In a 35 page initiating coverage report, Disruptive Technologies and Innovations analyst, Dev Bhangui, bases his valuation and target on one thesis: “Currently at the cusp of positive cash flow and with major revenue catalysts in the near term, we expect FLY to produce 75% CAGR revenue growth over the next 2 years, while lowering y/y opex and accelerating earnings accretion”.
He is forecasting highly accelerated revenue and EBITDA growth for the next few years.
- 2013 - $8.3 million / ($1.8 million)
- 2014 - $15.0 million / $1.3 million
- 2015 - $28.6 million / $8.0 million
Importantly, the report uses the term “Inflection Point”:
FLY sits at a significant revenue inflection point in 2014 with several events serving as catalysts in the near and medium term.
Given the increasing activity in Q4/13, we expect FLY to be close to cash flow neutral. Warrants exercised in Dec. 2013 have put $6M into coffers at the cost of 10% dilution. We do not anticipate additional dilution during the target horizon.
- An Airbus announcement is expected in Q1/14. Airbus currently has a backlog of 1,600 planes to be cleared in three years. FLY will capture royalty and recurring revenue on each plane rolling off of the assembly line, as described above. We expect this OEM endorsement to influence Airbus-centric carriers to gravitate toward FLY for retrofit installations.
- NetJets’ (Berkshire subsidiary) initial contract for 10 planes out of 650, earning $2,600 per month per aircraft in recurring revenue, for the full features suite, and is expected to expand in units during 2014.
- The C-130 Hercules modernization contract constitutes ~1,200 possible planes. FLY is partnered with all 3 SIs approved for this communications upgrade program.
“With a superior growth profile compared to its peers and strong strategic partnerships, we see considerable upside potential for FLY beyond 2014,” concludes the Byron report, “Investors can expect additional upside in the medium term through potential acquisition interest from larger players like Rockwell, L-3 or Honeywell, all of which operate as FLY partners or co-vendors. We are therefore initiating coverage with a “Strong Buy” recommendation and a $1.25 price target.
An article attributable to “Technology Dispatch” was also released this morning. It discusses the Byron report. To view the article, please click here.