The 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Adacel reported that it expects strong interest from smaller countries which will be looking to upgrade their outdated systems.
Adacel's valuation is undemanding in my opinion, and for a company that is demonstrably winning new customers and displacing competitors in some cases, I think Adacel could be an opportunity at today's prices.
While the contract loss with the FAA is a concern, and business performance is likely to be lumpy due to the timing of sales and purchaser budget constraints, Adacel has a strong financial position and I think the company is worth a closer look.
