Volatus Aerospace is one to watch, says Echelon

Echelon Capital Markets analyst Rob Goff thinks investors should be interested in Canadian aircraft sales and services company Volatus Aerospace (Volatus Aerospace Stock Quote, Charts, News, Analysts, Financials TSXV:VOL), with Goff adding Volatus to Echelon’s Watchlist in a technology report to clients on Tuesday.

Volatus Aerospace, which has business segments in aircraft management, pipeline inspection and monitoring, aircraft sales, charter sales and cargo services, announced its Q3 2022 numbers on Monday, showing revenue up 238 per cent year-over-year and up 68 per cent sequentially to $11.1 million. The company said the increase came from organic growth, scale in drone services activities and increased aviation revenue.

“Q3 was an important quarter for Volatus as we continued to scale our investment in the defence sector and higher margin Engineered Solutions,” said Glen Lynch, CEO, in a press release. “The quarter also marked the beginning of a transition for our Aviation division as we moved away from passenger activities towards cargo and long linear inspections where drones and eVTOLS’s (electric vertical takeoff and landing vehicles) have a much larger role to play.”

Goff said the quarter showed clear tailwinds from secular adoption, with higher military and aircraft sales. The company’s drone services and training hit $1.11 million, which was up 16 per cent sequentially, while product sales represented 42 per cent of revenue and 34 per cent of profits, with margins at 25 per cent. 

Goff noted the company’s positive EBITDA at $370,000, compared with the previous quarter’s negative $955,000, while management is expecting pro forma revenues for the full year to be at $38 million with operating margins at 31 per cent. 

“The Q422 is expected to generate $8 million of revenues with EBITDA as a drain except where more aggressive aircraft sales are booked or prospective RFPs boost revenues. We could see aircraft sales at $1 million in Q422 and following quarters,” Goff wrote.

Goff said Volatus is clearly benefitting from heightened military product sales — the company is delivering intelligence, surveillance and reconnaissance (ISR) drones for organizations working in support of Ukraine — he said management has said that even with a cessation in violence in the near future, 2023 revenues should see record year-over-year growth, due to greater global sensitivity to defence.

Goff said Volatus, having completed five acquisitions over the past ten months, still has a strong M&A pipeline, although it is mindful of its current share levels, and thus deals would need to be “supported by creative, capital-efficient structures such as the two deals closed in the last two months,” Goff said.

“Based on 2022 pro forma guidance figures for revenues and profits at $38 million/31 per cent margin, Volatus is trading at 2022 revenue/profit multiples of 1.2x/4.0x against our drone peer set at 4.3x/12.4x for 2022,” Goff wrote. “We look to the commercialization engine prowess of Teledyne Technologies Incorporated which is currently trading at 4.4x/10.3x 2022 revenues/profits as a proxy for the strength of Volatus’ existing and expanding network.”