Volatus Aerospace Corp. (VOL:TSX; VLTTF:OTCQB) announced that it has received authorization from the Federal Aviation Administration (FAA) in the U.S. to conduct commercial agricultural operations using drones, noted Echelon Capital Markets analyst Rob Goff in a February 20 research note.
This approval, along with the FAA Part 137 authorization, will let the company attain revenues from the sale, charter, or operational support of agricultural drones, as well as recurring revenues from its operation, management, and maintenance.
Goff highlighted the significance of this authorization for VOL's growth prospects.
"This removes the regulatory friction currently experienced by VOL's agriculture customers during the sales process and allows leasing options to its ~1,200 pilot network in the U.S.," Goff stated. "The authorization (after roughly one year's efforts) supports our bullish view on management's stewardship and its ability to build out a CA$45M+ revenue run rate of recurring and highly reoccurring business in 2024."
Goff pointed out that the FAA approval permits VOL's subsidiary, Volatus Aerospace USA Corp., to operate approved drones weighing 55 pounds (25kg) or more for agricultural purposes under FAA Part 137 regulations. This allows VOL to train and contract customers to use its drones under its commercial program. This will limit the regulatory burden and give VOL a recurring revenue stream.
"This is even more favorable as the approval process is tedious and lengthy and, therefore, is a common deterrent for most customers to undergo the regulatory process. Only about 10-15 of its competitors have been granted this license," Goff noted.
Furthermore, Goff stated that this approval, coupled with Volatus' Special Flight Operating Certificate in Canada (announced in May 2023), allows the Company to extend these services to large-scale clients in agriculture, forestry, and environmental management.
The agricultural drone market is expected to grow at a CAGR of 31.5%, reaching a value of CA$17.9B by 2028 from CA$4.5B in 2023, according to a MarketsandMarkets shared by Echelon. Drones offer a lower cost, more effective, and green alternative to existing methods of spraying crops, which utilize large tractors or traditional manned aircraft.
"The company estimates that it can cover 400 acres per day with drone spraying technology," Goff added.
Goff maintained his forecasts for VOL, expecting Q423 revenue/gross profits/EBITDA at CA$8.0M/CA$2.6M/(CA$0.7M) and Q124 revenue/gross profits/EBITDA at CA$10.3M/CA$3.2M/($0.6M). For the full year 2024, the analyst forecasts revenue of CA$53.8M, gross profits of CA$16.7M, and EBITDA of CA$1.8M.
"We forecast a modest free cash flow drain of roughly CA$0.7M for 2024, although subject to WC moves. With available capital at attractive terms, we could envision a material positive recalibration of forecasts," Goff stated.
Echelon Capital Markets maintains a Speculative Buy rating on Volatus Aerospace Corp. with a target price of CA$0.68.
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Disclosures for Echelon Capital Markets, Volatus Aerospace Corp., February 20, 2024
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U.K. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. ECHELON WEALTH PARTNERS INC. IS NOT SUBJECT TO U.K. RULES WITH REGARD TO THE PREPARATION OF RESEARCH REPORTS AND THE INDEPENDENCE OF ANALYSTS. The contents hereof are intended solely for the use of, and may only be issued or passed onto persons described in part VI of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein.
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ANALYST CERTIFICATION Company: Volatus Aerospace Corp.| VOL-TSX I, Rob Goff, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
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