Firan, along with many other businesses exposes to commercial aerospace, presents an interesting situation. Covid has hit one side of the business really hard (commercial aerospace) and the other side of the business humms along due to being declared as an essential business by most governments. These businesses usually carry high backlogs so results from a slowdown are usually quite delayed.
Firan Technology Group Corporation manufactures and sells printed circuit boards, illuminated cockpit display panels, and keyboards in Canada, the United States, Asia, Europe, and internationally. It operates in two segments, FTG Circuits (Circuits) and FTG Aerospace (Aerospace). The Circuits segment provides microvia technologies; buried capacitance, and blind and buried vias; multilayer boards; conducive filled vias; custom millings; cavity boards; metal core constructions; multiple sequential laminations; tented, filled, and flushed plugged vias; differential and controlled impedance products; and embedded filters and inductors, as well as mixed dielectric boards and back planes. It also provides design assistance and 3D modelling, controlled depth drilling, buried resistor layer, performance testing, and back drilling services, as well as engineering services for avionic, military, telecom, medical, advanced test and measurement, contract manufacturer, and power applications. The Aerospace segment provides panels, bezels, keyboards, caution warning annunciators, electro luminescent lamps, lighting power supplies, and electro mechanical subassemblies; and lighting technologies that are used in commercial aerospace and military applications. The company was formerly known as Circuit World Corporation and changed its name to Firan Technology Group Corporation in May 2004. Firan Technology Group Corporation was founded in 1983 and is headquartered in Toronto, Canada.
So we are exposed to defense and commercial aerospace activity. The business is made up of two segments: Circuits (mainly defense) and Aerospace. The business has grown well over the last decade, particularly in the last 5 or 6 years.
Firan goes into great detail in MD&A as well as the CEO gets very “operational” on conference calls. He really knows the business and you can tell he really had a hand in building the business over time.
There was a cyber attack in Sept 2019 affected about 10% of quarterly revenue.
Despite the charts being a little noisy, you can see that the defense part of the business is a little more stable. The revenue line (blue) has been gradually increasing for both, but profitability has been more consistent and generally higher in the defense portion of the business.
FTG Circuits – From AIF
FTG Circuits is a leading manufacturer of high technology/high reliability printed circuit boards within the North American marketplace. FTG Circuits has manufacturing operations in Toronto, Ontario, Chatsworth, California (“FTG Circuits – Chatsworth”), Fredericksburg, Virginia (“FTG Circuits – Fredericksburg”) and Tianjin, China, along with a sourcing arrangement with another operating facility in China. Its customers are technological and market leaders in the aviation, defence and other high technology industries. The FTG Circuits segment accounted for approximately 63.6% of the Corporation’s revenue during fiscal 2019 (approximately 58.6% during fiscal 2018).
A printed circuit board consists of one or more layers of etched wiring bonded to a board fabricated from insulating material designed to act as a base for, and to interconnect, microprocessors, semiconductors, integrated circuits and other electronic components. Profit margins on complex circuits are typically higher for those utilizing advanced materials meeting high reliability specifications or advanced production processes than those on standard materials designed to meet commercial specifications. Accordingly, the Corporation seeks to produce a high percentage of advanced technology boards in an effort to optimize its operating margins. The Corporation currently derives the majority of its revenue from such sophisticated printed circuits.
All printed circuits manufactured by the Corporation are custom-designed by customers because every printed circuit has a unique application. This requires the Corporation’s engineering and quality control groups to work closely with FTG’s customers. Through this collaborative process, the Corporation assists its customers in developing new products that optimize technical performance of the product, ensures high quality and reliability while minimizing costs.
FTG Circuits’ customer base has 205 active customers and 68.1% (57.0% in fiscal 2018) of total sales came from its top five customers in fiscal 2019. FTG Circuits has supply agreements with major customers for defined periods of time and at defined prices. Future contracts are dependent on acceptable performance with regard to price, quality and delivery.
FTG Aerospace – From AIF
FTG Aerospace manufactures illuminated cockpit panels, keyboards, bezels and sub-assemblies and assemblies for OEMs of avionics products as well as for airframe manufacturers around the world. These products are interactive devices that display information and contain buttons and switches that can be used to input signals into an avionics box or aircraft. The FTG Aerospace segment accounted for approximately 36.4% of the Corporation’s revenue during fiscal 2019 (approximately 41.4% during fiscal 2018).
FTG Aerospace’s customer base totals 120 active customers, with approximately 51.6% (62.6% in fiscal 2018) of total sales coming from its top five customers in fiscal 2019. FTG Aerospace has supply agreements with major customers for defined periods of time and at defined prices. Future contracts are dependent on acceptable performance with regard to price, quality and delivery.
The CEO owns about 10% of the company if you count his preferred shares. He owns about 800k in common and has 1,775k in preferred shares. The prefs are convertible to common on one for one. If there is a liquidation in the business, the prefs will get $2.50 before the common get any.
Two funds own nearly 30% of the outstanding shares. Oakwest and Polar Asset Management.
Independent board members don’t own many shares.
The last 3 years have seen CEO comp at $500k on average. His share ownership is about 8x his compensation.
- labour agreements in a couple of facilities in Canada
- other operational risks – supply chain, sales, equipment, quality issues, etc
- customer concentration in a few big customers – if a customer has a specific product fail to meet certifications or demand drops (see 737 MAX) Firan will be affected
- short term currency volatility
Shares are trading around 5x FCF. Although the company has traded at lower levels of EV/Rev and Tangible Book in the past, so it’s not unreasonable to see those levels again.
Commercial Aerospace has been among the hardest hit by covid. Big backlogs and defense spending have supported the business better than I would have thought. There is a risk that aerospace takes longer than 3 or 4 quarters before customer activity returns and defense spending gets cut. Although record stimulus and market support could mean continued defense spending.
It does seem to be a decent risk/reward situation for a business that has some barriers to entry.
Anyone have a favorite aerospace business they own? Comment below.
*the author does not own shares in $FTG.to