DRONE VOLT: Drone Volt: Drone Volt unveiled promising H1 24 results

Drone Volt unveiled promising H1 24 results EARNINGS/SALES RELEASES Drone Volt published its complete H1 24 results yesterday, which were revised downwards on the top line and gross margin levels. Nonetheless, the EBITDA margin trend seems to be reversing towards positive territory, and the group now openly aims to reach it in 2025. This is a strong commitment that could change the equity story if the management manages to deliver. FACT Sales were slightly revised downwards to €23.4m (€23.6m previously), still representing a 47% growth rate yoy. The gross margin, more importantly, was €2.3m (vs €2.5m previously), thus representing only a growth of 26% yoy. EBITDA remained stable at €-1.1m, despite a 44% increase in wages to €1.5m, thus marking an improvement from the €-1.4m from H2 23. EBIT decreased to €-3.5m from €-2.5m, due notably to higher D&A as well as capital increase fees now passed on the P&L. The level of cash and cash equivalents is still at a stable low level at €0.5m. The level of equity decreased slightly to €19.1m compared to €20m at the end of 2023. The outlook is confirmed for 2024 and EBITDA is targeted to be positive for 2025. ANALYSIS Reversing the trend towards profitability EBITDA remained stable at €-1.1m despite sales being up by 47% due to an increase of €0.4m in wages following the integration of 16 people from Air Marine (activities acquired a year ago). Otherwise, wages actually decreased by €0.1m. The reversal of trend in EBITDA supports the new guidance for 2025 and marks, hopefully, the beginning of continuous growth in profitability. Developing new, interesting business models The company announced that it will now use two new business models to improve revenue growth and margins. The first one is related to the LineDrone, a drone that is worth €300k, thereby creating some financing issues for customers who cannot pay but wish to maintain confidentiality (thus refusing the drone as a service option which requires an external third party to enter the company facilities). Therefore Drone Volt offers the possibility of renting the drone (monthly fee) after training the client for an upfront fee. Moreover, the company will export its Drone Volt Expert brand abroad via the franchise model, consisting of certifying foreign companies by training them for an upfront payment and then receiving a percentage of their sales. We view these two new business models as positive as they enable the company to cater to new customers with limited investments and will improve the recurrence of revenue as well with high margins. What to expect in H2 The company should get its first orders for the Kobra drone (after making demos to large customers), which is seemingly alone in the European market regarding drones with AI capabilities (integrating an NVIDIA processor) and such a high payload (5kg) for particular customers such as the military, police, etc. As a reminder, DJI (almost monopolising the civil drone market) cannot supply these particular customers due to security concerns. Drone Volt notably announced that it is very close to getting the European certification (just some paperwork left) and will thus launch the production of 50 Kobra drones. We are quite excited by this opportunity as Drone Volt will enjoy the first-mover advantage in this type of drone. However, investors must keep in mind that, in case of high demand, the WCR could increase a lot and thus require the company to launch another capital increase to finance the inventory. Lastly, the company should continue to sell its best-seller, Hercule 20, as witnessed by the 40 Hercule 20 orders which should be worth around €800k, and the drone as a service offer should continue to step up. Margins should thus improve thanks to this higher revenue growth and EBIT margins more particularly due to investments in R&D being already done on these products. The group will now focus on monetising these investments and future R&D could lower thanks to the specific demands of (big) corporates being charged to them (with a margin). The group is already reporting an improvement in margin in the press release, notably thanks to a cost-cutting plan on costs not linked to production. The company thus confirmed again its objective of higher gross margins in 2024 and, more importantly, now aims to be EBITDA positive in 2025, an important step for a share price recovery if achieved. IMPACT We will include the new figures in our model, which will probably lower the target price due to notably higher wages. However, we reiterate our Buy recommendation, underpinned by the positive EBITDA guidance for 2025, as well as the enthusiastic management comments on the commercial prospects. We are now eagerly waiting for them to materialise and for the management to deliver on EBITDA margin improvement.