AlphaValue Corporate Services Fundamental Analysis FR
Back to
AlphaValue Corporate Services
This research has been commissioned and paid for by the company and is deemed to constitute an acceptable minor non-monetary benefit as defined in MiFID II

Drone Volt

CR
Bloomberg   ALDRV FP
Aerosp. & Defence Equipt.  /  France  Web Site   |   Investors Relation
Contract execution for a potentially record year
Businesses & Trends

Drone Volt is a French company based at Villepinte, near the Roissy-Charles de Gaulle international airport. The company, created by Mr Dimitri Batsis, is specialised in the conception, assembly and distribution of aerial remote-controlled drones, as well as associated services, training and software. Its products address various ranges of markets and clients, from consumer to professional civil uses, mostly in sectors such as security, inspection, transportation, and topography.

The core activities of the company include product development, engineering & design and the manufacturing of hardware, flying sensors, data processing platforms and drones. The company has also developed software and Artificial Intelligence expertise in order to enhance customer services, proposing turnkey solutions. Drone Volt also provides after-sales services as well as training on its equipment and the regulations for drone pilots.

Drone Volt Group operates in France and internationally through subsidiaries in Denmark, Benelux, Canada, the Netherlands and has agents in the USA and Switzerland.

Drone Volt’s organisational chart is as follows:

General market, expected to display high growth

The company addresses a market with huge potential, but which is today still in its early stages, for several reasons. The technology was reserved first for military use, starting as early as the 1970s, and only reached the civilian domain just a few years ago, thanks to progress in miniaturisation and a decrease in costs.
In terms of market projection, it turns out not to be easy to find reliable and recent market studies. However, according to The Insight Partner in a report published in August 2019, the global civil drone market was valued at $6.56bn in 2018 and is expected to reach $21.61bn by 2027 with a CAGR growth rate of 14.3% in the forecast period from 2019 to 2027. The pace of growth is also expected to increase at the end of this timeframe when the major contributors in civil drone spending will be in agriculture, real estate/infrastructure, and energy & power. Additionally, in a report published in June 2019, Teal Group predicted that worldwide civil drone production will almost triple over the next decade. Non-military UAS production will total $88.3bn over the next decade, soaring from $4.9bn in 2019 to $14.3bn in 2028, equivalent to a 12.6% CAGR. The study includes forecasts of commercial, consumer and civil government systems. A year before, GlobeNewswire highlighted the research from Market Research Future that the size of the drone market would mushroom to $129.3bn by 2028, equivalent to a 20.18% CAGR from 2018 to 2028.

The drone market can be subdivided into four categories of players:

  • The assemblers, which can buy or design their components, and assemble them to create operational drone platforms.
  • The distributors, generally addressing the consumer markets.
  • The operators, which operate the drones in various conditions and utilisations.
    *The training organisations, which provide the training and certification of the pilots willing to operate within the regulatory framework.

A very fragmented market, in the midst of transformation, chasing economic profitability

Despite impressive growth projections, the market is characterised by its relatively early stage of adoption and usages, as well as being extremely fragmented with a myriad of small players, and yet has to prove its economic viability. As an example, according to Les Echos, there were 7,000 companies identified in France in 2018 with a total turnover between €100m and €150m. This translates into a highly competitive environment, where some players (the smallest) drive prices down by using leisure drones and where the added value in the service offered is very low. This partly explains the large number of bankruptcies in the last few years and the difficulties found by some players, while very few companies are currently profitable. Thus, players are switching from the “retailer” status towards design/assembly to improve along the value-added ladder.

The drone market is confronted with a variety of barriers, one of which is the fear of change. This has materialised with the relatively small contracts as tests in the first place, with the need to get to know and understand the technology, which can later be transformed into larger volumes and cross selling. A second barrier is more to do with regulation hurdles related to UAV flights, which is just at its beginning, with no harmonisation across countries or regions.

Growing regulation

While the former can be a barrier, we also believe that the development of a comprehensive regulatory framework should unleash demand, enabling drone flight, pilot training and clarify insurance matters. Indeed, in the absence of regulation, facing a legal limbo in many countries, the development of the drone industry has been slow, as operators can’t rely on clear rules, causing insurance problems when the utilisation of drones is not simply banned. In the US, there has been no federal regulation for a long time, opening the way to local experimentation, until the Federal Aviation Administration (FAA) set restricting rules in early 2015, before slightly relaxing them in mid-2016. But, the 2020 COVID-19 health crisis might accelerate what would seem to be inevitable at some point. The FAA has granted two companies the rights to deliver equipment and products between hospitals via drones.

On its side, France has been a pioneer market for drones and, according to the DGAC (Direction Générale de l’Aviation Civile / the French Civil Aviation Authority), the country stands at third place worldwide in terms of drone pilots. DGAC established as early as April 2012 four different scenarios (detailed in Worth Knowing) which set precise limits to the operation of aerial drones. The French regulation is also very strict concerning the different registrations and certificates necessary respectively for the drone makers, the operators, the pilots and the flight authorisations, establishing a complex regulatory environment but opening clear business opportunities. However, this regulatory framework must now be approached in the light of a new European regulation (published in June 2019), which will gradually replace national requirements in order to contribute to the emergence of a European market for the drone industry. The first regulation, to be in place in January 2021, will define the categories of drone operations. The next major step to follow will be the implementation of the so-called U-Space at the European level, to allow traffic management for drones (expected to be operational by 2023).

In the meantime, emphasis is put on training and traceability. Online training and evaluation are being implemented to raise awareness amongst telepilots of recreational drones weighing more than 800 grams on the basic rules of safety, airspace traffic and privacy. Theoretical and practical training for professional telepilots, somewhat comparable but less demanding than the private pilot licence (PPL) and focused on the use of drones, the certificate of theoretical aptitude has been introduced. Lastly, safety instructions are now required in the packaging as well as the administrative registration of drones weighing more than 800 grammes.

Addressable markets

Thanks to its high-end products coupled with a high degree of customisation, Drone Volt addresses the niche markets of civil security, inspection and surveillance. For the industrial market, Drone Volt’s products can be used in a wide range of areas, such as power or wind turbine inspection for utilities, with clients like Vietnam Electricity. In our view, this market should offer a wide range of opportunities for the company as the utility sector is shifting towards more digitalisation, exacerbated by the move to renewable energy, forcing players to lower their operating costs. Maintenance tasks and network monitoring performance by drone can indeed reduce the costs, along with improved quality through using artificial intelligence (AI). Dangerous inspection procedures, which are usually performed by humans, or by expensive helicopters or airplanes, could at some point be replaced by drones. In a study published in May 2016, PwC estimated the addressable market of drone-powered solutions in the power and utilities market at $9.46bn. To date, Drone Volt has scored an important contract with RTE to equip the company with inspection drones. The products can also be deployed for telecom tower inspection or the surveillance of industrial sites. AI, when embarked on a drone, can perform tasks rapidly and effectively with few resources by automatically spotting divergences or inefficiencies from a pre-established pattern (impact on wind turbines, on high-power lines, etc.). This can be a real game-changer for some industries, reducing costs and improving safety.

In addition, thanks to its knowledge and expertise in AI, the company can potentially propose pure software solutions for computer vision. This goes beyond its original scope, which then becomes far wider (such as smart cities, production and logistics for quality control, etc.).

From a distributor to a designer
Drone Volt organises its activity into two distinct segments;
- Distribution activity – sale of third-party drones
- Drone Volt Factory: sale of own drones, after-sales service and training

The company started its activity by assembling and distributing drone parts and systems coming from other manufacturers, such as the Chinese DJI. These products were aimed at the consumer market and addressed a small fraction of well-informed customers, which would buy spare parts for systems they built themselves. This business line (Distribution) is still contributing to the activity but is no longer the priority for future top-line growth, and is expected to remain at best flattish compared to the strong increase expected in the other business lines.

Since 2016, and under the leadership of the management team that arrived in 2012, the company has gradually shifted towards the professional drone market, which is more lucrative and offers ever-growing opportunities. The Drone Volt Factory (DVF) proposes an integrated chain of services, from the drone system developed in house (Hercule drones) to the formation and administrative support to comply with French regulations. This integration represents a commercial and marketing strength, as the customer receives an almost immediate turnkey product. This activity, which mobilised R&D, production and development capacities in its early days, can now be largely subcontracted out for its production. France benefits from a high-flying aeronautical industrial fabric, which also ensures a certain flexibility in terms of opex. In addition, the Hercule range requires a greater need for after-sales service and maintenance than the Distribution activity (third-party brands), providing a steadier streamline of cash flows. In 2017, Drone Volt acquired the activities of its competitor Aerialtronics, adding to its portfolio the Altura Zenith drone, as well as the intelligent Pensar camera, beefing up at the same time its R&D capabilities.

DVF drove a progressive increase in the added value

Starting from zero in the professional sector, the company initially mostly assembled already-designed parts, which limited its capacity for innovation and set a situation of dependency on its suppliers but allowed it to deliver fast execution.

Subsequently, an own R&D effort was launched to design customised parts for its products, on its own initiative or in order to respond to customers’ demands. This permitted an increase customisation as well as greater innovation, which resulted in some innovative drones (such as the Drone Spray) and established the reputation of the company as a major player in the business. This level of customisation remains limited to the “accessories”, as the underlying technical basis remains external to the company, but it allows a significant premium with limited costs, as most of the production is outsourced.

Drone Volt Factory allows Drone Volt to increase in the value chain thanks to the launch of an assembly line for internally-designed drones. The company follows its going upmarket strategy, with an exclusive design based on external parts as well as the development of the associated software, which represents the essential part of the added value. Combining the system, along with the software and the associated services, Drone Volt now offers turnkey solutions to its clients.

Training as a strong growth catalyst

In parallel, we estimate that the ongoing enhancement of the drone regulatory framework worldwide should: i) stimulate the demand for drones, and ii) the need to train telepilots as well as stricter regulations. Drone Volt has developed its regulation and training expertise in France, following on from the regulations established by the DGAC, which requires operators to be registered by the DGAC, to file requests to prefectures to obtain flight authorisations, and have pilots enlist in a compulsory training period and obtain certification. Drone Volt can facilitate administrative procedures by proposing additional packs to the drone system and has created its Academy to propose training sessions for future pilots. This Academy benefits from solid infrastructures in Villepinte, among which include an enclosed hall allowing flight sessions to be carried out when the weather is bad. Today, Drove Volt has nine training centres in Europe and North America and can leverage its French expertise in other countries.

International expansion, strengthen with partnerships and licence agreements

Thanks to its experience in a heavily-regulated environment, the company can scale its business model to another country. The company chose to develop at first in Europe, with the opening of a Danish subsidiary in early 2015. International expansion accelerated in 2016 with a distribution contract signed for the Benelux, Switzerland, USA and Canada. The Aerialtronics acquisition in 2017 also helped the company to tie relationships with Asian customers.

However, apart from these self-financed developments, we believe that the company has recently tied up very constructive relationships with players across the Atlantic. Expanding its business in North America at cheaper cost.
Indeed, in order to accelerate its development in the USA at a lower cost, Drone Volt announced in November 2019 an agreement with Robotic Skies, for the production and marketing of “made in USA” Hercules drones. This agreement, which will remunerate Drone Volt via royalties, makes it possible to open a bridgehead at a lower cost in this country, where Chinese drones are in the process of being banned.
In late August 2020, the company also announced the signing of a Letter of Intent with Aquiline Drones. Aquiline Drones is an American drone- and cloud-based company offering a wide range of services for drone operators. It wishes to produce the Hercules 2, the Altura Zenith and its Pensar camera before the end of 2020, at an exciting rate of 1,000 units per month. The company targets ambitious volumes and would increase its production line by 3,000 units, monthly, to reach a steady 10,000 units per month in total. This sounds huge. Aquline Drone plans to sells these drones to its existing clients as well as to fill the gap created by the US restriction imposed by the federal administration from using Chinese drones. We see this potential partnership as very promising and value-creative for Drone Volt. Under the current terms, Drone Volt would be granted a 10% cut of revenue from the commercialisation of its drones and cameras over a 5-year licensing period, with annual reviews. Drone Volt would be entitled to receive a minimum of $100k per month (which started in October 2020). On an annual basis, this would grant Drone Volt $1.2m per year, to be revised by +10% annually, for a minimum total value of $7.7m until 2025. Furthermore, an upfront payment of $450k will be added in the first year, to compensate for the transfer of know-how. To strengthen their partnership, both companies may consider swapping their shares for up to 10% of their respective share base.

In addition, a highly structured contract was announced in March 2020 and signed in October 2020 between Drone Volt and Hydro-Québec. It aims to reach an agreement on the exclusive industrial development and marketing of a drone designed to inspect high-voltage power transmission lines. We estimate that this agreement with Hydro-Québec will further solidify Drone Volt’s credibility in the power grids inspection area, and should ultimately enable the company to expand its client portfolio in this area. Once the industrial and commercial partnership agreement is finalised, Drone Volt will be able to market the drone throughout the world. The company targets one hundred deliveries over five years and expects to start by the end of 2020/beginning of 2021.

Target
Upside 134%
Price (€) 0.06
Market Cap (€M) 23.4
Divisional Breakdown Of Revenues
Change 21E/20 Change 22E/21E
  Sector 12/20A 12/21E 12/22E 12/23E €th of % total €th of % total
Total sales 5,836 9,972 13,654 18,931 4,136 100% 3,682 100%
Drone Volt Factory Electrical Products-... 2,057 4,354 6,745 9,581 2,297 56% 2,391 65%
Distribution Electrical Products-... 3,525 3,948 3,553 3,198 423 10% -395 -11%
Training Electrical Products-...
Consumer Electrical Products-...
Professional Electrical Products-...
Royalties Electrical Products-... 254 1,670 3,356 6,153 1,416 34% 1,686 46%
Other
  Revenues Costs Equity
Dollar 0.0% 15.0% 0.0%
Emerging currencies 0.0% 0.0% 0.0%
Long-term global warming 20.0% 0.0% 0.0%
Renminbi 0.0% 40.0% 0.0%
Sales By Geography
 
Europe 43.0%
France 32.0%
Other 25.0%
Changes to Story : 13/12/2021, Changes to Forecasts : 13/12/2021.