H1 25: Change in business model enacted
H1 25: Change in business model enactedEARNINGS/SALES RELEASES
Drone Volt enacted its new status with this half-year release. The group reiterated its guidance of positive EBITDA for FY 25, reinforcing our conviction that it will be able to offset the seemingly difficult first half. The group significantly reinforced its balance sheet, won new orders, and successfully entered the US market with the help of its anchor US shareholders. We reiterate our positive recommendation on the name, focusing on drone sovereignty and the defence/security spending spree.
FACT
As already announced, sales declined by 82% to €4.136m as distribution fell even more than expected to €1.3m in H1 25 from €21.8m, while in-house drone and services experienced strong growth from €1.5m to €2.9m.
However, the gross margin only declined by 19% to €1.8m (below our expectations of €2.2m), underpinned by the 76% increase in the gross result from Drone Volt Factory, Services and Academy to €1.622m, partially offsetting the decrease in the gross result of distribution from €1.3m to €0.2m.
The group reiterated its guidance of EBITDA>0 for FY 25.
ANALYSIS
A disappearing retailer status
This release clearly confirms the new status of Drone Volt, which has transitioned from a drone retailer to a drone maker and service provider. These new businesses are now generating more than twice the sales level of distribution. This new assumed status is also visible in the granularity of figures disclosed for its new businesses for the first time in a semi-annual release. Although we do not yet have absolute figures, we know that growth was (unsurprisingly) strong on the factory side (+70%) thanks to its best-seller, HERCULES 20, but also its HELIPLANE and LINEDRONE. The services also grew strongly by more than 100% thanks to good momentum in France and internationalisation with Canada notably, although its share of sales might be somewhat lower than the factory (c.40% in our opinion).
Impressive rise in margins
Unsurprisingly, the new focus on high-margin services and drone maker activities (57% gross margin) led to a quadrupling of the margin up to 44% as the company is winding down its distribution activity (16% gross margin). The change in the business model that the company undertook thus seems to us more sustainable and financially attractive as the services offer answers a real business need from its customer with a differentiated offer thanks to its homegrown drones (like the LINEDRONE for cable inspection) and the factory should benefit from the high operating leverage following the recent orders announced.
A strong financial position following the latest capital increase
Drone Volt announced a week ago a new capital increase of €12.4m, with a share purchase warrant attached to each share, from US and European investors, thus effectively creating 15.3m shares. This could lead to a 42% dilution of existing shareholders once the share purchase warrants are exercised but could bring c.€12m more in financing.
Nevertheless, this capital raising is interesting from a financing standpoint as it enables Drone Volt to reinforce its balance sheet for good while diversifying its capital structure with US-based shareholders once again. These US shareholders do not contribute only to the development of Drone Volt by bringing fresh money but also helped break into the very attractive US market, the largest for drone makers and now free from Chinese competition (a godsend for the Kobra drone!). This fresh cash injection could even support growth by acquisitions according to the company, which is mentioned for the first time and is a clear sign of a strong financial position.
Recent orders back an unchanged outlook
We are confident that the group will achieve its guidance thanks to the numerous orders announced over the past three months for all its homemade drones as well as services, of which a massive €6m contract over 3 years internationally. From our understanding, this is a B2B2C type of contract, where a distributor located somewhere abroad commits to buy at least €2m worth of Hercules 20, Kobra and Heliplane over the next 3 years. This is clearly very positive as it is the first big order for its drones involving the Kobra drone notably (which has not yet contributed to Drone Volt results) and should boost the margins of Drone Volt as it is a high operational leverage business. The recent launch of the Drone Volt Kobra in the USA thanks to a partnership with a local manufacturer should also help win more orders as it enables to serve the US market faster, meet stricter sovereignty requirements and probably more importantly avoid tariffs.
IMPACT
We will update our estimates to take into account these figures, but this should not significantly change our target price given that the guidance was reiterated, underpinned by new orders.
Drone Volt SA. Drone Volt SA is a France-based company principally engaged in the aerospace industry. The Company provides civilian drone manufacturing. It specializes in the production, integration and sale of drones for professionals. Drone Volt is a provider of the audiovisual market in the field of aerial photography by drone. The Company is also present in many other markets such as security and topography, among others. The Company's main product is the Pack PRO FOR GH4 S900. It cooperates with Ministry of Internal Affaires, Ministry of Defense, CERN, Gendarmerie Transports Aeriens (aerial transport police), Dakar 2015, Spie, TF1, Bouygues, CNRS, Bonne Pioche, RAID and GEDEON Programmes, among others. It operates through Dandrone.
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