Drone Delivery Canada (Drone Delivery Canada Stock Quote, Chart, News TSXV:FLT) is once again a Top Pick for Echelon Capital Markets and analyst Rob Goff, who in a Technology Update to clients on Monday assigned FLT a fourth quarter 2020 Top Pick while maintaining his “Speculative Buy” rating and $1.60 target price.
At press time, Goff’s target represented a projected 12-month return of 138.8 per cent.
A drone logistics platform, Drone Delivery Canada, which recorded its first commercial revenues in the first quarter of 2020, provides depot-to-depot and depot-to-customer services and focuses on rural applications. In recent news, DDR signed and implemented two routes with freight forwarder DSV Canada, signed a contract with the Georgina Island First Nation Community, started testing in the United States, had a successful test of its Condor drone in Alberta (with testing to be completed in Q4 2020) and closed on a $9.3-million bought deal financing. The company also announced an agreement with Astral Aerial in Kenya to jointly work with the Kenyan Civil Aviation Authority on identifying opportunities for DDC in the country.
On the industry prospects, Goff is bullish, saying, “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.”
On Drone Delivery Canada, the analyst is also positive, pointing to expected commercial revenues from the company’s Robin XL and Condor drones coming in 2021 after regulatory approval is received.
DDR’s hard work on the regulatory front should pay off for the company, says Goff. “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,” Goff wrote.
“With the drone market projected to reach US$27 billion by 2030, we forecast DDC revenues/EBITDA surpassing $90 million/$40 million within five years. We look for announcements over the next three to 12 months to act as positive catalysts for DDC shares. Forecast 2021 revenues at $11.0 million reflect a steep revenue ramp within nine to 12 months,” Goff said.
All told, Goff expects DDR to generate 2020 revenue and EBITDA of $0.6 million and negative $10.8 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $11.0 million and negative $5.5 million, respectively.
Commenting on the Letter of Intent with Astral Aerial Solutions in a press release on September 28, DDR president and CEO Michael Zahra said, “There are numerous potential applications from traditional last-mile cargo to mining, oil & gas, healthcare, humanitarian aid and infrastructure inspection services. Astral Aerial’s parent company, Astral Aviation has a global, award-winning reputation and we look forward to a commercial relationship with them,” said Michael Zahra, President & CEO of DDC.
Worldwide, drone delivery has gone from Jetsons-like futurism to reality in record time. In a recent article for Forbes, drone expert Harrison Wolf noted that is very big money behind the idea in the form of three household names; Amazon, Google and UPS. Amazon recently became the third company to gain FAA certification for its drone delivery program, while Google owns drone delivery service Wing Aviation and UPS’s wholly owned offering is call “Flight Forward”.
Wolf says Amazon has a clear advantage in the race.
“Including drone delivery into Amazon services to create a 30-minute-or-less delivery option via Prime Air provides the clearest picture for drone delivery to-date and has significant competitive advantages over the other two approved operations,” the author argued. “While innovative start-ups like Zipline and Wingcopter are leaders in the drone revolution outside the US – both with successful operations throughout Africa and Europe – Amazon, Google and UPS are set to redefine the landscape of delivery more broadly.”
But Wolf says nothing has been decided and that each company could be said to have an advantage over the others. Google, he said, has a suite of programs and a ton of data to mine. Amazon has a built in advantage in existing demand. And UPS has a decades-long history of logistics expertise.
“Three behemoths of technology and delivery are asserting their place in the sky above our heads like never before. Who will win the race? Will it be the tech giant experts at Google with a grab bag of technologies set to support and accelerate their drone vision? Will it be UPS, the traditional supply-chain and logistics delivery company already trusted to handle other companies’ most important goods? Or will it be Amazon’s Prime Air, a combination of the two, with an existing customer base more familiar with technology and eager to receive packages ever faster?”