Thursday, 5 March 2009

Jacques Kavafian Gives Two Thumbs Up

AeroMechanical Services Ltd. (TSX:V-AMA)
Basic Shares: 82.5 million
Fully Diluted: 88 million


Research Capital's aviation analyst, Jacques Kavafian, raved about AeroMechanical's contract with Sierra Nevada Corporation (SNC) adding the deal could be more important for other business doors it opens for AeroMechanical.

"More importantly, (AeroMechanical) will gain greater credibility with large airlines because of the backing from SNC, a respected name in the aerospace field," Mr. Kavafian wrote in his March 5th update report.

"This agreement is very positive news for (AeroMechanical), not only for the upfront cash component of the license (SNC is paying AeroMechanical ), but because it also elevates the company's profile," Mr. Kavafian added.
The SNC contract was announced March 4th, one day before this latest analyst update.

Mr. Kavafian stuck with his BUY recommendation on AMA stock and set a share target price of $0.65, or $0.44 cents higher than AMA's trading price at the time of writing.

Equally interesting are the assumptions Mr. Kavafian made for this year's and next year's AMA budget.

The long-time aviation analyst expects AMA to have 292 of its blueboxes installed on aircraft around the world by the end of 2009.

AMA makes a relatively small amount up front from every bluebox sale and, more significantly, it earns monthly recurring revenue from each installed bluebox.

Mr. Kavafian then estimated the installations could jump dramatically - to 669 by the end of 2010.

Mr. Kavafian also predicts AMA could cut its net income loss by one half by the end of 2009 - to a loss of $3.5 million - and produce an estimated net income of $2.1 million by the end of 2010.

Mr. Kavafian has seen many previous down cycles in the aviation industry and he is keenly aware of the impact the current crisis is having, and will continue to have.

Given the latter reality, he still estimated AMA could pull off some significant business this year and next.

To read the analyst's full report, please click here.

To read about the SNC contract, please click here.