VOL stock keeps bullish target at Echelon after big contract win

Following the announcement of a major contract, Echelon Capital Markets analyst Rob Goff remains optimistic about Volatus Aerospace (Volatus Aerospace Stock Quote, Chart, News, Analysts, Financials TSX:VOL).

On November 1 Volatus announced it had won a three-year contract with what it described as a “major United States power utility” to provide drone inspection services. The company is said the contract is worth up to $60-million.

“What makes this announcement particularly important is the timetable for the execution of these contracts,” said CEO Glen Lynch. “Q1 is typically a seasonal quarter for Volatus, due to the winter weather in Canada and Northern U.S. These contracts are being flown in regions that will enable us to launch early in Q1 of 2024, generating material revenue during a traditionally slower time for drone services.”

Goff says what makes this contract interesting is that VOL won it in a competitive environment, something he feel bodes well for the future.

“We look for VOL to enter 2024 with visibility on Q424 annualized long-line inspection under long-term contracts in excess of $40M where gross margins exceed 30%. These quality revenues stand out against the Company’s enterprise value of $39M. We believe Volatus secured the $60M contract under a competitive RFP review where its expertise and marquee contracts in the space were defining considerations, he said, adding: “The Company continues to work on a number of RFPs for long-line inspection where it looks to record between $12-14M of long-line inspection revenues for the current year. These contracts are typically for three to five years and hold a strong probability of renewal. VOL uses the information from each inspection to build a database where it can inform its clients of any variations over time in the physical parameters or thermos profile. As this contract was won on a competitive basis, with every win, we believe the Company builds a track record that favours it in future contract pursuits either through an RFP or direct. The recurring nature of the business warrants a premium against equipment sales.”

In a research update to clients November 3, Goff maintained his “Speculative Buy” rating and one-year price target of $0.75 on Volatus, implying a return of 305 per cent at the time of publication.

Goff thinks VOL will generate EBITDA of negative $2.6-million on revenue of $43.2-million in fiscal 2023. He expects those numbers will improve to EBITDA of positive $1.8-million on a topline of $60.7-million the following year.