Drone Volt has just announced that it plans a NASDAQ listing in a quest to improve its valuation. This would be done with the help of Maxim Group LLC, which would be paid in shares but capped at 4% of capital (of which 3% if the listing is successful).
This additional listing makes strategic sense as the US drone market is the number one in the world and is now free from Chinese competition, which has enabled the company to increase its presence there over the past year. A listing could thus boost its reputation in this crucial market and help improve growth. The company now also has a strong shareholder base in the US, among which its reference shareholder is Armistice Capital.
On top of these points, we agree with the company that innovative start-ups such as Drone Volt, which are not yet profitable, are usually significantly better valued on the NASDAQ than elsewhere. A peer like Aerovironment is valued more than two times higher on a P/B basis, for instance.
We think that it is clever that the company uses its shares rather than its cash to pay the investment bank given that it is not FCF positive yet, although of course it results in a slight dilution of existing shareholders.
The only real potential drawback that we see from this dual listing is a split of liquidity between Euronext Paris and NASDAQ, which could be magnified by the small size of the firm that would put it under the radar.
We thus find the slight positive reaction this morning justified given the rerating potential linked to this potential dual listing and reiterate our positive recommendation which banks on less competitive dual-use technologies.
