Drone Volt has just announced its preliminary H1 26 figures, which came in lower than our expectations despite continued improvement across the board. The company suffered from administrative burdens for exports. The group logically reiterated its guidance for growth in high-margin activities, which should support profitability as well. We reiterate our positive stance on the stock, which now offers more defence optionality after reaching a distribution agreement with a Latvian military drone producer.
The sales grew by 19% to €5.0m (AV: €7.3m) thanks to the high-margin businesses, which experienced a 24% growth to €3.5m in H1 26, despite suffering from export delays. Meanwhile, distribution exceeded our expectations with an 8% growth to €1.4m.
The gross margin grew by 23% to €2.2m. This was below our expectations of €4.7m but represented an improvement of the margin by 2pp to 44%. This was underpinned by a 28% increase in the gross result from Drone Volt Factory, Services and Academy to €2.1m, which partially offset the decrease in the gross result of distribution from €0.16m to €0.13m as the company is slowing down this activity.
The company reiterates its objective of continued growth in high-margin activities while still evaluating acquisition opportunities to expand geographically and focus more on services.
A growth slowed down by export delays
Even though the growth rate can be qualified as high with a low double-digit figure, this figure could have been higher if the company had not suffered from administrative burdens impeding the export of its own drones. The growth engine was thus services, which represented 40% of half-year revenue according to the press release (a welcome indication), meaning that it represented around €2m of sales. The sub-division benefitted notably from its Phoenix Tower International contract and R&D activities with Hydro-Québec. Despite distribution now being considered non-core, the subdivision surprised positively by growing during the quarter, although no explanation was given for this increase.
A service-driven gross margin
The gross margin growth was also remarkable, growing faster than sales thanks notably to a more favourable mix. Indeed, Drone Volt indicated that service activities represented 70% of the gross profit for the half year, i.e., €1.5m and implying a strong gross margin of 77% for this activity, while the factory generated €530k of gross profit or 34% gross margin out of €1.6m of sales. We think the company has thus good leeway to ramp up its profitability going forward with higher volume for the factory (19 drones sold in H1, of which 4 HELIPLANE and 3 LINEDRONE) better amortising fixed costs.
A reinforced financial position
During the past three months, Drone Volt announced a capital increase of €3.85m for US investors and an issuance of warrants for €616k for commercial partners and employees under the same conditions. The proceeds will be used for targeted hiring and external growth initiatives, suggesting a continued high demand for its high margin services and internal drones. Despite being conducted without subscription rights, the economic dilution was very limited given that the TERP was €0.549 vs €0.56 at the close before the announcement of the first capital increase, and the share price was below that level before the second capital increase. The warrants can be exercised between August 2026 up to May 2031, thus aligning the interest of commercial partners and employees with shareholders for value creation at Drone Volt. These two fundraising events are thus positive in our view for minority shareholders, as they reinforced the balance sheet with little economic dilution while aligning interests for value creation.
An unchanged outlook with more defence optionality
The company reiterated its objective of continued growth in its services and R&D activities as well as for its own drones’ sales, which should enable the company to reach positive EBITDA shortly in our opinion. This is especially true given the current political realisation that not all defence spending must be routed towards legacy weapons should accelerate drone orders. Drone Volt is now well placed with its ITAR-free drone Kobra, but also with its new distribution agreement with DK Unity, a Latvian company producing interceptor drones, to market them in French-speaking countries. These drones are battle-proven in Ukraine and enable Drone Volt to smartly enter the military space without confronting directly Ukrainian drone makers, which are necessarily more advanced than western counterparts. We think this should further improve the equity story of Drone Volt ahead of its potential NASDAQ listing without massive investments and help the group reach profitability.
On the civil side, the group should benefit from the sale of the drones that suffered from administrative delays as well as the new contract won by AMPACIMON, a key partner of Drone Volt, to install Dynamic Line Rating sensors in the UK for NATIONAL GRID, even though we do not know exactly the details of that order. The group also expects sales momentum to remain strong for the remainder of the year, which bodes well for 2027.
We will slightly adjust our forecasts downwards for the factory segment, which is suffering from export delays, but we do not expect a change in recommendation as growth prospects remain intact with a more substantial defence optionality.
