Q4 20: sharper COVID-19 impact though the dynamic is improving rapidly
Q4 20: sharper COVID-19 impact though the dynamic is improving rapidlyEARNINGS/SALES RELEASES
Drone Volt has released its sales and margin figures for FY20 and Q4 20, which were somewhat disappointing on a FY basis compared to our estimates but demonstrated a promising momentum at both sales and the gross margin in Q4 20, boding well for 2021. On the commercial side, the momentum remained well oriented and the ramp-up of partnerships should strengthen this dynamic further.
FACT
Q4 sales were €2.4m, up 28% yoy and + 82% qoq; this was especially due a solid recovery at DVF (up 32% qoq to €907k) and Distribution (up 26% to €1.5m).
On a full-year basis, revenues were €5.7m, down 20% yoy and below our estimates of €6.7m. The FY20 gross margin reached €1.7m, down 30%, below our estimates due to lower sales and a product mix effect with less training. However, we are pleased to see a strong recovery in the gross margin in Q4, which reached 35% thanks to cross-selling with Aquiline Drones (potentially replicable in subsequent quarters).
Going forward, Drone Volt sees a promising fiscal year 2021 which will be driven by: 1) the strong order pipeline; 2) the Aquiline Drone partnership ramp-up; and 3) the implementation of the partnership with Hydro Quebec.
Drone Volt also intends to sell 50% of its subsidiary Aerialtronics to Aquiline Drones, on a €15m valuation (vs €7m currently in our valuation).
ANALYSIS
Good recovery in Q4, but not enough to offset the impact of COVID-19
During Q4, sales momentum accelerated sharply, led by a good performance in Consumers sales and sustained activity at DVF. However, on a full-year basis, revenue fell short of our estimates on the back of a sharper COVID-19 impact on DVF sales (less training mainly due to social distancing) as well as to the delay of the upfront payment with respect to the transfer of know-how to Aquiline Drones. The upfront payment is $450k to be paid in 2021 and is linked to the training of Aquiline Drones’ teams which has been hampered by the sanitary constraints. We therefore estimate the Royalties business to have generated c. €254k (vs €660k in our model), as the DVF activities of selling drones and training would have fallen by 30% yoy to €1.9m (vs. €2.6m in our estimates), while Consumer sales stood in line with our estimates. This lower level of sales, coupled with the product mix at DVF, justifies a lower gross result, while the margin proved to be resilient and improved strongly in Q4 20 on the back of better operating efficiency at DVF. Therefore, a replicable performance going forward.
Good commercial dynamics and encouraging prospects for 2021
Despite the pandemic, the commercial activity remained buoyant, with promising prospects for the Hercules 2. In addition, the ramp-up of Aquiline Drones should strengthen this dynamic and trigger cross-selling since production delays in the US encourage Aquiline Drones to order directly from Drone Volt. Lastly, the Hydro Quebec partnership should kick-off in 2021 and we estimate sales of c. €2.1m from this (should sanitary constraints not be re-inforced in Canada).
Enhancement of the Aerialtronics valuation
The relationship with Aquiline Drones could be further re-inforced through the acquisition of a 50% stake in it, with a €15m valuation. As a reminder, we currently value Aerialtronics at €7m in our NAV, which could have (all things being equal) an impact of +€0.03 per share should the transaction take place.
IMPACT
We will revise downwards our figures for 2020. This lower basis in 2020 would mean slight lower sales in both 2021 and 2022 though we expect an upward push on the margin in subsequent years thanks to the volume effect and cross-selling synergies. We maintain our Buy rating on the stock.
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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