Drone Volt (EPA: ALDRV) Research Update

Highlights:

• Arrowhead is updating its coverage on Drone Volt with a fair value bracket of EUR 0.03 to EUR 0.07 (share price on August 22, 2023: EUR 0.0096) based on the Discounted Cash Flow (DCF) method.
• In H1 2023, Drone Volt reported revenue of c. EUR 16.2 mn, a significant rise from EUR 4.0 mn in H1 2022. The revenue achieved during H1 2023 has seen an 18% increase over the revenue achieved for the full year FY 2022. Revenue from Drone Volt Factory, Services & Academy declined 48% year-on-year (YoY) to EUR 0.7 mn. The decline was majorly accentuated due to the end of royalty invoicing in the US. The company invoiced 29 drones in H1 2022, as compared with 27 drones invoiced during H1 2023, including 19 HERCULES 20 bestsellers. The Distribution segment generated EUR 15.5 mn, up 486% YoY. This growth was driven by the biggest order ever the company received of more than EUR 20.0 mn in February 2023. Within four months, the company delivered, invoiced, collected, and recognized in revenue c. EUR 12.0 mn and expected the balance to be executed by H2 2023. The gross profit reached EUR 1.6 mn, a 17% rise from EUR 1.4 mn in H1 2022, with a consolidated gross margin of 10% in H1 2023 as compared with 34% in H1 2022. The difference in gross margin was due to the evolution of the product mix with growth driven by the distribution activity and the termination of license fee billings to Aquiline Drones.
• The company recently announced the acquisition of the assets of “Aeraccess Services,” formerly Air Marine, which will help Drone Volt to set up a new division based in Saucats, near Bordeaux. The strategic acquisition is in line with the company’s plan to grow its “Drone as a Service” segment, which will significantly improve the company’s gross margin, thereby providing a good offering mix.
• Drone Volt’s continued focus on its strategies and investments has reaped rewards as the company has bagged its first significant contract. A large European company has awarded Drone Volt its first service contract under its “Drone as a Service” offering. The company has been entrusted with inspection missions by drones to determine the maintenance operations to be carried out, ensuring any compliance checks of these operations. That presents the company with the potential to increase the topline by several hundred thousand euros. Furthermore, the company is in advanced negotiations with major French and international companies to extend its service offerings.
• The company has a strong outlook as it expects to double its revenue in FY 2023, driven by negotiations on significant orders, a strong customer base, a reinforced geographic network, and expansion of its products and services, coupled with the commercial launch of the LINEDRONE and the development of the “Drone as a Service” offerings.