Strat Aero plc (LON:AERO), the AIM quoted international aerospace company focused on the Unmanned Aerial Vehicle (‘UAV’) sector, yesterday announced its entrance into the rapidly growing Chinese and Asian UAV markets through the signing of two agreements. The Chinese UAV market has been identified by the Board as an area of strategic importance for the Company as one of the fastest growing in the world with highly attractive supply and demand dynamics. China’s Civil Aviation Administration estimates that by 2018, there will be a demand for more than 30,000 civilian drone pilots rising from the approximately 700 licensed pilots at present. The two agreement are (i) a Master Franchise Agreement with Hong Kong based I-Coach, to roll-out Strat Aero’s proprietary UAV Training Programme and capitalise on the rapidly growing base of UAV operators in Hong Kong, The People’s Republic of China, the Taiwanese Republic of China and Macao. Under the terms of the Agreement Strat Aero will receive a sign on fee, annual recurring fees based on student numbers and other standard franchise terms in return for granting I-Coach the exclusive rights to operate its training programme in the above named territories. Target audiences to include commercial enterprises which want to add UAVs as a new tool to improve their business, private aircraft pilots and private UAV owners and; (ii) a Memorandum of Understanding with AviationLearn Pte Ltd of Singapore, a leading technology based training provider in Asia, to offer training and professional advice to AviationLearn on the use of UAVs in Singapore. The MOU is in line with Strat Aero’s objective to become a leading worldwide provider of UAV training and education solutions, covering all aspects of the value chain including software, hardware and services.
Beaufort Securities view: These developments represent Strat Aero’s initial thrust into the Asian market. Management appears confident that they will position the Group at the heart of what is a rapidly expanding market. Strat’s British and aviation heritage, combined with the credibility of our stock market listing and the quality of our proprietary training programs, offer an opportunity to carve out a significant position across Asia, in both training and other commercial markets. Management expects to report further progress in this regard both shortly. That said, of course, actually converting identified interest and enquiries into firm, near-term profitable contracts is, as Strat’s previous management found out to their pain, the trickiest part. In such a new and rapidly emerging area, which remains dominated by a myriad of small players offering a complication of different skills, however, Strat’s comprehensive ‘portfolio of services’ approach represents an important step toward breaking down such barriers. As part of Strat’s newly adopted, deliverable approach, which might initially at least need to focus on smaller, piecemeal commercial applications, it should help build much greater, long-term visibility of earnings. While shareholders still need to be realistic about the immediate future and expect the Group to deliver losses, not just for this year but possibly even longer, the franchise now being built should guarantee its long-term role in this giant looming market place. Beaufort retains its Speculative buy recommendation on Strat Aero.
Beaufort Securities acts as corporate broker to Strat Aero plc
