Adacel Technologies Limited share price rises 3% on new contract win

The Adacel Technologies Limited (ASX: ADA) share price rose 3% to $2.65 today after the company won another contract to supply simulators and training systems to a new military customer in Central America.

While the $4.2 million contract might seem like small fry for Adacel, which is a $200 million company, it is equivalent to around 10% of the company’s full year revenue. Winning new customers also bodes well for the long term, especially if they result in repeat business or larger future sales (both are a distinct possibility).

Adacel’s main goal is to benefit from a considerable number of global air traffic systems that are due for replacement over the next few years. Additionally, global spending on defence is rising, which may give the company the ability to benefit from more training simulator sales like the type announced today.

Adacel is currently pursuing a number of US government contracts that are expected to be announced later in 2017, while a number of countries in the Asia-Pacific are also planning upgrades to their air traffic control systems. The company has a strong balance sheet, and is well positioned to benefit from rising demand for its products.

Several fund managers have described Adacel as a promising growth prospect, and if the company is able to continue winning contracts, it could prove a worthwhile investment, even at today’s apparently lofty price of 28 times last year’s earnings.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia owns shares of Adacel Technologies Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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