Echelon launches coverage of Volatus Aerospace with bullish price target

There’s plenty of blue-sky potential to drone solutions provider Volatus Aerospace (Volatus Aerospace Corp Stock Quote, Charts, News, Analysts, Financials TSXV:VOL), according to Echelon Capital Markets analyst Rob Goff who initiated coverage on Thursday with a “Speculative Buy” rating and $0.90 target. Goff thinks a strong M&A track record and a growing list of strategic partnerships make Volatus a solid choice for investors interested in the burgeoning drone tech space.

Headquartered in Simcoe, Ontario, and with offices in North America, Peru and the UK, Volatus completed a reverse takeover in December, 2021, of chartered flight management company Partner Jet Corp. Volatus has acquired 14 companies since December, 2020, for a total of about $6.3 million and has also formed one joint venture and created one subsidiary for a current total of 16 business entities in its portfolio.

The company provides imaging and inspection and security and surveillance services, along with equipment sales and support for civil, public safety and defence as well as a range of drone solutions for industries such as pipeline, energy, rail and cargo. 

Data collection services are currently at the core of Volatus’ revenue profile, while Goff sees its “Drones-as-a-Service” (DaaS) model as a key element of the company’s success going forward.

“DaaS provides a significant growth opportunity where services requiring data acquisition and processing are expected to see migration from existing high-cost plane/helicopter-based collection to integrated drone and drone-only solutions,” Goff said.

“Our bullish outlook toward Volatus shares reflects the expectation of disciplined stewardship with a clear strategy focused on near-term commercial traction in equipment sales, data collection and military defence while preparing for sustained market growth in these areas and as cargo delivery gains traction and expands the addressable market,” he wrote.

On comps, Goff said Volatus is in a position of relative strength versus the majority of its peers due to the company’s vertical integration, scale and reach and he pointed to VOL’s set of marquee clients such as CN Rail and Pembina Pipeline as measures of its commercial viability.

“The successful execution of 15 on-strategy acquisitions over the past 32 months has curated vertically integrated capabilities and formed key strategic partnerships while establishing a strong reach across the Americas as VOL gained marquee land-and-expand contracts across priority verticals,” Goff wrote.

Goff said with a current enterprise value of $34.1 million, VOL shares are trading at 1.0x 2023 EV/Revenue and 3.1x EV/Gross Profit compared to Volatus’ closest peers at a median of 4.5x and 7.5x, respectively. 

VOL shares have been trading in the $0.30-$0.50 range over the past 12 months, while Goff’s $0.90 per share target represented at the time of publication a projected return of 181 per cent.

Last month, Volatus announced preliminary fourth quarter 2022 and full year numbers, with Q4 proforma revenue expected to be between $7 and $8 million and $38 million for the year. Management also guided for 2023 revenue of about $52 million.

Volatus has continued its acquisitions with the announcement on Thursday of an arm’s length definitive agreement to acquire New Jersey-based aerial intelligence company Sky Scape Industries for approx. $845,000 a $422,500 earnout.

“The addition of Sky Scape brings significant opportunity for margin improvement through synergies with our existing business units. It further expands our service offering and continues growth in core sectors including power utilities, oil and gas and facade inspection,” said Volatus CEO Glen Lynch in a press release.

For his part, Goff is projecting 2023 revenue and EBITDA for Volatus of $52.0 million and negative $1.9 million, respectively, and 2024 revenue and EBITDA of $71.4 million and positive $2.7 million, respectively.

“Where the industry is often served by back-of-the-truck providers, Volatus’ scale, end-to-end capabilities and reference accounts strengthen the Company’s organic growth prospects while supporting our view that it will gain significant market share within an expanding market,” Goff wrote.

“The advancing scale and platform leverage continue to extend its profile and draw larger, stronger drone service providers across the Americas and globally in an embryonic, hyper- growth, fragmented industry ripe for consolidation. As Volatus continues to scale, we see a significant de-risking of its outlook bringing additional leverage to positive revaluation-driven shareholder returns,” he said.

Disclosure: Volatus Aerospace is an annual sponsor of Cantech Letter.