This report was originally published on 5/20/09.

The American Institute of Architects (AIA) released their Architecture Billings Index (ABI) for April 2009 today. Overall, the ABI index has been proven to be a solid indicator of future non-residential construction with a lag of approximately 5-months. Here are the highlights from the April 2009 release:

• The overall billings index declined slightly from 43.7 in March to 42.8 in April
• The index for new project inquiries increased slightly from 56.6 in March to 56.8 in April

A Quick Explanation As To How the ABI Works:

Architecture firms are asked to report whether billings during the previous month increased significantly (5%+), remained the same, or decreased significantly (5%+). The index is calculated by adding the percentage of firms that have reported an increase to the percentage that have reported no change. Comparisons are to the prior month. A score above 50 indicates that firms in the aggregate are reporting an increase in activity that month compared to the previous month.

The index is now well off its lows of January 2009 of 33.3. Additionally, the new project inquiries index has not exceeded 55 for two consecutive months since December/January 2007. It is important to note that the index is still not suggesting growth, but it is showing some early signs of stabilization. The chart below displays the ABI Index and new project inquiry data for the past two and a half years.

Source: AIA

The Implications for ARP Are Modestly Positive, and the Stock is Still Very Cheap on a Multiple of Free Cash Flow

ARP exited 1Q09 by generating approximately $50 million in revenues in the month of March. Today’s data implies that April was slightly worse from an overall activity level, but the new project inquiry index suggests the coming months could be considerably better. In our most recent post on ARP, we argued that the company would generate FCF in excess of $70 million if industry-wide activity remained on par with March levels. We are growing more confident that our financial goals for ARP in 2009 are achievable based on today’s AIA data.

Assuming ARP generates $70 million+ in FCF in 2009 that would represent $1.55/share. At a 10% free cash flow yield ARP would trade at $15-$16/share.

As always, please act accordingly…