Drone Volt has announced a €4.9m capital increase, a substantial amount in relation to pre money market cap (€13m). This capital increase went down badly with the market which seems to be missing the point that Drone Volt is entering a convincing growth phase.
Drone Volt last Friday (02-06) announced a rights issue of 442.7m shares worth €4.9m up to 509.1m shares worth €5.6m from currently 1,106m shares.
The subscription price is offered at a discount of 42.4%, at 0.011€ per share.
Drone Volt disclosed on that occasion that 60% of a €20m drone distribution contract had already been paid, underpinning increased confidence in near-term cash generation.
The market reacted negatively to this announcement by focusing on the significant dilution aspect. In our view, this fails to capture the positive signal regarding the health of the company. By securing the support of the existing shareholders at a level of 77%, Drone Volt shows that it is able to attract capital via conventional financing. The recourse to unconventional dilutive financing should be history by now. This capital increase is meant to offer an attractive entry point for long-term shareholders according to the management.
From a business perspective, this announcement is happening at a key moment of the life of the company. Indeed, the company is entering a phase of renewed growth with the execution of a €20m contract throughout this year (already paid at 60%) and all three segments are commercially dynamic.
As a reminder Drone Volt 1) manufactures specialist heavy drones, 2) trains users and provides drone as a service and, finally, 3) distributes third party drones.
Drone Volt may use the fresh funding strategically while other important players are experiencing difficulties. Drone Volt is notably exhibiting confidence for its Drone as a Service offer by recruiting 12 people from the late Air Marine, which should significantly improve margins while making revenues more recurrent.
The dilution effect of this capital increase will lower our target price estimate by negatively impacting our DCF and NAV estimates, pending positive business developments as the firm is likely to be on the offensive. Indeed, we are more confident concerning the company’s commercial outlook , hence we will revise up our estimates for 2023.
