High-flying SimiGon worth double

If the military or commercial aerospace giants want to test their equipment they go to SimiGon. The AIM-listed firm's simulation software can recreate aircraft cockpits, UAVs, air traffic control systems, and weapons systems. It's doing so well that the house broker has just been forced to upgrade profits forecasts and the share price has rocketed 20%.

The company, which works for heavyweights like BAE Systems, Boeing, Lockheed Martin and Lufthansa, improved its position on the world's largest military flight training programmes and remains a prime contractor for major, long-term simulation training programmes. Management now expects to report a "significant" increase in profits for 2014 and year-end net cash of $9 million (£5.9 million).

That means better margins, which is why house broker finnCap upgrades estimates for adjusted pre-tax profit from $1.1 million to $1.3 million for 2014, giving adjusted earnings per share of 2.7 cents.

But SimiGon is also meeting project milestones, including the $6.7 million major prime contractor deal won in June 2013. And finnCap believes there is an increasing likelihood of significant follow-on deals, "to take group revenues and profit onto a different scale".

Despite this, the shares trade on just 13 times earnings estimates for 2015, even after the latest rally. Strip out 12p of cash - almost half its market cap - and the multiple drops to less than 7. Earnings should be reasonably secure, too, as SimiGon works on long-term contracts with big national defence departments and corporations.

"On top of that, there is huge upside potential from follow-on deals to be won in its relatively recent move to become a prime contractor in the defence industry," says finnCap. "We reiterate our 45p target price for the stock."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.