Volatus has a 125 per cent upside, says Echelon

Volatus Aerospace (Volatus Aerospace Stock Quote, Charts, News, Analysts, Financials TSXV:VOL) has been popping over the past couple of trading days, but there’s plenty more where that came from, according to Echelon Capital Markets analyst Rob Goff. In a client update on Tuesday, Goff reiterated a “Speculative Buy” rating and $0.90 per share target price, good at the time of publication for a projected 12-month return of 125 per cent.

Volatus Aerospace, which provides integrated drone solutions and serves the civil, public safety and defense markets, announced on Monday the signing of a three-year master service agreement with a leading pipeline operator, with Volatus to provide pipeline right-of-way surveillance and environmental monitoring in Ontario. 

Volatus said the deal could make for revenues of up to $5 million over the three years, while the company’s CEO Glen Lynch said drones are the future for pipeline monitoring.

“We are enhancing our competitive advantage by introducing drones and eVTOL (electric vertical take-off and landing) aircraft in the months and years ahead to supplement and replace conventional aircraft. This will save our clients money, make processes safer, and reduce green-house gas emissions,” said Lynch in a press release.

Commenting on the announcement, Goff said the contract, which is expected to begin within a month, has the potential for significant expansion and it serves as a reference win for other contracts. Goff believes the potential market for Volatus’ Drones-as-a-Service model is huge.

“With this contract, we could see annualized recurring or drones as a service (DaaS) revenues exceeding $10 million. The Canadian Association of Petroleum Producers (CAPP) has reported that 840K km of pipelines are used to safely transport liquids, such as natural gas, across Canada. The drones will be used to monitor, prevent, and mitigate potentially harmful pipeline leaks or environmental hazards. The potential market opportunity associated with the 840k km of pipelines would exceed over $200 million annually,” Goff wrote.

In other news, Volatus announced on March 3 the acquisition of Sky Scape Industries for a total purchase price including earnout of $845,000. Goff said buying Sky Scape is in keeping with Volatus’ playbook of building out its long-line inspection and monitoring in areas where the market is typically served through piloted aircraft.

“Sky Scape brings key marquee clients operating in 24 states using both crewed and uncrewed inspection for utilities, oil and gas and façade inspections. Consistent with the company’s acquisition playbook, Sky Scape has several multi-year contracts with marquee companies such as First Energy, Exelon group of companies, etc.,” Goff said.

In terms of upcoming catalysts for Volatus, Goff pointed to announcements of new RFP wins from several marquee proposals that are currently outstanding and he said that the company’s opportunity pipeline means VOL could outperform management’s recently released 2023 guidance.

“We expect further sales of fleet craft to raise roughly $300K across each quarter in 2023. The sales will further highlight the attractive economics of recent acquisitions while reducing balance sheet debt of $6.6 million with cash at $7.5 million and $4.5 million of available credit,” Goff wrote.

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