Post on 06-Oct-2020
Beacon Securities Ltd.| 66 Wellington Street West, Suite 4050, Toronto, Ontario, M5K 1H1 |416.643.3830|www.beaconsecurities.ca
Firan Technology Group Corp. (FTG–T)
January 11, 2017
Not Just A Roll Up Story
- FTG announced that it has been awarded a new three-year Long
Term Agreement (“LTA”) from one of the leading global Original
Equipment Manufacturers supporting the Aerospace Market (also
an existing customer).
- The agreement incorporates a variety of high technology, Printed
Circuit boards for use on key fixed wing platforms including
Boeing 787, Airbus A350, A400M, and the Bombardier C-Series.
FTG will manufacture the product at its FTG Circuits Division
located in Toronto, as well as in China.
- The new LTA is estimated at over US$12M, which, based on our
discussions with management, represents a ~15% increase over
the previous agreement.
- In our opinion, this announcement is meaningful for a couple of
reasons:
o First, at US$4M a year, this contract represents ~5% of
revenues, so it is good to see the renewal.
o Second, FTG’s ability to maintain historical programs, while
capturing new scope across key programs highlights the
company’s ability to grow organically within its core
business.
- Bottom-line, while there is a lot of attention around Firan’s
integration efforts around the acquisitions of Photo Etch and
Teledyne PCT, we believe there is still a very good organic growth
story given the company’s strong product and service portfolio
and the positive tailwinds underlying the company’s key
aerospace and defence markets.
- As it relates to the integration efforts, we believe the company
continues to hit key milestones such as customer retention and re-
certifications. With Photo Etch’s facility closed (and business
transferred to FTG’s facilities) as of the end of CY16 and Teledyne
expected around the end of Q1 CY17, we believe the company
remains on track to hitting our $15.5M EBITDA estimate for FY18,
and to possibly be on this run-rate basis by H2 CY17, which we
view as key catalyst for the stock.
- We reiterate our Buy rating, but are increasing our target to $5.50
(was $5.00), which is based on 9x (was 8x) reflecting a general
industry multiple expansion.
$3.95
$5.50
39%
YE: Nov FY16E FY17E FY18E
Revenue (M) 86.5 99.6 102.0
EBITDA (M) 8.1 11.8 15.5
GAAP EPS ($) 0.31 0.25 0.36
FY16E FY17E FY18E
EV/Sales 1.2x 1.1x 1.0x
EV/EBITDA 13.1x 9.0x 6.8x
P/E 12.7x 15.8x 11.0x
22.2
Shares O/S (FD)1 24.2
Market Cap (Basic) $87.6
Market Cap (FD) $95.7
Cash $3.1 $0.13/sh
Debt $12.8 $0.53/sh
EV $105.4
gleung@beaconsecurities.ca
Stock Performance (1 year)
Stock Data (M)
Shares O/S (Basic)
Gabriel Leung 416-507-3963
Target Price Increase
Previous Close
12-month Target Price
Potential Return
Estimates (C$)
Valuation
Company Description
Toronto-based Firan Technology Group is a leading global supplier
of aerospace and defence electronic products and subsystems
and has two main operating segments: FTG Aerospace (~35% of
revenues) and FTG Circuits (~65% of revenues)
Research Team
Buy (unch) $5.50 (was $5.00)
January 11, 2017 | Page 23 Gabriel Leung| 416.507.3963 | gleung@beaconsecurities.ca
Firan Technology Group Corp.
2-Year 2-Year
Ticker FY - 1 FY1 FY + 1 Revenue CAGR FY - 1 FY1 FY + 1 EBITDA CAGR FY -1 FY1 FY + 1
Comps
CAE CAE.TO 2.4 x 2.2 x 2.1 x 7% 11.9 x 9.8 x 9.0 x 15% 20.9 x 19.0 x 17.2 x
Lockheed Martin LMT 1.9 x 1.9 x 1.7 x 4% 13.3 x 12.6 x 12.0 x 5% 22.4 x 21.0 x 20.0 x
General Dynamics GD 1.8 x 1.8 x 1.7 x 1% 11.9 x 11.5 x 11.4 x 2% 19.4 x 18.1 x 17.5 x
United Technologies UTX 1.9 x 1.9 x 1.8 x 2% 10.0 x 9.8 x 10.0 x 0% 24.6 x 16.9 x 17.0 x
Northrop Grumman NOC 2.0 x 1.9 x 1.9 x 3% 13.1 x 13.1 x 12.2 x 3% 22.4 x 20.0 x 19.3 x
Raytheon RTN 2.0 x 1.9 x 1.8 x 5% 13.0 x 12.1 x 12.0 x 4% 21.7 x 19.7 x 19.7 x
Airbus AIR.PA 1.0 x 1.0 x 0.9 x 3% 9.4 x 10.2 x 9.3 x 1% 19.0 x 20.9 x 18.1 x
Boeing BA 1.0 x 1.0 x 1.1 x -2% 10.3 x 13.0 x 9.4 x 5% 21.4 x 22.4 x 17.1 x
Average 1.7 x 1.7 x 1.6 x 3% 11.6 x 11.5 x 10.7 x 4% 21.5 x 19.7 x 18.2 x
Celestica CLS 0.2 x 0.2 x 0.2 x 4% 4.8 x 4.3 x 4.2 x 7% 29.0 x 9.5 x 9.8 x
Benchmark BHE 0.4 x 0.5 x 0.5 x -4% 7.1 x 7.6 x 7.5 x -3% 16.9 x 22.2 x 19.6 x
Flextronics FLEX.O 0.4 x 0.4 x 0.4 x 0% 7.3 x 7.1 x 6.7 x 5% 18.6 x 12.5 x 10.8 x
Sanmina SANM.O 0.4 x 0.4 x 0.4 x 3% 7.5 x 7.5 x 7.1 x 3% 15.3 x 13.3 x 12.5 x
Plexus PLXS.O 0.6 x 0.6 x 0.6 x 8% 10.6 x 9.0 x 8.4 x 12% 24.2 x 16.6 x 15.0 x
Jabil JBL 0.3 x 0.3 x 0.3 x 2% 4.4 x 4.1 x 3.9 x 6% 17.7 x 11.4 x 9.7 x
Astronics ATRO.O 1.2 x 1.3 x 1.2 x -1% 6.5 x 7.9 x 7.0 x -3% 13.2 x 19.4 x 16.5 x
TTM Technologies TTMI.O 1.0 x 0.9 x 0.8 x 11% 7.6 x 5.9 x 5.6 x 17% -49.7 x 10.9 x 10.0 x
Esterline ESL 1.6 x 1.6 x 1.6 x 2% 10.7 x 10.4 x 9.7 x 5% 22.5 x 18.8 x 16.9 x
Average 0.7 x 0.7 x 0.7 x 3% 7.4 x 7.1 x 6.7 x 5% 12.0 x 15.0 x 13.4 x
Average 1.2 x 1.2 x 1.1 x 3% 9.5 x 9.3 x 8.7 x 5% 16.7 x 17.4 x 15.8 x
Firan FTG.TO 1.2 x 1.1 x 1.0 x 9% 13.0 x 9.0 x 6.8 x 39% 12.7 x 15.8 x 11.0 x
Source: Company filings, Thomson, Beacon Securities
Firan Technology Group: Peer Group Analysis
EV/Sales EV/EBITDA P/E
January 11, 2017 | Page 24 Gabriel Leung| 416.507.3963 | gleung@beaconsecurities.ca
Firan Technology Group Corp.
Firan Technology Group - Income Statement
FY13 FY14 FY15 Q1 FY16 Q2 FY16 Q3 FY16 Q4 FY16 FY16 FY17 FY18
(C$000) 27-Feb-16 29-May-16 29-Aug-16 30-Nov-16
Revenues:
Circuit Segment Sales 37,728 45,055 54,315 12,560 14,168 14,729 16,663 58,120 64,255 65,540
Aerospace 18,270 15,644 17,730 4,369 5,597 8,458 9,929 28,353 35,378 36,439
Total revenues 55,998 60,699 72,045 16,929 19,765 23,187 26,592 86,473 99,633 101,980
Cost of sales:
Cost of sales 42,914 43,867 52,048 12,664 14,378 17,567 20,077 64,686 72,796 71,386
Depreciation of plant and equipment 1,688 1,646 1,963 513 527 609 609 2,258 2,436 2,436
Total cost of sales 44,602 45,513 54,011 13,177 14,905 18,176 20,686 66,944 75,232 73,822
Cost of sales % of revenues 76.6% 72.3% 72.2% 74.8% 72.7% 75.8% 75.5% 74.8% 73.1% 70.0%
Gross profit 11,396 15,186 18,034 3,752 4,860 5,011 5,906 19,529 24,401 28,158
Gross margins 20.4% 25.0% 25.0% 22.2% 24.6% 21.6% 22.2% 22.6% 24.5% 27.6%
Operating expenses:
SG&A 8,747 9,430 10,018 2,452 2,858 2,595 2,800 10,705 12,000 12,000
R&D 3,046 3,777 5,558 787 877 818 850 3,332 3,400 3,400
Recovery of R&D costs -280 -418 -492 -70 -70 -70 -70 -280 -280 -280
Depreciation of PP&E, amortization of intangibles 156 168 156 40 58 184 190 472 760 760
Recovery of investment tax credits -6,736 -167 -180 -152 0 -499 0 0
Goodwill impairment 1,039 0 0 0 0 0 0 0 0
Interest expense on short-term debt 67 29 34 0 20 31 31 82 124 124
Interest expense on long-term debt 328 364 413 40 44 46 96 226 383 383
Interest accretion due to early repayment of AMIS loan 556 0 0 0 0 0 0 0
Bargain in purchase gain -1,611 -5,578 0 -7,189 0 0
Severance and restructuring expenses 299 0 670 3,245 0 3,915 0 0
Foreign exchange loss (gain) -27 -610 -2,054 -55 360 13 0 318 0 0
Total expenses 13,375 12,740 7,453 3,027 3,026 1,132 3,897 11,082 16,387 16,387
Income before taxes -1,979 2,446 10,581 725 1,834 3,879 2,009 8,447 8,014 11,771
Current income tax expense 69 48 9 16 15 15 502 548 2,003 2,943
Deferred income tax expense -1,010 240 1,024 259 463 368 0 1,090 0 0
-941 288 1,033 275 478 383 502 1,638 2,003 2,943
Tax rate 47.5% 11.8% 9.8% 37.9% 26.1% 9.9% 25.0% 19.4% 25.0% 25.0%
Net income -1,038 2,158 9,548 450 1,356 3,496 1,507 6,809 6,010 8,828
Attributable to :
Non-controlling interest -40 35 11 0 0 11 0 11 0 0
Equity holders of FTG -998 2,193 9,537 450 1,356 3,485 1,507 6,798 6,010 8,828
EPS :
Basic -0.06 0.12 0.53 0.02 0.07 0.17 0.07 0.34 0.27 0.40
FD -0.06 0.11 0.47 0.02 0.07 0.15 0.06 0.31 0.25 0.36
EBITDA 1,613 4,107 4,964 1,108 1,734 2,288 2,946 8,076 11,761 15,518
EBITDA margins 2.9% 6.8% 6.9% 6.5% 8.8% 9.9% 11.1% 9.3% 11.8% 15.2%
Source: Company filings, Beacon Securities
Beacon Securities Ltd.| 66 Wellington Street West, Suite 4050, Toronto, Ontario, M5K 1H1 |416.643.3830|www.beaconsecurities.ca
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As at December 31, 2016 #Stocks Distribution
Buy 67 77% Buy Total 12-month return expected to be > 15%
Speculative Buy 12 14% Speculative Buy Potential 12-month return is high (>15%) but given elevated risk, investment could result in a material loss
Hold 3 3% Hold Total 12-month return is expected to be between 0% and 15%
Sell 0 0% Sell Total 12-month return is expected to be negative
Under Review 5 6%
Tender 0 0% Tender Clients are advised to tender their shares to a takeover bid or similar offer
Total 87 100%