With its first commercial revenues now in the bag, the sky’s the limit for Drone Delivery Canada (Drone Delivery Canada Stock Quote, Chart, News TSXV:FLT), says Echelon Wealth Partners analyst Rob Goff, who launched coverage of the stock on Monday with a “Speculative Buy” rating and $1.80 target price.
Founded in 2011, Toronto-based drone technology company Drone Delivery Canada has a proprietary logistics software platform and provides depot-to-depot and depot-to-consumer drone delivery services. The company initially saw its stock soar at its debut in late 2017 but it has been for the most part been on the decline since.
Over the past 12 months, FLT is down 30 per cent while so far in 2020 the stock is up three per cent.
Goff said initial support and momentum behind Drone Delivery waned early on as the company worked with regulators and government agencies to establish standards, gain approvals and secure grants, while at the same time, the company has been developing its FLYTE software platform and signing on strategic partners.
But Goff thinks the drone delivery industry is about to take off, with the logistics industry incorporating drones as a “major component” and an initial focus on the business-to-business market for dedicated routes in remote regions and industrial supply chain delivery services.
And Drone Delivery Canada could have a leg up on any competition in the space as the industry opens up, Goff said.
“Our thesis rests on the ability of drones to deliver goods faster, with cost and reach advantages. The stringent regulatory overview that has governed its maturation is likely to represent a key competitive moat enabling first movers such as DDC to establish a profitable, sustainable business model where consumer safety is paramount. With the drone market projected to reach US$27B by 2030, we forecast DDC revenues/EBITDA surpassing $100M/$50M within five years,” Goff wrote.
The analyst said there could be positive catalysts upcoming over the next three to 12 months as DDC gains commercial contracts and international partnerships, while Goff attributes the stock’s currently depressed valuation to investor concerns over deferred revenue timelines.
“We look for ramping deliveries (currently at hundreds of flights monthly) including the potential for new routes with DSV, initial commercial flights with Vision Group, the Edmonton International Airport and in Moose Cree within the next three to nine months. The potential to sign an international client within the next six to twelve months represents a potentially greater catalyst. DDC is leveraged to domestic, international wins,” Goff said.
Drone Delivery announced last week a collaboration with GlobalMedic and Air Canada to carry cargo to Christian Island, a remote territory in Ontario governed by the Beausoleil First Nation Community. The launch of the program is expected in the third quarter of this year.
On FLT’s financial outlook, Goff is calling for fiscal 2020 revenue and adjusted EBITDA of $3.9 million and negative $11.0 million, respectively, and for fiscal 2021 revenue and adjusted EBITDA of $17.9 million and negative $3.4 million, respectively.
At press time, the analyst’s $1.80 target represented a projected return of 114.3 per cent.