I would like to begin a thread of Rada Electronic Industries, Ltd, ("RADIF") an Israeli avionics company that has made considerable progress with their business plan over the past year. Price on Oct23: $3.625. Market cap: $23 Million. Annual Sales: $30 Million. Growth rate in revenues: 39%.
Rada has two major product lines for its future. First is SMART CATS, a line of automated test equipment that commercial airlines can now use to test airline parts during the maintenance process. Most airline parts have to go through considerable testing and downtime while it is determined whether they require routine maintenance. This process is long and laborious and keeps valuable inventory out of commission for long periods of time. Rada's system is a digital testing system that allows airlines to immediately determine whether a particular part needs servicing or not. This does two things, it takes a lot of the human error out of the process (a critical element in todays demands for better aircraft maintenance) and it cuts the investory needs of airlines DRAMATICALLY. As Rada has the only system that can service the new Boeing 777 line they have started receiving orders from major airlines. Their customers include British Airways, United Airlines, US Air, Olympic Airlines, Alitalia, and many others. Most of these companies have ordered the first round of equipment while British Airways recently started reordering the product due to heavy use by their maintenance staff. The only competition is from the Airbus consortium, but their systems do not service Boeing aircraft. Rada's service a multitude of lines. As the Boeing 777 takes off, so will Rada.
Of additional interest, RADA recently announced a joint venture in with a Chinese company to set up a service company to service aircraft in the Far East using Rada's equipment. Rada only had to contribute 20% of capital and receives 25% equity with option to increase to 47.5%. This adds an ADDITIONAL revenue source of service revenues to the sales it receives on product it supplies to this joint venture.
Second major product line is ACE, a flight debriefing system used by airforce fighter pilots. Before this systems was available, fighter pilots had to be booked at test ranges to receive playback of their flight training. Not only are these ranges extremely expensive, the terrain is limited and pilots rarely had the opportunity to get such feedback on flight activity. Rada's ACE system allows a bo to be inserted into the cockpit of each flighter plane so that a full report can be received for feedback after each and every flight. The system supplies video replay and a full digital readout of all flight activity. ACE won a valuable endorsement from the Israeli airforce in 1995. Next in line was the Royal Netherlands Airforce which placed a $14 Million order for the system. Installation has just begun and other NATO airforces are now examining the system for their own airforces.
Rada currently is a company with $30 million in annual sales, a strong balance sheet, $29 million in book value -- and the company's current market value is only $23 million!!! Second quarter sales grew by 39%, backlog is at $27 Million, and the company has received BUY recommendations by Josephthal Lyon & Ross in the States and Morgan Grenfell in the UK. And the company is profitable.
So, what's the problem? Prior to 94 Rada primarily sold to the Israel Defense Forces. With their conclusion that defense markets in general were slowing, the company began a program to develop products that could be sold both to commercial aviation markets and export military markets. At the same time, the were moving away from their dependence on electronics distribution (not a high margin business) to their new product lines. This hurt results in 1994 and led to a dropoff in the stock price. It is only in the past two quarters that the company's new product lines have made up for the falloff in old product sales. The growth is now becoming apparent. Already the stock has made a runup to the $5.625 level earlier this year.
With each contract announcement, Rada seems to be accumulated. By my count, 1.5 million shares (of 6.4 million outstanding) were removed from the market during the Spring. There now seems to be accumulation between 3.50 and 4.00. Never is there major selling during the past several months. Just patient buying.
The payoff in the stock will come with either A) further contract announcements, B) the absorbtion of remaining float, C) improved profitability, or D) strategic partnerships. The company has also increased its profile by hiring the Anne McBride company as their financial relations firm. This is a "real" firm and they can supply you with an information package. Their number is 212-752-0504.
I like RADA because it is a VALUE stock and a GROWTH stock at the same time. The bottom seems firmly tested at $3.50 while the upside is considerable. Josephthal sees it in the $7 - $8 range; while Morgan Grenfell sees it in the $12 - $15 range.
Good luck in your investigation. This posting should not serve as a recommendation. Your decision to invest should be your own. |
