The factors that make Red Cat Holdings a worthwhile investment are highlighted in a ThinkEquity research report.
In a June 7 research note, ThinkEquity analyst Ashok Kumar hedged Red Cat Holdings Inc. (RCAT: OTCMKTS) with a buy note and a target price of $ 8 per share; its current price is around $ 3.26.
Kumar presented the investment thesis for this Puerto Rico-based company in the unmanned aerial vehicle industry.
Red Cat Holdings “is positioned to capitalize on the mature drone market with high performance business products and services for a variety of industries,” Kumar wrote.
He explained that Red Cat, founded in 2016, now has four operating subsidiaries. Its original subsidiary, Rotor Riot, designs, purchases and resells drones and drone components from manufacturers (historically generating half of Red Cat’s revenue).
Red Cat’s current project is Dronebox, a blockchain-based software solution that records, stores and analyzes data obtained from flights and drones, which will be offered on a software-as-a-service (SaaS) basis. Dronebox is a second subsidiary.
A third subsidiary, Fat Shark, which Red Cat acquired in 2020, provides drone products, including helmets and goggles for use in first-person piloted flights.
“Fat Shark is expected to make up the majority of revenue and operating results,” Kumar wrote. “This transformative acquisition will enable an encrypted and distributed network that provides secure data storage, operational analysis, reporting and SaaS solutions for the drone market. “
The newest addition, Skypersonic, the fourth subsidiary since May 2021, provides software solutions for high-risk, GPS-less drone flights remotely piloted via the Internet.
“Red Cat Achieves Competitive Advantages By Leveraging All Three Companies [Rotor Riot, Fat Shark and Skypersonic]”, Kumar wrote,” to go beyond selling drones to selling drone services and solutions. “For example, Red Cat can combine its Skypersonic remote piloting system with Fat Shark digital video technology to deliver differentiated systems. Additionally, Rotor Riot can extend a US-made drone solution for inspection activities. multiple and diverse Red Cat continues to expand into government and military applications.
Kumar noted that Red Cat’s current business strategy, modified in 2020, is to design, develop and sell products for the drone industry. Previously, the company focused on research and development of software for cloud-based storage, analytics, and services.
In terms of opportunities for Red Cat, Kumar pointed out that shipments of enterprise drones for the Internet of Things are expected to increase from 0.5 million to 4.1 million units between 2019 and 2029, according to data from Gartner. The fastest growing areas are expected to be construction oversight and retail order fulfillment. The geographic area to which most shipments are planned is North America, and Red Cat is well positioned to serve that market, he noted.
The benefits for companies of using drones rather than people to perform certain tasks are also beneficial for Red Cat, Kumar said. Namely, drones are faster and more efficient.
“Red Cat’s drone-as-a-service business model… will drive the growth of the company,” Kumar wrote.
On the financial side, Red Cat has about $ 14.5 million in a public offering of common stock, Kumar reported. Of that amount, the company plans to use around $ 4.6 million for Dronebox licenses and to develop a sales, marketing and customer support team for its drone services. He has set aside $ 6.9 million for future accretive acquisitions of complementary businesses.
ThinkEquity estimates that revenue will reach $ 38.8 million in fiscal 2023, up from $ 4.9 million in fiscal 2021, Kumar said.
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Disclosures by ThinkEquity, Red Cat Holdings Inc., June 7, 2021
The analyst, Ashok Kumar, responsible for preparing this research report certifies that: (1) the views and opinions expressed in this research report reflect his personal opinions on the companies or issuers concerned; and (2) that no part of the research analyst’s compensation was, is or will be directly related to the specific recommendations or opinions contained in this research report.
The analyst, Ashok Kumar, has no financial interest in the debt or equity securities of the company that is the subject of this report. In addition, no member of his household has a financial interest in the securities of the subject company. Neither the analyst nor any member of his family is an officer, director or member of the advisory board of the issuer (s) or has any other significant affiliation with the issuer (s) covered by this report. of research. The analyst did not receive any compensation from the company concerned. The CEO of ThinkEquity, a division of Fordham FINancial Management, owns shares in the company. At the time of writing this research report, the analyst is not aware, or has no reason to know, of any other material conflicts of interest.
ThinkEquity is a division of Fordham Financial Management, Inc. (Fordham), a member of FINRA and SIPC. Fordham or an affiliate does not have a customer relationship with and has not received compensation from such company in question Red Cat Holdings, Inc. in the past 12 months. Fordham expects to receive or intends to seek investment banking business from the company in question within the next three months. Fordham does not market the securities of the company that is the subject of this report at the time of publication. Fordham does not beneficially own more than 1% or more of any class of common equity securities of the relevant company.