companies that Adacel deals with; or perhaps even a Canadian co.

The issue of privatisation that you raised continues to intrigue me. I think that a privatisation might have some advanatages, but it also presents some difficulties. If I were either Silvio or David W Smith, I would prefer to retain my independence, and yet still stay on good terms with Thorney. For either or both of those two, participation in a privatisation would still leave them with less shares and less votes than Thorney -- and might make them vulnerable to Thorney if any debt arrangements went along with a privatisation. In any event, an increase in their share of the company might come at some cost and entail some additional risk. Such risk would not just flow from the acquisition of any extra debt, but also from the fact that they would still have to dance to Thorney's tune. In fact, they would almost certainly have less power and less control over their own destiny than they do at the moment.

Even Thorney, however, might also see such a privatisation as yielding only minor benefits. The reason why I say this is that at the moment Thorney can use the independence of the other two as leverage with a suitor, because the two would have to agree independently to a takeover. In a similar regard, the presence of difficult and unpredictable shareholders like ourselves may add sufficient inducement to a suitor to add a little extra premium to a bid. If that were so, then the premium might be enough to offset the benefits to the Big Three of attempting to acquire those interests. In any event, such a bid would only go ahead if the Big Three actually endorsed it. If it actually did turn out to be the case that the existence of minorities like us did have some value, then the benefits of a privatisation might be very marginal ----even to Thorney. Given all of the costs -- and the messiness -- of a privatisation, then benefits of a privatisation might be very marginal indeed to each of the Big Three. What can be said, however, is that a further tightening of the share register will increase both the degree of control and the financial benefits accruing to the Big Three, while still allowing those Three to use the presence of the minorities as leverage with a potential suitor.

The other problem with a privatisation is that a takeover offer indicates that the directors see value in the company. Minority shareholders will readily appreciate this. In itself, that might make them less likely to sell, and may therefore set them at odds with the Big Three. Then there is the other question: how do the directors undertake such a privatisation and remain ethically untainted? After all, they would be trying to pull a swifty on the minorities. Maybe I'm naive, but I think Alex W is ethical, and that the marginal benefits of a privatisation are not worth the possibility of leaving a nasty aftertaste that might otherwise taint or sully his reputation. I believe that he would place considerable value on his integrity and reputation. At the moment, the company might be quietly undertaking a buyback, but all of that is open and fair. True, we might not be receiving the psychological benefits of recurring pep-talks from a Board interested in ramping up the share price so that a potential equity raising might be more successful. But, then again, a buyback undertaken with firm intent -- and funded from internal operations without recourse to debt --- does communicate some optimism about the prospects of the company.

All things considered, I still think that the share price is likely to move upwards. I also think that the ultimate destiny of the company is to be the subject of a friendly takeover by a US company, although I also believe that such a takeover might still be a couple of years down the track. Once again, call me naive, but I also think that we minorities will participate in the benefits of such a takeover. An eventual takeove will still be essentially between the Big Three and a suitor, but it is likely to take place in the shadow of minorities.

Fred


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sirob
post Posted: Dec 7 2011, 03:10 PM
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In Reply To: remlif's post @ Dec 7 2011, 02:22 PM

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Of course, the interview is tailored for the US Military but it does beg the question as to whether Adacel can keep increasing their exposure to this sector when they are a publicly owned Australian company.

Suppose for instance, that a Chinese state owned company were to make a $2 offer for Adacel.

The shareholders would applaud, but the US Government would be less than impressed.


A publicly owned Australian company suppling the Australian and American military. any takeover would be scrutinized by the relevant authorities and most unlikely to be approved.

 
remlif
post Posted: Dec 7 2011, 02:22 PM
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In Reply To: fredsmart's post @ Dec 5 2011, 03:07 PM

Thanks for that Fred.


For those who may of missed it, there is a rather nice interview with Seth Brown, the new MD of Adecel on the Adacel web site

http://www.adacel.com/press/innews/Seth%20...2%20Oct2011.pdf


Of course, the interview is tailored for the US Military but it does beg the question as to whether Adacel can keep increasing their exposure to this sector when they are a publicly owned Australian company.

Suppose for instance, that a Chinese state owned company were to make a $2 offer for Adacel.

The shareholders would applaud, but the US Government would be less than impressed.


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fredsmart
post Posted: Dec 5 2011, 03:07 PM
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Hi Adacel followers,

I've been thinking about Remlif's post.

The first thing that strikes me is that this buyback is the most aggressive so far. The company seems to be relentlessly lifting its price as far as the ASX regulations allow; and it is prepared to gobble up not just larger volumes, but even very small volumes. This suggests that that the company is very keen to acquire shares, and it is quite relaxed about moving the share price upwards as it goes about acquiring those shares.

That begs the question. Why? Why push the price up? Obviously, the company is not short of cash, despite lower revenue, and despite ongoing investment in intellectual property. Since it is able to do all of this --- and continue an aggressive buyback -- without recourse to either debt or equity, my conclusion is that this is intrinsically a very profitable little company. That is now, not just in the future.

The next question is another 'Why'? By this, I mean why has the annual report emphasised talk about 'rightsizing' the company, with all of the negative undertones that the term implies? This is a company that does not see any need to do investor presentations, or to contemplate ever going to the capital market. If this weren't the case, then the company would be putting a better spin on things.

Let me now consider the position of the Big Three. They might be contemplating a privatisation, but we don't know anything about the personal finances of two of those. We do know, however, that one sold a half a million shares. In other words, it is quite possible that one at least might have to participate by raising debt -- perhaps even from Thorney. That would be murky and would skate along a tight ethical line, but it would also entail some financial risk. What if the expensive offer didn't get the requisite 90% take-up? Where would that leave the debtor? I know that I wouldn't be prepared to sell my shares at anywhere near these prices when it was very clear that the directors believed that the shares were very cheap. If I were in charge of the current buyback, I would therefore be trying to acquire all shares that came on the market, and I would be very relaxed about the price at which I acquired them. Maybe that would entice suckers to sell out at a cheap (but higher) price that they didn't realise was cheap.

For my part, I think that the company is amazingly cheap. A little while back a Car Park technology company was ramped. It was capitalised at about $35m, and its annual revenue was about $1m. In other words, it was capitalised at about 35 times revenue. Adacel is currently capitalised at around 6 months of revenue, or 0.5 times revenue. You can bet that the car park co will have to issue more shares. You can also bet that Adacel's issued shares will continue to decline.

Adacel is leveraging a closely integrated suite of products, and it operates at a currency well above its long-term average and in a global market that is currently recessed but which offers large opportunities via SESAR as well as via the potential defence contracts that it has gone to some trouble to set-up.

I still think it's a buy.

Fred


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remlif
post Posted: Nov 23 2011, 02:30 PM
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I tootled along to Adacel's AGM last Friday and I must say there was about as much activity and excitement about the company shown at that meeting as we see on this thread.

I was one of only 6 shareholders who fronted and we were outnumbered by the suits (board members, auditors, legal representatives etc) who counted to around 18.

Chairman Julian Beale made heavy work of reading his speech which was a repeat of what was issued to the stock exchange back in August. He then asked for questions. Perhaps he wished he hadn't. He was roundly abused. By one irate shareholder in particular.

The first question was about lack of information provided to the ASX for shareholders. To wit. An announcement in February 2011 that things were going great and then nothing till 22 June when we shareholders were told that everything was a mess. Whatever happened to continuous disclosure? Beale was very uncomfortable and struggled to put any coherent explanation together. Just an apology.

I asked whether there had been any turnaround in this financial year to date. He answered this trading was better and it took about 4 follow up questions to get him to state that the company was profitable in the year to date. I'm not sure I believe him or that he even knows.

The first questioner made a great issue of the continued lack of performance of the company since going public and questioned the board for its lack of diligence in pursuing their duties and responsibilities. Again he received apologies and not much else.

He then commented on the current shareholding weightings and the lack of communication with the minority shareholders not on the board. He asked whether the board had ever considered taking the company private and buying out the minorities.

The answer was probably the most interesting thing to come out of the meeting. "a meeting doesn't go by when this issue or some closely associated issue is not discussed"

The board was asked about why the take over offer a couple of years back fizzled away. The answer after several attempts to bat the question away was that negotiations were going nowhere and were involving an inordinate amount of management time and resources. Adacel called a halt.

After this meeting in which the entire board was subjected to fairly abusive questioning, I suspect that the question of going private will be discussed again.





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fredsmart
post Posted: May 7 2011, 03:54 PM
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In Reply To: remlif's post @ May 6 2011, 10:54 AM

Hi Remlif,

I agree with everything you say.

With respect to the the policy of writing off expenditure on intellectual property in one hit, I believe that is an accounting standard. However, as you rightly say, it understates the real financial position -- and the guide to future profits -- of companies such as Adacel. I also agree that the company does appear to behave with honesty.

I, too, regularly visit the website. As you say, there are things there that once upon a time would have been appearing as an ASX statement. I think the website has these sorts of things because clients and others in the industry probably see it. I also look at the positions vacant section for an idea of how the company is travelling. The jobs do not appear to have dried up.

With respect to the three American notables on the Board, I think that, by itself, would satisfy the Americans. On that matter, however, I might very well be wrong. I did conduct a little search in order to find an answer to that question, but I still can't find anything definitive. The company's statement, however, does seem to imply that the three residents on the Board will clear the way for the future. That future, however, might be some way off. We do seem to be waiting a long while for contracts to materialise. This is despite the fact that the company refers to itself as a fast mover. I'm sure it is a fast mover, but I wish everything else would catch up.

I believe that there are some big contracts up for grabs in 2013, relating to the institutional arrangments between the Europeans and the Americans on emissions reductions between the US and Europe. With that in mind, I expect that we will all just have to hang in there.

The danger of getting out, of course, is that the turnover is so low that getting back in might be difficult if things start to happen. I always have in mind, too, that the nature of the industry is such that a large contract could come from nowhere and catch everyone by surprise. I'll be definitely staying the course, but I must say that it's a long slow ride.

Thanks for such a thoughtful post.


Fred


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remlif
post Posted: May 6 2011, 10:54 AM
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In Reply To: fredsmart's post @ Feb 26 2011, 04:53 PM

Thanks for that post Fredsmart, I too, continue to hang on and hope.

Your comments summarize the situation quite well and there are one or two points that I would add on the plus side.

1. As you pointed out, their balance sheet is clean. Negligable borrowings. Also, zero intangible assets. They spend considerable sums on writing software (that is their business), but they don't let these costs accumulate on the balance sheet as an intangible asset. They write the cost off straight away. If they followed normal practice (our banks, Telstra etc), they could "trick up" their profitability to make themselves look much better than they portray with their headline profit/loss figures. I guess this accounting honesty comes from having 3 dominant shareholders all on the board who know what the company is really worth while the rest of us rely on the share price to give us a guide.

2. Also as you pointed out, we minor shareholders get told nothing. This doesn't mean that nothing is happening. It is worth regular visits to their web site and in particular their press releases. There are regular announcements of new contracts which would once have been posted as an ASX announcement. These are enough to indicate to me that the company is not stagnating.

One recent press release announces a beefing up of the board structure in the US. The reason, according to the press release is the sensitivity there to inviting a foreign owned/controlled company into the secretive areas of defense contracts. I recommend this as a read for holders as it goes some way towards explaining the darth of information we receive directly. It also points to pressures that could be a catalyst for future change. If the defense work grew to significant levels and was held back by the Australian ownership of the company, then another take over offer would most likely emerge. This may not be in a single step. It is plausible that Thorney could instigate a buyout of the minor shareholders, take the company private, and then sell it to a US based owner. If this were the plan, then, the lower the current share price, the better (for Thorney).


From my point of view, I am prepared to be patient and justify my patience by convincing myself that the current share price is a very poor indicator of the value of the company


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