Strat Aero doubles as turnaround begins

In little over a year, drone expert Strat Aero has floated on the stockmarket, overhauled its management team and commercialised its strategy. A failed military deal put a spanner on the works soon after take-off, but an overhaul has piqued investor interest again. It will be a while before Strat Aero is profitable, but the company is making its mark in a fast-growing market tipped to be worth over $82 billion (£54 billion) within a decade.

Raising a more modest £650,000 a year ago at 8p, Strat Aero initially focussed on supplying software to improve the military's unmanned aerial vehicles (UAVs), as well as pilot training and consultancy services.

Management thought they had a US defence deal in the bag, but rubber-stamping the contract took longer than expected, and a change in the US army decision maker eventually brought talks to an end. That's why Strat Aero's shares collapsed to 3.8p in September.

But bosses decided to change tack and revamp the management team. In came former PJ Carroll director Tony Dunleavy as CEO, and ex-Sandvik Mining man Gerard Dempsey as finance director and chief operating officer. Vodafone's Paul Ryan and Alcatel's Bill Bauer were named strategy director and sales and marketing director, respectively.

(click to enlarge)

Strat Aero hasn't turned its back on the defence industry completely - it still offers military and civilian training courses and consultation. But by providing everything from software to hardware and services, Strat Aero wants to become a major player in the commercial space. It's already developing ways of helping wind farm owners inspect turbines and mobile tower owners check masts.

It currently costs $3,500 (£2,323) to manually check wind turbines, not counting the loss of a days' electricity generation because you turned the thing off. Strat Aero wants to combine the inspection with expert data analysis and a software solution to manage the data at a cost of just $750 (£498).

It already has 42 leads with majors like BP and EON worth $10.6 million (£7 million) - but the commercial wind inspection UAV market could be worth over $6 billion (£4 billion) by 2024, according to researchers Navigant.

A game-changing acquisition

And, with flood defences costing the UK £1.1 billion every year, the drone company's purchase of topographical survey and inspection services business Geocurve for up to £1.5 million makes sense. Describing the service as a "game changer", Geocurve creates 3D mapping solutions much more quickly by using a combination of UAVs and water vehicles.

It says what historically has taken years to achieve, Geocurve can do in weeks. That could save the government £100 million per year, and already has a blue-chip customer base including the UK’s Environment Agency, EDF Energy, Carillion, and the Royal Society for the Protection of Birds (RSPB).

The unit - split into GN Site Engineers and UK Aerovision - generated revenue of around £1 million when Strat Aero bought it two months ago. GN made a profit of £38,443 in the 12 month to March and Aerovision made £63,300 in the 15 months to March.

However, last week Strat Aero said it had lined up around £10 million of potential business, up to £7 million of which is linked to flood defence work, with the rest for quarries and offshore inspection. Strat Aero hopes the whole group will break even in the second half of next year.

Strat Aero shares, which jumped 12% to 8.14p Monday, have doubled since before the Geocurve news. Winning big contracts to hit ambitious targets is certainly achievable for the £9 million company - although it does take time, and there's currently little financial information or forecasts on which to pin a valuation.

That will change, however, perhaps rapidly, once the company starts nailing contracts and making further acquisitions to build up its capabilities.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.