Volatus Aerospace Corp. (VOL:TSX; VLTTF:OTCQB) is expected to post better financial results in Q2/23 than in Q1/23, reported Echelon Capital Markets analyst Rob Goff in a quarter preview note dated July 31.
We "expect to see improvements in Q2/23" after a tough Q1/23, during which some revenues were delayed and others were lost, due to headwinds, Goff wrote. "We note the company's prior reference to a robust sales pipeline where we are optimistic that it will secure significant wins."
Projected return of 283%
As such, Echelon maintained its Q2/23 forecasts and its CA$0.90 per share target price on Volatus, currently trading at about CA$0.24 per share.
The difference between these prices implies a material return for investors, of 283%.
Volatus remains a Speculative Buy.
Original guidance unchanged
What bodes well for Volatus in Q2/23 and H2/23, wrote Goff, is that management, post Q1/23, reiterated its previously stated guidance for full-year 2023: US$52 million (US$52M) in revenue and US$16.6M of gross profit with a 32% margin.
"In 2023, Volatus expects to generate US$10–12M in recurring revenue from oil and gas contracts compared to US$9M in 2022," Goff added.
Management expects to achieve these numbers thanks to the company's large, outstanding requests for proposal (RFPs), increased military sales and capacity to commercially leverage some of its technologies.
Also, Volatus has been tackling and trying to work around the various headwinds it faced in Q1/23. Echelon would like to see confirmation, in Volatus' Q2/23 results, that the drone solutions firm has had some success in this regard.
Managing the headwinds
Goff provided updates on the factors that affected Volatus' revenue in Q1/23. They are:
1) Severe weather and wildfires in Alberta and British Columbia thwarting weekly inspections.
After obtaining approval, Volatus completed its first mission, in July, helping wildfire suppression agencies in Western Canada.
"The company looks to add between US$1M and US$1.2M in inspection revenues in June and July with a greater impact likely to be seen with the Q3/23 results," Goff wrote.
2) Delays in executing oil and gas contracts due to fires and the slow start of the Canadian flying season.
Management indicated it has multiple recurring contracts between US$12M and US$15M in 2023 that together with its robust pipeline support the full-year revenue guidance. Echelon wants an update on the sales pipeline, in the Q2/23 results. Plus, the Canadian drone company has several RFPs in its sales funnel that could increase Q4/23 revenues.
3) Delays in meeting equipment demand in Ukraine.
Thanks to its newly acquired product, the iRed Remote Sensing, Volatus expanded its presence in the United Kingdom.
4) Delays in building inventory.
Volatus has subsequently bolstered inventory to support greater product sales through Q2/23.
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