Volatus Aerospace Corp. (VOL:TSX; VLTTF:OTCQB) beat expectations in Q2/23 and should post a strong H2/23, reported Echelon Capital Markets analyst Rob Goff in an August 29 research note.
"Given the tough Q1/23 results, we are pleased to see the improved quarter over quarter (QOQ) and solid results," Goff wrote. "We remain very bullish towards [the company's] shares."
257% Potential Gain
Echelon lowered its price target on Volatus to CA$0.75 per share from CA$0.90 to reflect the "significantly higher cost of capital facing the shares," explained Goff.
Compared to the CA$0.75 target, the Canadian drone company's current share price is CA$0.21. The gap between these two figures implies a significant return for investors of 257%.
"We look for the shares to be positively revalued with demonstrated positive EBITDA and free cash flow along with the company securing additional financial flexibility," Goff commented. "We see scenarios with large contract wins from its pipeline representing significant positive catalysts beyond our baseline forecasts."
Volatus remains a Speculative Buy.
Expectations Exceeded
Goff presented Volatus' Q2/23 financial highlights, pointing out that revenue, gross profit, and EBITDA all were beat.
Revenue was CA$8.7 million (CA$8.7M) versus Echelon's estimate of CA$7.5M; gross profit was CA$3M versus CA$2.4M; EBITDA was (CA$1.1M) versus (CA$1.6M).
Goff made two points about these numbers. First, the mix of product sales in Q2/23 was lower QOQ, at 51% compared to 63%. The gross profit outperformance reflected this change.
Two, Volatus' Q2/23 financial results did not include any revenues or gains from fleet sales, as no such transactions were made either during the quarter or during H1/23.
Also, management continued cutting costs in Q2/23, some of the effects of which will be seen in Q3/23 but most, in Q4/23, Goff indicated.
"Management cited moves to realize additional cost reductions where the annualized rate is now at CA$3M, up from CA$1.5M," the analyst added.
Improved Financial Flexibility
The Echelon analyst discussed Volatus' financial situation, highlighting it is amply cashed up for H2/23.
During the quarter, Volatus increased working capital by CA$0.6M, primarily via accounts receivables and prepaid expenses. Plus, it added a CA$2.25M revolving line of credit. Ultimately, the company ended Q2/23 with CA$1.3M in cash.
Working in Volatus' favor is its sales pipeline, the robustness of which portends that the company's H2/23 exit from 2023 and entry to next year will be strong.
"We are optimistic that [Volatus] will secure significant wins," Goff wrote
Given its current financial situation, "[Volatus] has sufficient funds where we forecast a modest free cash flow (FCF) drain of CA$0.7M in 2024," wrote Goff. While we believe the company has sufficient funds available through FCF, we could see it raise additional debt or capital to fund more aggressive growth."
A Look Ahead
Goff provided the financial outlook for Volatus for the rest of 2023, which is positive.
Echelon estimates a working capital drain of CA$0.5M in Q3/23, dropping to CA$0.35M in Q4/23.
The equity research firm forecasts revenue of CA$12.7M in Q3/23, increasing to CA$14.3M in Q4/23. Similarly, it projects a gross profit of CA$3.8M in Q3/23, rising to CA$4.3M in Q4/23.
As for EBITDA, Echelon expects it to be (CA$0.2M) in Q3/23 and improve to CA$0.3M in Q4/23.
"We look for Volatus to turn to positive EBITDA and FCF from operations along with the company securing additional financial resources as positive revaluation catalysts," Goff wrote.
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Important Disclosures:
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Volatus Aerospace Corp.
- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
- The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
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Disclosures for Echelon Capital Markets, Volatus Aerospace Corp., August 29. 2023
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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. Copyright: This report may not be reproduced in whole or in part, or further distributed or published or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of Echelon Wealth Partners.
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.
IMPORTANT DISCLOSURES
During the last 12 months, Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer.
During the last 12 months, Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer.
