Hello,
Thanks for the insight.
I just got ahold of this from Union Securities:
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Research Comment Jim Locke, CFA (604) 691-2841
12 July 1999 jlocke@union-securities.com
Unique technology system to provide superior information for North American utilities
We have initiated research coverage on ASC Avcan Systems ("Avcan") with a speculative buy rating. We believe the Company's proprietary technology product called the Vid/Thermal Tracker 2000™ system will make a significant impact on the way North American utilities monitor and manage their ground-based structures. Tracker is an airborne imaging system that delivers high-resolution video cross-linked with digital position and temperature measurements accurate to within 1 metre and 0.2°C. Avcan provides the Tracker service through sub-contracted helicopter companies that have purchased the Tracker system. Initial applications of the Tracker service comprise data acquisition for the electric power distribution and oil and gas utility companies. This is a significant market comprising hundreds of thousands of kilometres of electric power transmission lines and oil and gas pipelines. We believe the changes taking place in the utilities industry and the need for utilities to manage their critical assets will create a demand for the Tracker system that will generate significant revenue and earnings growth over the next few years.
Highlights
· Avcan's Vid/Thermal Tracker 2000 system comprises two platforms - (i) an acquisition platform consisting of hardware and software for installation on a helicopter and used to collect digital video, position/elevation data and thermal imagery and, (ii) a processing platform for the end users of data to provide mission planning, image processing, custom reporting and data export to engineering applications. The Tracker system is now being sold to independent helicopter operators in a unique business model that generates attractive returns for both parties. In this model, Avcan generates revenues from both the sale of the Tracker system to helicopter operators and the provision of the Tracker service to utility companies. The American and Canadian markets have been divided into nine exclusive territories whereby one helicopter operator in each territory is sub-contracted to provide the Tracker service to utilities in that territory. Avcan assumes marketing responsibilities for the Tracker service in each territory and shares revenues generated from contract sales of the service with the helicopter operator. We estimate that each Tracker system costing US$350,000 can generate revenues of US$2-3 million annually. The revenue stream from this model generates significant recurring cash flow for both Avcan and the helicopter operator.
· The deregulation of the U.S. utilities industry is creating a need for the electric power transmission companies to monitor the condition of their most valuable assets - the tranmission lines. Traditional methods of acquiring information on transmission lines and their right of ways include manual inspection from vehicles or helicopters or even on foot. These methods are often compromised by weather, terrain, and human error resulting in incomplete or inaccurate information. Avcan's system captures and collects detailed and reliable data much quicker and at a lower cost than these traditional methods. This information which is digitally captured and archived enables utility companies to visually monitor the condition and changes over time of their structures in a way that has not been available before. We think the Tracker system has the potential to revolutionize the way utility companies obtain information on the status of their facilities.
· Avcan is managed by an experienced CEO with the support of a strong board of directors. CEO, John Sutherland, has 25 years of operations management and marketing experience and was CFO at Arequipa Resources when it was acquired by Barrick Gold. He receives the counsel of directors Ken Miller and Eric Dysthe, respectively, CEO and Chairman of MDSI Mobile Data Solutions Inc., a global leader in providing manpower management software and equipment to the utility industry. MDSI is a Toronto Stock Exchange-listed (MMD) and NASDAQ-listed (MDSI) company that experienced sales growth of $9 million in 1995 to $83 million in 1998 under the stewardship of Messrs. Miller and Dysthe. We think the experience that these two individuals have gained and the model that they have used in making MDSI a success will be put to use in growing the business of Avcan.
· We believe that Avcan is on the verge of generating excellent revenue and earnings growth. The recent launch of the Tracker system has begun to attract the attention of both helicopter operators and utility companies that recognize the opportunities provided by the system. Of the nine territories available in the U.S. and Canada, three have been licenced and others are under negotiation. To date, one Tracker system has been sold and is in use, one is being readied for delivery next week and another two are in testing for delivery. We estimate that up to five systems will be in operation by the end of the year in four territories. Each territory is capable of supporting multiple systems and applications can be expanded to include surveys for fiber optic lines, environmental monitoring of waterways and forest lands and seismic mapping.
· This research comment is an initiation of coverage on Avcan to bring attention to an emerging company with exciting growth prospects in what we believe is a new market opportunity. We will be preparing a full report with more detail in the near future. At this time, we are recommending Avcan as a speculative buy for risk tolerant investors. We believe the Company with a market capitalization of $7 million offers significant capital appreciation potential in a sector that appears ripe for the application of a new technology. |
