H1 24: Encouraging trajectory
H1 24: Encouraging trajectoryEARNINGS/SALES RELEASES
Drone Volt has announced its H1 24 sales and gross margin figures, which have come in higher than expected, especially on the top line, thanks to a €12m distribution contract. However, the company has announced a new capital increase to contend with this huge growth phase. We are confident that Drone Volt will achieve its guidance for 2024 and reiterate our Buy recommendation.
FACT
Sales grew by 49% to €23.6m thanks to a 45% increase in Distribution sales to €22.1m, notably (which is almost the same figure as in the full-year 2023).
The gross result grew by 43% to €2.5m, resulting in a gross margin decline yoy from 10% to 7%.
New capital increase of €1.28-2.15m, potentially diluting shareholders by 13-19%.
The group is confident that it will achieve its guidance of growing the gross margin and its recurrence.
ANALYSIS
A surprising €12m distribution contract completed
Sales grew by 49% to €23.6m, thanks to a 45% increase in Distribution sales to €22.1m. This is almost the same figure as in the full-year 2023, thanks to “excellent relations” with the customer that generated the large €20m contract last year. Indeed, this customer had already generated €12m of sales for Drone Volt in the Q2 24, a pleasant surprise for us as we were bracing for a more complicated quarter on the top line.
Profitability underpinned by services
However, the gross margin grew by 43% to €2.5m, underpinned by the more-than-3-fold increase in the gross result from Drone Volt Factory, Services and Academy to €920m, offsetting the decrease in the gross margin of distribution from 10% to 7% as the large customer must have negotiated fiercely. This comforts us in our reading that the drone as a service offer is a game changer and where the future earnings growth will come from, whose profitability increased over the quarter thanks to harder missions realized, suggesting a differentiating know-how.
An improved relationship with the State
CEO Marc Courcelle recently met the current Armies Minister, Sébastien Lecornu and Drone Volt is a signatory of the Drone Pact, which streamlines relationships between the drone industry and the State. These two elements are major step-ups, as the company had been struggling to build relations with buyers within the State despite good relations with potential end-users (such as policemen). The good news is that there is a chance that Sébastien Lecornu will remain Minister if a centrist coalition emerges in the wake of general elections which led to no clear majority. Even if this is not the case, we do not think there will be a change in the recognition of the importance of drones in the next government as it seems to be a consensual topic among the different parties.
New capital increase
Drone Volt has announced a new capital increase with subscription rights that could raise net of commission between €1.28m and €2.15m (75-115% completion) with a price of €0.0065, a 15.58% discount compared to yesterday’s closing share price (€0.0077). The dilution should be 13-19% for shareholders who do not subscribe to the offer. The company has secured commitments from 10 investors representing 75% of the operation for a commission of €170.7k (representing 6.52-10% of the capital raise depending on the success rate).
The amount raised will be used to finance the working capital requirements after the surprisingly high growth rate unveiled in the H1 results.
Positive outlook for the H2
The good relationship with the large customer is good news as it provides activity that monetizes the fixed cost base even though margins are lower. Moreover, the drone as a service offer only represents a little bit more than 1/3 of the divisional sales at the moment, which suggests there is more potential to increase this activity and profitability at the group level.
The European-built Kobra should also contribute towards the end of the year and benefit from the expansion in international markets (Middle East and Turkey recently announced), especially after gathering more than 100 prospects during Eurosatory, of which 90% are international.
Finally, the group has reiterated that cost control on the payrolls and R&D front should enable improved earnings and cash flow generation, thus making us confident it will comfortably achieve the guidance for 2024.
IMPACT
We will update our estimates to take into account the higher top-line growth, lower gross margin rate and the new capital increase, which may lead to a reduction in our target price.
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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