Delta Drone is a French company specialised in civilian drones for professional use. It provides a range of professional solutions specifically designed for targeted sectors, as well as related services. The company has just finalised its transformation and now only focuses on profitable growth areas, thanks to the recent commercial launch of Professional Solutions.

We initiate coverage of Delta Drone with a Buy recommendation and 115% upside. Delta Drone is a French small-cap based in Dardilly near Lyon and listed on Euronext Growth Paris. The company operates in the field of civil drones for professional use. It specialises in the development of identified professional solutions, based on both proprietary drone technology as well as partnerships, as part of an offer combining drone sales with all the associated services in order to provide turnkey solutions to its clients.

Delta Drone has always been a player in the drone market in France. However, since Mr Christian Viguié, the current CEO, took over the management responsibilities of the company in 2014, the profile of the business has changed radically. From a model based solely on the manufacturing/marketing of civil drones, which is difficult to maintain economically, the emphasis has been placed on deploying a more integrated offer. While manufacturing is a source of differentiation, the bulk of the value-added is generated through the combination of other services. As of today, the bulk of the loss-making legacy activities has been suspended. Today’s group, built around drone solutions has been shaped by strategic acquisitions that have either: 1) allowed Delta Drone to add bolt-on technological expertise to create its own solutions, and 2) create a favourable ecosystem to the deployment of its drone solutions.

The group’s activity now revolves exclusively around two divisions, “Professional Solutions” and “Associated Services”:

  • The Professional Solutions division which gathers a range of five systems, of which the new commercial launches (ISS Spotter for security & safety, Countbot for warehouse inventory, Atmos for events and SafeSprayBot for decontamination). It also includes Rocketmine (for mining industry), an asset acquired in 2016.
  • The Associated Services division which integrates all the support elements of the value chain necessary for the operability of the systems: operator training, regulatory management, installation, after-sales service, maintenance in operational conditions. It also includes a traditional private security activity that accelerates the dronification of the sector.

To achieve its growth, Delta Drone is not only counting on its domestic market and a cross-selling effect from the security activities, but has also formed partnerships for certain solutions, such as the one with Geodis for warehouse inventories. In addition, international development is a key factor, especially in Eastern Europe, Africa, and Australia, where in the last country a subsidiary was recently created to develop the business for mines.

Delta Drone aims to reach revenues of €30m by 2021. This strong growth compared to 2019 (c. €16m) is mainly due to the above-mentioned launch of the five new solutions designed for the professional market. This revenue target is complemented by a profitability target, with an expected operating margin of between 10% and 30%, and the realisation of one third of the business outside France, mainly in Africa. This ambitious target is backed by the pipeline of opportunities for the company, along with an increase in value added, driven by a higher gross margin on drones and services.

Given the early adoption stage of the technology, we believe Delta Drone is well positioned to capture the tailwinds offered by the sector. Indeed, offering high quality turnkey solutions can rapidly materialise into substantial top-line growth, along with a steep increase in value-added thanks to the associated services. We also believe that the full growth potential of the company is not yet computed into its valuation. This assumption is also backed by the high valuation multiples seen for other drone companies.

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