Volatus Aerospace has a 210 per cent upside, says Echelon

Echelon Capital Markets analyst Rob Goff is staying bullish on drone solutions company Volatus Aerospace (Volatus Aerospace Stock Quote, Charts, News, Analysts, Financials TSX:VOL), reiterating in a Wednesday report a “Speculative Buy” rating on the stock and $0.90 target price.

Toronto-based Volatus provides integrated drone solutions in North America and globally, with business in the civil, public safety and defense markets and including imaging and inspection, security and surveillance, equipment sales and support and training as well as R&D, design and manufacturing.

Volatus reported its first quarter 2023 results on May 25, featuring revenue up 54 per cent year-over-year to $7.4 million. Gross profit was $2.4 million compared to $1.3 million a year ago, with the company attributing the lift to higher gross margins from its Services segment.

Volatus was busy on the M&A end, with the acquisition over the quarter of Empire Drones in the US, while in February it received a Canadian Transportation Agency (CTA) license for domestic service, all-cargo aircraft. Volatus said the license is pivotal to its drone cargo business plans, which will see it soon take delivery of a 3.8 tonne Natilus Kona un-crewed regional feeder aircraft.

“In spite of a seasonal quarter, our team continued to execute. Market challenges shifted some of our revenue targets to the right, but the quarter also marked a more aggressive expansion in the US,” said CEO Glen Lynch in a press release. “The acquisition of Empire Drones and Sky Scape Industries will help Volatus capture a larger market share and improve gross margins across the board.”

On the Q1 results, Goff said the $7.4 million topline was under his forecast of $8.4 million, while higher gross margins at 31.9 per cent compared to his forecast at 28.6 per cent resulted in gross profit of $2.4 million, which was in-line with Goff’s call.

“Tight cost controls saw the $1.6 million EBITDA drain modestly better than our $1.8 million forecast,” Goff wrote.

Goff noted four first half 2023 headwinds which management had pointed out in its commentary, specifically, a delay in the Ontario-based pipeline corridor surveillance contract, delays in meeting equipment demand in Ukraine, inventory turnover and the Alberta wildfires, which blocked weekly inspections.

“With organic year-over-year growth of 50 per cent+ on the quarter, management looks to exit with EBITDA positive operations where it elects to maintain its current level of investment expenditure and the Company’s current growth rate is sustained or increased,” Goff said.

“We note the original guidance reflected 35 per cent organic growth on the year – a level significantly outpaced on a quarter where revenues were below our forecast and the Company’s expectations. We forecast VOL to exit 2023 with a cash balance of $6.9 million,” he wrote.

Goff thinks Volatus will generate full 2023 revenue and EBITDA of $47.1 million and negative $3.0 million, respectively, and 2024 revenue and EBITDA of $66.0 million and positive $0.4 million, respectively.

At the time of publication, Goff’s retained $0.90 per share target represented a one-year projected return of 210 per cent.

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