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Drone Volt

CR
Bloomberg   ALDRV FP
Aerosp. & Defence Equipt.  /  France  Web Site   |   Investors Relation
From product to service
Target
Upside 78.9%
Price (€) 0.02
Market Cap (€M) 8.98
Perf. 1W: -2.86%
Perf. 1M: -27.9%
Perf. 3M: -54.6%
Perf Ytd: -67.5%
10 day relative perf. to stoxx600: -14.8%
20 day relative perf. to stoxx600: -33.9%
Earnings/sales releases26/04/2022

Q1 22: integration of the acquisitions is progressing

The Q1 sales and profitability figures are soft, as Drone Volt is working on creating value through its recent acquisitions. It is progressing technologically and will soon propose drones that are hydrogen-fuelled and connected to the cloud. The long-waited LineDrone deliveries are expected to start in H2. Aquiline Drones is still working on its IPO, which would an important catalyst to resume the massive Hercules 2 contract.


Fact

• Sales stood at €1,745m, -3% yoy.

• Of which €956m in its distribution activity (-6% yoy) and €789m in its Drone Volt Factory (flat yoy).

• Gross margin stood at 36%, 3 points below Q1 21.

• Gross profit stood at €627m, -10% yoy.

• The Aquiline Drones transfer of know-how has generated €300m.

• The first delivery of the LineDrone is expected by H2 22.

• A “Connected Hercules 4” prototype will be announced in the coming weeks, thanks to the integration of Viking Drone’s technology.


Analysis

Slow Q1 to start the year

The Q1 sales and gross margin figures were disappointing. The Distribution of third-party brands’ activity was low, with a 6% decline in sales. It is especially low given that this quarter’s sales include a contribution from the consolidation of SKYTOOLS, which accounted for c. 6% of the Distribution sales and nearly 10% of the total sales. Concerning the Drone Volt Factory revenues, they have been flat yoy mainly thanks to the previously-mentioned consolidation which accounted for 14% of the sales of this division. Removing SKYTOOLS, Drone Volt would have had an organic decrease in sales of 12.5% yoy (c. -11% in Distribution and c. -14% in Drone Volt Factory).

The gross margin was also a let down. It stood 3 points below last year’s Q1 and gross profit decreased by 10% yoy. Removing the positive impact from the SKYTOOLS consolidation, gross profit would have been down by 21%. This is mainly due to the Distribution business, which has lost 6 points in the gross margin compared to last year and stood at 13% (far below its >20% average). We believe this low level of profitability is only temporary, as the particularly low demand in this quarter has impacted Drone Volt’s pricing power. We remain confident that Distribution’s gross margin will return to its normalised 20% level throughout the coming quarters.

H1 to focus on its product portfolio

We expect the first half year to be a period of restructuring for Drone Volt. The soft start to the year is linked to Drone Volt’s effort to consolidate its new acquisitions. It has merged the offices of SKYTOOLS and Aerialtronics, which has also contributed to slower sales for SKYTOOLS in its Distribution activities. We expect the move-in of SKYTOOLS to be finished by the next quarter, which should then enable it to refocus on growing its sales. The €58k of sales coming from SKYTOOLS’ distribution activities is far below its standard level, and we believe it could generate up to €200k of sales per quarter starting in Q3. In addition, we should see sales synergies from its broader drone portfolio as it now has access to Drone Volt’s proprietary drones.

Drone Volt is also focusing on the technological progress it could bring to its product portfolio through the integration of Viking Drone’s intellectual property. It is currently working on a connected Hercules 4 drone, which should be presented in a press release this quarter.

Additionally, supply constraints are expected to remain tight throughout Q2, as China’s lockdowns are impacting the manufacturing of key components for its Drone Volt Factory business and the manufacturing of drones for its Distribution business. For all those reasons, we believe H1 will be below Drone Volt’s average, but with a strong H2 expected.

H2 to drive sales

The most important driver would be a successful IPO of Aquiline Drones. As we have mentioned in our previous report, it would unlock significant cash for the American drone company, of which a significant part will be redistributed to Drone Volt. To supervise the progress of the IPO, Drone Volt has placed a new member on the Aquiline Drones board. We believe this IPO could occur at the end of Q2 or start of Q3, which would be a major catalyst for Drone Volt’s stock price.

Secondly, the LineDrone commercialisation is progressing according to plan. It is currently waiting for the final certifications before its first deliveries, which are expected by H2. Hydro-Quebec has already placed an order for three drones, which would significantly drive sales. As a reminder, each LineDrone could cost up to €300k. Since Hydro-Quebec has partnered with Drone Volt to create this drone, there will be an important discount, but we expect this potential sale could generate c. €500k for Drone Volt in FY22. Drone Volt is also participating in the IEEE forum in the US this year, which could provide additional visibility to its new LineDrone and potential additional orders.

Lastly, the Hungarian contract is on track. This quarter Drone Volt managed to deliver successfully 8 Hercules 20 drones out of the 275 expected over the next three years. As the customer becomes familiar with the product and manages to find traction in its local market, we expect those sales to accelerate gradually, generating more than 40 Hercules 20 sales over FY22 (an additional €480k in the next three quarters).


Impact

We had expected that H1 would be soft, as the main growth drivers are expected in H2. The integration of Drone Volt’s most recent acquisitions is on track to provide cost/sales synergies and additional value to customers, which should translate into additional sales in the mid-term. The main catalyst remains Aquiline Drones’ IPO, which would generate significant cash for Drone Volt. We reiterate our positive recommendation and remain confident in Drone Volt’s H2 strong perspectives.


Updates

24 Oct 22 Earnings/sales releases
Q3-22: massive momentum in distribution

12 Oct 22 Target Change
H1-22 Model Update

27 Sep 22 Earnings/sales releases
From product manufacturer to service provider

26 Jul 22 Earnings/sales releases
H1 22: SKYTOOLS, another successful bet

18 May 22 Other news/comments
Could the French government be a new major ...

26 Apr 22 Earnings/sales releases
Q1 22: integration of the acquisitions is progres...

24 Mar 22 Target Change
All eyes on Aquiline Drones

22 Mar 22 Earnings/sales releases
Q4 21: getting closer to break-even

28 Jan 22 Earnings/sales releases
Q4 21: best sales in its history

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