Drone Volt

Drone Volt had signed two mega contracts with Aquiline Drones, one in April concerning 600 Hercules 2 drones (€3m at catalogue price) and, later, another one concerning 500 Hercules 20 and 200 Hercules 10 (€15m at catalogue price). Though the latter was not a fixed contract, we had previously expected some sales to occur in H2. The Q3 results have proved us wrong as Drone Volt has put all its resources into the first Hercules 2 contract. This, we now believe, will lead to no sales in FY21 of the second mega contract. The Hungarian contract on 275 Hercules 20 drones has also been postponed to next year, directly impacting our EPS.

As we use EV/Sales multiples to value the different businesses, the decline in anticipated sales due to the mega contracts being delayed has negatively impacted the NAV's final value. The multiples have remained unchanged, with the Training multiple being the highest (3x) of Drone Volt's historical businesses as it is the most profitable (excluding the royalties from Aquiline Drones).

As major contracts have been postponed, the expected sales have been pushed further down the road. As a consequence, FCF has been impacted due to the hit on profitability. Nevertheless, the reason for the delay on these contracts is mainly linked to the limited production capacity of Drone Volt which is currently fully utilised to fulfill the 600 Hercules 2 fixed contract with Aquiline Drones. The demand for Drone Volt’s products remains intact, and the sales not generated this year will be the drivers for the coming years. Hence, we remain positive in the mid-term outlook of Drone Volt.