Echelon Capital Markets analyst Rob Goff has named Drone Delivery Canada (Drone Delivery Canada Stock Quote, Chart, News TSXV:FLT) a Top Pick for the third quarter, saying the catalyst-rich name is set to take off along with the emerging commercial drone delivery industry.
In an update to clients on Friday, Goff reiterated his “Speculative Buy” rating for FLT and $1.80 target price, which at press time represented a projected 12-month return of 102.2 per cent.
Toronto-based Drone Delivery Canada designs and implements its proprietary logistics software platform using drones. For the past couple of years, DDC has been working with regulators to establish standards and moving through prerequisite approvals. The company has secured a distribution partner in Air Canada and, recently, a global commercial logistics partner DSV Canada for deploying its drone delivery platform for delivering healthcare-related cargo.
DDC announced this past Thursday that it has started the process to enter into the US market as a drone delivery operator and is in discussions with potential US-based partners. DDC said it has begun an application for an aircraft Type Design Approval for the Sparrow drone, with subsequent aircraft in DDC’s fleet to follow.
“We have successfully proven and commercialized the business model and gained market traction in Canada, and it's a natural progression to expand, in a controlled means, to international markets,” said Michael Zahra, President and CEO of DDC, in a press release.
The company said it is has flown successfully in the US in a Beyond Visual Line of Sight (BVLOS) pilot project and is now ready to start the process to enter the US market.
On the announcement, Goff said the US would be a strategically significant market for DDC which could see prospective partners and customers emerge as a licensing partner in the process.
“We look for specific partnership announcement(s) and pilot(s) potentially exiting 2020 but more likely in 2021 where the Company’s Sparrow receiving an aircraft type license is part of the process,” Goff wrote. “This move has been supported by Air Canada; however, we expect DDC to pursue further market penetration with or without Air Canada.”
DDC has climbed 78 per cent since its share price bottomed out at a 52-week low of $0.50 on March 23. Goff said his bullish view is supported by those gains.
“We believe the commercial drone delivery industry is set to emerge as a major component in logistics planning with its initial focus on the B2B market for dedicated routes in remote regions and industrial supply chain delivery services. Initial considerations for the B2B phase are likely to expand as the sector’s ambitions evolve towards B2C deliveries,” Goff wrote.
Goff said DDC should turn EBITDA positive in 2021 and is likely to try raising equity capital within the next six months, which the analyst thinks will prove successful due to the momentum around DDC’s commercial contracts and drone approvals.
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.