DCF
To date, very few drone companies have managed to sustain the supposed growth rate of the market (+15%). We therefore apply a more conservative growth rate in our DCF going forward, namely 8% growth over 2025-30. The wider commercialisation of the LineDrone could push this estimate upwards. Thanks to cost containment measures, positive volume effects and a transition to services rather than products, we believe that long-term EBITDA growth of 8% is achievable.
NAV
For the NAV, in order to reflect the nominally strong growth potential and to compensate for the still early stage of the company, with high volatility in profitability, we have chosen to base our valuation on sales multiples. We value the company through its different segments, based on three-year average forecast sales, to which we apply a multiple. We value Distribution at 1x its estimated three-year average sales. This multiple is in line with similar distribution activities of European companies, taking into account the limited value-added and growth prospects. For Drone Volt Factory, we have fine-tuned our valuation as we split this into three different parts. First, we value the holding of 50% of Aerialtronics separately, but at half the selling price of this 50% stake to Aquiline. Secondly, and in order to bring to the fore Training, which we believe will be a key asset for Drone Volt as regulation is taking more importance, we value this activity on a standalone basis, based on our rolling three-year revenue estimates to which we apply a multiple of 3x (equivalent to a 50% premium over drone companies), accounting for its strong profitability. Thirdly, we value the remaining business of DVF (corresponding to drone and camera sales, as well as services) based on the current trading multiples gathered on Bloomberg for competitors, or c. 2x of their revenue. In addition, we value separately the emerging activity of Drone as a Service.
Peers
With regard to peers, finding a similar company to Drone Volt is quite a pitfall since there is currently no perfect match in our coverage, nor on the listed market. We, however, address this issue by valuing Drone Volt in line with the relevant players of the drone industry, such as Elbit Systems, Irobot and Aerovironment.
The target price has suffered from the cancellation of the upside potential related to the Aquiline contract which has now been cancelled as Aquiline ran short of funding. This impacts all the metrics starting with the FCF. A biggish but low-margin distribution contract will help 2023 cash flows while the long-term projects are taking shape (grid surveillance drones for Hydro Quebec, new winged drone for long distance observation)
