Monday, 27 April 2009

Research Capital Pens Another Upbeat AMA Report

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


Some clouds hanging over AeroMechanical were removed lately, Research Capital's aviation analyst Jacque Kavafian noted in a recent research report update.

And spring temperatures rose after AMA filed a relatively upbeat 2008 annual report and reported a new sales contract all in the same short period, he added.
While Mr. Kavafian lowered his previous estimates for installation of AMA blueboxes and of new orders going forward, he maintained his share target price of $0.65.

The clouds he cited disappeared after AMA reached a settlement with its former President Darryl Jacobs, who sued AMA for wrongful dismissal, and after Star Navigation tucked its corporate tail between its legs by abandoning its patent infringement suit against AMA. (It is interesting to note that following Star's retreat, AMA filed a motion to have Star repay AMA nearly US$750,000 in legal fees.)
"The negatives weighing on the stock are largely gone and full efforts are being made to make the company cash-flow positive in F2010 ..." Mr. Kavafian wrote.

In the annual report, the analyst noted that AMA had $800 thousand in its cash coffers and $2.8 million in receivables and inventory - inventory that gets converted to cash as soon as it is used.
That, its backlog of sales orders and the fact it has almost no debt inspired Mr. Kavafian to conclude that AMA, "will be able to meet its near-term working capital requirements..."
"In addition, (AMA's) agreement with Sierra Nevada Corporation (SNC) to manufacture and market AMA's (bluebox technology) under license to the U.S. military market should also help through license fees and royalties and reduced research and development burden as some of the responsibility will shift to SNC," Mr. Kavafian added.
He noted AMA had 184 of its blueboxes installed in aircraft around the world at the end of 2008. But he reduced that number by 33 to account for the three airline customers who bit bullets in these tough markets and went out of business.

That left AMA with 227 aircraft under contract and 151 blueboxes actually installed on Dec. 31st, 2008.
"We will be watching the flow of orders and if the pace picks up with the backlog growing to over 300 units, we may have to increase our valuation (beyond $0.65 cents per share,)" Mr. Kavafian wrote.

In better economic times, Mr. Kavafian estimated that AMA would install 135 blueboxes in F2009 and 377 units in F2010. But given the tough economic times, he lowered his previous estimates to 75 units in F2009 and 88 units in F2010.
To read the full report, please click here.