Post by
zero2million on Mar 04, 2018 8:17am
My thought on Q4
I have read on this board so many different opinions about UAV since the financials were released. Lots of people have questions about the financials and many others are criticizing them for not being the greatest.
I have put together some numbers and my thoughts just to show why the loss for this year wasn’t that bad. Additionally, I’ll give a little insight as to why I think this stock is undervalued.
This is what the loss might look like if we stripped away onetime items like impairment.
Normalized income statement 2017
Loss for year: $(3,021,998.00)
Add back:
Impairments (all*) $1,640,780.00
Normalized income (loss) $(1,381,218.00)
Shares outstanding 73,384,256.00
Loss per share $(0.019)
Not too bad for a baby company that is earning $1 mil in revenues.
*Under IFRS impairments are done on an annual basis, based on their projected revenue earning capabilities.
** Pioneer impairment: Cash, Common shares issued, Contingent consideration and Finder’s fees were the price paid for a total of: $1,550, 212. The actual values of the revenue producing assets are only $75,510 which is why there is such a big impairment loss.
*** High eye was acquired by the 'acquisition method' for $225,202 and based on third party assessments had an impairment loss of $66,000.
Here is a vague projection I put together for Q1 2018 just for fun:
2018 Q1 projections
2018 Q1 Low Q1 Med Q1 High
Revenues $228,356.00 $588,313.20 $720,683.67
COGS $96,480.41 $248,562.33 $304,488.85
Gross $131,875.59 $339,750.87 $416,194.82
Expenses $(293,232.50) $(306,561.25) $(319,890.00)
Total exp. $(293,232.50) $(306,561.25) $(319,890.00)
Net $(161,356.91) $33,189.62 $96,304.82
Low: Revenues are based on amounts receivable and deferred revenue. Expenses are at a 10% increase quarter over quarter.
Med: Revenues are at a 20% increase from Q4. The growth in revenues are declining modestly, also it’s the slow season (not really sure about seasonality yet). Expenses are at 15% increase quarter over quarter
High: Based on 47% increase in revenues (same as last quarter). Expenses are at an increase of 20%. (COGS: 1-(1027379-434021)/1027379 42.25% )
Some ratio analysis (why not?)
Ratio Analysis UAV FLT DVR
Price to Sales 12.63 0 347.64
Price to Book 23.18 29.80 6.75
Current Ratio 1.33 63.14 3.18
Market Cap 14.5 Mil 268 mil 10.71 mil
A word on valuations:
Because UAV is such a new company, its very hard to compare it to other companies on the market. In the cases of FLT and DVR, they are similar operations but have different business models and strategies. So comparing those companies isn't an apples to apples situation. However, it can be assumed that their assets are similar, which provides some valid comparison. Because of this we can conclude that FLT is WAY overvalued and DVR is in the relative range of valuation with UAV. Does this mean UAV will go up? not necessarily, but its very likely that FLT WILL go down. Especially when UAV gets their BVLOS permit. The way I am valuating UAV is by their earnings potential. It’s very possible that UAV will be profitable this year and will scale up their revenues. This causes me to believe that they will have the best position to pioneer into the drone application market faster than other companies. This means that they will attract large investors, they will form the strategic partnerships that will solidify their future earnings and the will be able to venture into untapped industries where drone application has not yet disrupted operations.
That being said, I believe UAV can reach $2,000,000 in revenues within the year and show a profit by year end (assuming growth continues of course).
What is that worth to me? Well that comes down to the business model and strategy. I’m obviously not going to pay $14.5 million (market cap) for their cash producing assets (B/V of $1.8 million). It doesn’t make sense to valuate a company like UAV based on their assets, rather on their human capital, technology and unique (niche) ability to make money. In other words I’m looking at UAV like a tech company (similar to how TESLA's valuation is that of a tech company rather than a car company). So what does that even mean? Here are the basics:
1. The size of the market is huge, but the players are few.
2. The potential for growth is huge and there is the ability to scale up quickly.
3. Profit margins are very high, and the ability to capture these margins is accessible
4. First movers are usually the ones to make it BIG! (Think Uber, Tesla, Snap, Amazon, Netflix etc.)
Closing notes
At the end of the day you may argue that UAV should not be valued as a tech company, and if so I'd love to hear your thoughts.
But no one can deny that UAV is hitting some major milestones when it comes to revenues and getting customers.
I have invested in a few start-ups in my life and I can only wish they looked as good as UAV.
Are there risks? Of course! UAV is only a year old with four consolidated companies… lots could go wrong.
But the rewards are huge if UAV can secure contracts and get recurring revenues from large companies.
I believe that once UAV starts cash flowing positive, they will be able to reinvest is more cash producing assets and disruptive technology. For example, once they have the cash flow and BVLOS, what is stopping them from developing their own 'Drone delivery service'? They already manufacture drones, they are experts with the software it requires (Thanks Ardupilot), I’m sure its on the table.
Long story short, I see UAV becoming a global leader in UAV exploration, mining, delivery, defense, etc. What is that worth to me? LOTS
Once UAV gets picked up by the institutionally investors, the stock will already be at $1.5-3 dollars. That is where I have my sights.
Good luck to all, any comments are welcome!