Strat Aero plc, the AIM quoted international aerospace company focused on the Unmanned Aerial Vehicle (‘UAV’) sector, yesterday released a trading update ahead of its full year results for the year ended 31 December 2015. Group management expects to report revenues of approximately US$430,000 for FY15 and a loss, before and after taxation of approximately US$3.9 million based on current unaudited management accounts. It had a cash balance of US$1.13 million as at 31 December 2015. As noted in its interims, H1’2015 results were impacted by shifting market dynamics and a lack of contract conversion. Thanks to work carried out in the first half and subsequently, including the acquisitions of Geocurve and Aero Kinetics, however, management was pleased to note that revenues for H2’2015, saw a significant improvement on the first half and are expected to total approximately US$380,000. Furthermore, the Company is confident that this upward trajectory in revenue generation will be maintained in 2016 and, as a result, considers its forward prospects have improved significantly. With this in mind, February’s revenues alone are currently anticipated to be in the region of US$200,000, which includes that generated from orders in wind in both the US and UK and also from paid trials. The Board believes this improving trading performance reflects the new management team’s strategy to rapidly build a vertically integrated UAV offering, covering all aspects of the value chain including software, hardware and services.
Beaufort Securities view: Strat’s new management’s focus has been on positioning itself to capture a key opportunity in the developing global UAV/UAS market place. It has rapidly put in place a series of acquisitions designed to allow it to become the sector’s ‘go to’ full service provider. With this in mind, as was noted in other recent Beaufort research updates, shareholders ‘need to be realistic about the immediate future and expect the Group to deliver losses, not just for the current year but possibly even for 2016E’, while the franchise being build should guarantee it a long-term role in this giant looming opportunity. So nobody should have been shocked by yesterday’s Trading Update. Indeed, they should be reasonably impressed by progress already recorded in 2016, including the securing of its first orders in the wind sector and also by the willingness of clients across its targeted areas of flood defences & quarries (UK), wind turbines (US & UK), cell towers (Ireland) and education (China) to pay for trials. If successful, these are expected to lead to much larger and longer term revenue streams later in 2016. While noting, of course, that transforming such leads into larger firm orders will likely take six months or more, such work should become very ‘sticky’ in due course as they evolve into ‘ongoing’ arrangements. To put the scale of the potential opportunity into perspective, one should note that the Unmanned Aerial Systems market is expected to grow exponentially over the next decade and beyond. In the US alone, civilian, law enforcement and military applications in UASs are expected to be the most dynamic growth sector in the aerospace industry, with the overall market forecast to grow more than US$82.1bn between 2015 and 2025 (AUVSI Economic Report 2013), while the global airborne Intelligence, Surveillance and Reconnaissance (‘ISR’) market estimated to grow to US$19.23bn by 2023. Yet, to date, Strat Aero remains one of a very small handful of quoted direct investments dedicated to capturing this specific opportunity. Beaufort retains its Speculative buy recommendation on Strat Aero.
Beaufort Securities acts as corporate broker to Strat Aero plc
