Drone Volt released a rather disappointing Q3 trading update with top-line and gross result decline at its high-margin segment, Drone Volt Factory, Services & Academy. Although it suffered from a truly tough comparison base and a usual summer negative effect that impeded potential offsetting by other activities, the company reaffirmed its outlook. This probably shows that this quarter is not that bad but the result of bad timing. We maintain our positive stance on this undervalued Aerospace & Defence play.
Sales decreased by 74% compared to last year, from €7.3m to €1.9m.
The distribution segment suffered from an expected sales decline of 85% yoy to €0.9m, but the Drone Volt Factory, Services & Academy segment also suffered from a sales decline of 23% yoy to €1m, which was less expected.
The gross result thus decreased by 31% yoy from €1.1m to €0.7m, implying a 39% gross margin (Q3 24: 15%).
The company reaffirmed its outlook for a positive EBITDA in H2 2025 and expects strong activity on the order side in Q4.
Slightly disappointing sales decline
The most important segment for the future of the company, i.e. the Drone Volt Factory, Services & Academy segment, suffered from a tough comparison base as the group managed to sell 42 units of Hercules 20 last year when it sold “only” 15 this year. This could unfortunately not be offset by the growth of services, which now represent 50% of the division sales (an important increase compared to the c.33% recorded last year), as this business usually suffers from a seasonal effect with a usual drop in activity in August (the summer holiday month par excellence in France).
Favourable product mix boosts margins
Although the gross result declined due to the weak top-line, the margin saw a strong increase in both segments. Indeed, the distribution segment saw an increase from 7% (€413m) to 12% (€106m), as a big distribution contract was of course a drag due to less bargaining power. On the high margin Drone Volt Factory, Services & Academy segment (-4% to €636m, margin +12pp to 61%), the group benefited from a favourable mix as the proportion of services sales increased significantly over the year and has very high gross margins (we estimate them at c.90%).
Unchanged outlook
Despite this tough quarter, the company reaffirmed its outlook for a positive EBITDA in H2 2025 which is clearly a positive and shows in our opinion that this quarter is not as bad as it seems and more a question of bad timing. Moreover, the group continues to expect strong activity on the order side in Q4, notably thanks to the recent partnership announced with AMPACIMON, a provider of sensors to monitor power lines of network operators, that should help sign new contracts from transmission or distribution system operators beyond Hydro-Québec (co-developer of the Linedrone).
We will integrate these new figures into our model, which should slightly reduce our target price due to the lower revenue than expected in the high growth segment. However, this is mitigated by the fact that very high-margin services represent a higher share of sales than we previously thought.
