Drone Volt is a French company specialised in civilian drones for professional use, addressing a wide range of end-market thanks to the combination of its proprietary drone, software and Artificial Intelligence capabilities. The company is scaling-up its activity, thanks to a healthy €15m pipeline of orders as well as partnerships with North American players. In addition, Drone Volt is on the verge to significantly increase its royalty-based business, a potential game-changer for its earnings.

We initiate coverage of Drone Volt with a Buy recommendation and 34% upside. Drone Volt is a French company listed on Euronext Growth in Paris. The company operates in the civilian drones market for consumers and professionals.

The core activities of the company include product development, engineering & design and the manufacturing of hardware, flying sensors, data processing platforms and drones. The company has also developed software and Artificial Intelligence expertise in order to enhance customer services, proposing turnkey solutions for its clients. Drone Volt also provides after-sales services as well as training on its equipment and the regulations for drone pilots.

Drone Volt Group operates in France and internationally through subsidiaries, mainly in Europe and Canada as well as in the USA thanks to partnerships.

The company organises its activity into two distinct segments:

  • Drone Volt Factory (DVF) – which is the Sale of proprietary drones as well as services such as after-sales service and training
  • Distribution activity – which gather sales of third-party drones

While Distribution represented 60% of its revenue in 2019 (or €4.3m), this business line is expected to fade, from 2020 onwards as 1) Drone Volt will voluntarily shift its efforts towards DVF and 2) the expected growth of DVF will marginalise Distribution in the revenue mix. Therefore, the equity story of the company could be sum-up as a distributor of third-party drone which has become a designer (thanks to R&D investments), in order to grow its value-added, with a shift of clients from the consumer market towards professional uses.

As such, the main point of interest for the company is its DVF segment, which gathers proprietary high-end products coupled with a high degree of customisation. Thanks to this capabilities Drone Volt addresses the niche markets of civil security, inspection and surveillance. In terms of end-market, its main clients can be found mainly in Industry, Telecoms and Utilities for either site protection our assets inspections. (for instance, securing sensitive nuclear sites, or controlling power lines through drones). In addition, with its knowledge and expertise acquired in AI, the company can potentially propose pure software solutions for computer vision.

This goes beyond its original scope, which then becomes far wider (such as smart cities, production and logistics for quality control, etc.). More generally speaking, the Drone market for professional uses is set to reach a considerable growth in the near future according to several researches, fuelled by growing usage adoption. One of the key enablers for this growth will be the regulation, as the development of a comprehensive regulatory framework should unleash demand, enabling drone flight, pilot training and clarify insurance matters. The latter could be a catalyst for Drone Volt which has developed its regulation and training expertise, creating a pilot academy like.

Going forward, and in spite of being impacted by a lower level of activity in 2020, we anticipate Drone Volt to generate c €6.5m this year and full revenue to jump at c. €17m next year. The sales of Drone Volt Factory are expected to take the lion share of this growth as we anticipate Distribution to remain stable. Indeed, we anticipate sales of drones to take-off in early 2021 to €7m, somewhat delayed by the COVID-19 pandemic. This should be fuelled by:

1) a positive commercial momentum and a healthy backlog of €15m which has remained stable with no cancellation since the beginning of the year. Also, given the early stage of the business (since 2017 for DVF) a few orders have the potential lift sales meaningfully.

2) a growing ASP thanks to the partnership with Hydro-Québec, which will license the technology of a drone to inspect high power lines. This drone carries an ASP of c. €350k vs €20k for current drones, with sales prospect of c. 100 drone over the next 5 years (in its €7m)

3) the ramp-up of services, i.e after sales and training which will accompany the sales of drones.

4) Last but not least, the company recently announced the signing of a Letter of Intent with Aquiline Drones. Aquiline Drones is an American for the production under licence fee of up to 10k unit per/m of its small drone hercule2 (with an ASP of c. €2k). We consider that if realised, the outcome could potentially become highly relative in terms of earnings for the company, which has rallied in the wake of this announcement. Under the current term of the LOI, DV would be entitled to 10% of the sales that we estimate in our conservative scenario at €24m in year one. In a best-case, our DCF has the potential to be lifted to €0.80 (all things being equals).

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