Like many companies these days, Drone Delivery Canada (“DDC“) (TSXV: FLT) / (OTCQX: TAKOF) recently put out a press release reassuring stakeholders that even before the onset of coronavirus, the Company had robust health, safety & security protocols in place.
Global pandemic focuses attention on technology sector
However, unlike most companies, Drone Delivery Canada is well positioned to continue moving forward with its emerging commercial platforms no matter what this once in a century pandemic throws at it. Many industries around the world have slowed or shutdown completely — some sectors will remain sidelined for a few more quarters (not just weeks or months). I fear that some sectors are un-investable at this time, there’s too much uncertainty.
How many companies can say that their business models are bolstered by this pandemic? Don’t get me wrong, no one is happy about this Biblical catastrophe, I’m just working with the facts. Hundreds of companies are searching for vaccines & therapeutics, but readers lacking healthcare / medical / biotech expertise will be hard pressed to pick the winners, if any.
Last week Gilead Sciences announced promising news on a potential therapeutic.... Ask yourself though, what bio-tech junior stands a fighting chance against a $150 billion giant and another dozen or more $10 billion+ global pharma companies?
Drone delivery logistics is one of the few non healthcare-related sectors that will likely enjoy a sustained, long-term boost long after the great difficulties of 2020 subside. To be clear, delivering goods & services in Canada by unmanned drones remains one step beyond traditional delivery by trucks (UPS, FedEx, Amazon Prime, Canada Post).
Drones can help workers around the world get back to work
However, that’s quickly changing. One of the biggest takeaways from watching people around the world being asked to “shelter in place” is the critical importance of home delivery. Millions of households that rarely had items shipped to their doorsteps, or that never ordered groceries online, are getting used to these efficient, time-saving conveniences.
Home delivery is more than just convenient, it’s considerably safer in an increasingly dangerous world. Safer, when spreading or contracting a potentially fatal virus is a risk. Safer, when getting robbed in a supermarket parking lot or being downtown when looting breaks out is a risk. {crime increases the longer a natural disaster’s impact lasts}
Regarding pandemics, the societal benefits of citizens avoiding brick & mortar stores are immense. Viruses cannot spread without human to human contact. DDC cuts out the middle-humans, mitigating the problems of densely populated areas. That’s why more and more people are getting used to shopping from the comfort & safety of home.
Home delivery of goods & services rapidly expanding far & wide
Drone delivery mitigates the risk of critical deliveries being canceled due to sick drivers. Importantly, the availability of quick, reliable, cheap drone delivery services will substantially dampen the twin problems of panic shopping & hoarding.
First & foremost, now is the time for Health Canada and Transport Canada to rapidly, but prudently, ramp up drone delivery to Canada’s remote & First Nation communities. This is a segment that DDC is already targeting. Management believes there are up to 1,000 of these communities, 200 of which DDC is pursuing over the next five years. Management believes that each community could generate C$1-C$2 million/yr. in revenue. Who knows, given the severity of COVID-19, and especially if there's a 2nd or 3rd wave of spread, perhaps > 200 underserved communities will want drone delivery.
Remote communities is just one of several commercial revenue paths. Last year DDC partnered with giant Air Canada to enable Air Canada Cargo’s sales & logistics team to actively sell DDC’s drone logistics capabilities. The term of the agreement is 10 years.
Management is also pursuing software licensing agreements with various government entities & multinational corporations, both domestically & internationally. A number of key initiatives are well underway, which could drive revenue significantly higher in 2021 vs. 2020 and 2022 vs. 2021.
DDC represents the future. Not the future in 10 or 20 years, a nearer-term future. In coming months, medical equipment / supplies, testing kits, blood samples & medicines will be key, high-value cargo. These vital healthcare-related parcels may not have high monetary value, but they’re extremely valuable when human lives are on the line! Think of the upcoming need to rapidly & reliably transport blood plasma containing antibodies from recovered COVID-19 patients.
Drone delivery will be commonplace in a few short years
It’s important to reiterate that DDC is a software and managed services company, not a hardware company making drones. As such, it is one of just a handful of companies in the world offering flight navigation & operational guidance systems for drones. Companies will gladly outsource their drone delivery logistics to DDC.
Management has been at this for nearly six years, 2020 marks year one of commercial revenue. Analysts indicate that annual revenue could double into the mid-2020s. One sell-side analyst forecasts revenue growing at a 4-yr CAGR of ~104% from 2021 to 2024. It seems likely that if things go reasonably as planned, DDC could reach C$100 million in revenue in 2024 or 2025. Management believes that profit margins will be strong.
Large customers & declining operating costs due to advances in drone technology & economies of scale, point to strong margins & recurring cash flow. Companies with these kinds of attractive investment metrics trade at premium valuations or (multiples) of trailing 12-month revenue. For example, Franco-Nevada Corp. is trading at ~39x revenue. Canopy Growth trades at ~18x. Could DDC trade at 10x revenue? 15x? I don’t know, but I’m not ruling it out.
COVID-19 will pass, but safe, reliable, fast, cheap deliveries are here to stay
Management recently announced that it’s reaching out to hospitals, seniors’ homes, medical labs & related organizations to offer services in the fight against COVID-19. Globally, drones are playing an important role in the ongoing war on multiple fronts.
Drones are being used for crowd control / surveillance, mass communication (drones fitted with cameras & speakers) and for aerial spraying of disinfectants (reportedly 50x more effective than spraying at ground level). Importantly, bystanders are becoming accustomed to seeing them fly overhead.
Michael Zahra, President & CEO of DDC commented,
“The current situation is an ideal use-case for our proven drone logistics solution to: limit person-to-person contact; bring needed medical & pharmaceutical supplies to Aboriginal, remote, rural & suburban communities; transport blood samples to labs for testing and deliver critical supplies for Canada to effectively manage the current situation.”
DDC has started accelerated commercial testing of the Condor, a drone with lifting capability of 180kgs (~400 lbs.), in a compartment holding up to 20 cubic feet. Condor has a range of 200 km and an operating speed of 120 km/hour. It’s equipped with DDC’s proprietary FLYTE management system, the same platform used in all of DDC’s drones.
Due to the urgent nature of the pandemic, the Company is having increased discussions with interested parties about using the Condor drone. Management maintains a robust funnel of opportunities in Canada and internationally. CEO Zahra added,
“Market response to the Condor has been overwhelmingly positive. With COVID-19, interested parties have asked us to fast-track commercialization, which we’re doing. The capabilities of the Condor address many social (medical, pharmaceutical, remote & Indigenous communities, humanitarian aid, etc) and economic (mining, oil & gas, courier, inspection, etc) use-cases requested by existing & prospective global customers.“
In conclusion, Drone Delivery Canada (TSXV: FLT) / (OTCQX: TAKOF) is well worth the reader’s attention. Shares traded as high as C$2.16 at a time when the company was considerably less advanced than it is today. Yet, now the share price is C$0.68. DDC has ample cash on the balance sheet and no debt.
A lot of industry sectors including; oil & gas, retail, airlines, travel / hotels are, in my opinion, un-investable for the foreseeable future. Yet some technologies, especially technology-packed drone delivery software platforms, are in the right place at the right time. Readers, don’t let this timely opportunity to dig deeper into DDC fly away.
Disclosures / disclaimers: The content of this article is for information only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein of Epstein Research [ER], (together, [ER]) about Drone Delivery Canada, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered implicit or explicit investment advice. Nothing contained herein is a recommendation or solicitation to buy or sell any security. [ER] is not responsible for investment actions taken by the reader. [ER] has never been, and is not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and does not perform market making activities. [ER] is not directly employed by any company, group, organization, party or person. The shares of Drone Delivery Canada are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds. It is assumed and agreed upon by readers that they will consult with their own licensed or registered financial advisors before making any investment decisions.
At the time this interview was posted, Peter Epstein owned stock options in Drone Delivery Canada, and the Company was an advertiser on [ER].
While the author believes he’s diligent in screening out companies that, for any reasons whatsoever, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. [ER] is not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article or future content. [ER] is not expected or required to subsequently follow or cover any specific events or news, or write about any particular company or topic. [ER] is not an expert in any company, industry sector or investment topic.
