1. No category

INITIATING ANALYSIS 8 June 2015
Summary
CybAero
(cba.st)
List:
Market Cap:
Industry:
CEO:
Chairman:
Getting ready for take-off

CybAero develops and sells small remotely piloted aircraft
systems (“RPAS” or “UAV”) with vertical takeoff and landing
capabilities for military, civil service and commercial buyers.

The firm operates in a market segment that is growing
globally, and will further be accelerated once rules around
the commercial use of drones are improved.
First North
351 MSEK
Information Technology
Mikael Hult
Claes Drougge
OMXS 30

CybAero’s mid-term success is determined by the successful
delivery of its first two major orders, and the progress in
scaling up its sales, production and aftersales organization.

Estimated fair value lies at SEK 21.9 per share. This is not
adjusted for a potential future equity issue. Substantial
revenue growth during the next years is already priced in this
scenario, but we see a further upside if the firm executes on
its current breakthrough orders, manages to grow both sales
and its organization and the market unfolds as expected.
45
40
35
30
25
20
15
10
5
0
09-Jun
07-Sep
06-Dec
CybAero
06-Mar
04-Jun
Redeye Rating (0 – 10 points)
Management
Growth prospect
Ownership
5.0 points
6.0 points
Profitability
0.0 points
6.5 points
Financial strength
0.0 points
Key Financials
2013
24
2014
47
2015E
107
2016E
269
2017E
382
53%
92%
129%
151%
42%
EBITDA
-15
-22
-10
EBIT
-24
-34
-25
neg
1%
6%
Pre-tax earnings
Net earnings
-25
-25
-34
-34
-26
-26
0
0
23
23
Revenue, MSEK
Growth
EBITDA margin
neg
EBIT margin
neg
Net margin
2013
neg
2014
0.00
neg
neg
6.1
neg
2014
2015E
12%
3
24
0%
2016E
0.00
neg
neg
3.5
neg
48
9%
neg
2015E
0.00
neg
neg
8.7
neg
24
neg
neg
neg
2013
Dividend/Share
EPS adj.
P/E adj.
EV/S
EV/EBITDA
neg
2016E
19.0
18.5
351
20
Free float (%)
Daily turnover (’000)
100
71
6%
2017E
0.00
neg
neg
1.4
15.9
Share information
Share price (SEK)
Number of shares (m)
Market Cap (MSEK)
Net debt (MSEK)
2017E
0.00
1.23
15.5
1.0
7.9
Analysts:
Alexander Sattelmaier
[email protected]
Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report.
Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 Stockholm. Tel +46 8-545 013 30. E-post: [email protected]
CybAero
Redeye Rating: Background and definitions
The aim of a Redeye Rating is to help investors identify high-quality companies with attractive valuation.
Company Qualities
The aim of Company Qualities is to provide a well-structured and clear profile of a company’s qualities (or
operating risk) – its chances of surviving and its potential for achieving long-term stable profit growth.
We categorize a company’s qualities on a ten-point scale based on five valuation keys; 1 – Management, 2 –
Ownership, 3 – Growth Outlook, 4 – Profitability and 5 – Financial Strength.
Each valuation key is assessed based a number of quantitative and qualitative key factors that are weighted
differently according to how important they are deemed to be. Each key factor is allocated a number of points
based on its rating. The assessment of each valuation key is based on the total number of points for these
individual factors. The rating scale ranges from 0 to +10 points.
The overall rating for each valuation key is indicated by the size of the bar shown in the chart. The relative size of
the bars therefore reflects the rating distribution between the different valuation keys.
Management
Our Management rating represents an assessment of the ability of the board of directors and management to
manage the company in the best interests of the shareholders. A good board and management can make a
mediocre business concept profitable, while a poor board and management can even lead a strong company into
crisis. The factors used to assess a company’s management are: 1 – Execution, 2 – Capital allocation, 3 –
Communication, 4 – Experience, 5 – Leadership and 6 – Integrity.
Ownership
Our Ownership rating represents an assessment of the ownership exercised for longer-term value creation. Owner
commitment and expertise are key to a company’s stability and the board’s ability to take action. Companies with
a dispersed ownership structure without a clear controlling shareholder have historically performed worse than
the market index over time. The factors used to assess Ownership are: 1 – Ownership structure, 2 – Owner
commitment, 3 – Institutional ownership, 4 – Abuse of power, 5 – Reputation, and 6 – Financial sustainability.
Growth Outlook
Our Growth Outlook rating represents an assessment of a company’s potential to achieve long-term stable profit
growth. Over the long-term, the share price roughly mirrors the company’s earnings trend. A company that does
not grow may be a good short-term investment, but is usually unwise in the long term. The factors used to
assess Growth Outlook are: 1 – Strategies and business model, 2 – Sale potential, 3 – Market growth, 4 – Market
position, and 5 – Competitiveness.
Profitability
Our Profitability rating represents an assessment of how effective a company has historically utilised its capital to
generate profit. Companies cannot survive if they are not profitable. The assessment of how profitable a company
has been is based on a number of key ratios and criteria over a period of up to the past five years: 1 – Return on
total assets (ROA), 2 – Return on equity (ROE), 3 – Net profit margin, 4 – Free cash flow, and 5 – Operating
profit margin or EBIT.
Financial Strength
Our Financial Strength rating represents an assessment of a company’s ability to pay in the short and long term.
The core of a company’s financial strength is its balance sheet and cash flow. Even the greatest potential is of no
benefit unless the balance sheet can cope with funding growth. The assessment of a company’s financial strength
is based on a number of key ratios and criteria: 1 – Times-interest-coverage ratio, 2 – Debt-to-equity ratio, 3 –
Quick ratio, 4 – Current ratio, 5 – Sales turnover, 6 – Capital needs, 7 – Cyclicality, and 8 – Forthcoming binary
events.
Company analysis
2
CybAero
Table of Contents
Table of Contents ..................................................................................... 3
Glossary ................................................................................................... 5
Investment Case in Summary ................................................................... 6
Getting ready for take-off ........................................................................... 6
Major AVIC contract only the beginning of a journey ...................................... 6
Key catalysts............................................................................................. 7
Valuation .................................................................................................. 8
Company profile ....................................................................................... 9
Background............................................................................................... 9
Products and services ............................................................................... 10
Helicopters ........................................................................................... 10
Peripheral components – payload & operational systems ............................ 13
Aftersales and additional services............................................................ 14
Business model and sales ......................................................................... 14
The role of strategic partnerships ............................................................ 14
From helicopter platform to system & solution provider ............................. 15
Customer segments and the move to serial sales & production ................... 17
Team ..................................................................................................... 19
Management ........................................................................................ 19
Board of Directors ................................................................................. 20
Market opportunity ................................................................................. 21
Global RPAS market status & outlook ......................................................... 21
Need for general RPA systems in key segments ........................................ 22
Areas and drivers for VTOL adoption........................................................ 24
Key competitors ...................................................................................... 26
Product segments ................................................................................. 26
Direct competitors................................................................................. 27
Positioning & differentiation .................................................................... 29
Financial projections .............................................................................. 30
Understanding revenue recognition, orders and call-offs ............................... 30
Current customer orders ........................................................................... 31
Chinese customs agency ........................................................................ 32
AVIC ................................................................................................... 32
Swedish Navy ....................................................................................... 33
Future prospects...................................................................................... 34
US Department of State (DoS)................................................................ 34
UAE Armed Forces ................................................................................ 34
Indian Navy ......................................................................................... 35
Korean Navy ........................................................................................ 35
Predicting aftersales ................................................................................. 36
Company analysis
3
CybAero
Resulting revenue forecasts ...................................................................... 37
Margins and key costs .............................................................................. 38
Mid-term: Scaling up sales and production ............................................... 38
Long-term: sustained growth seems possible for several years ................... 40
Valuation ................................................................................................ 41
DCF ....................................................................................................... 41
Key value drivers and result ................................................................... 41
Sensitivity analysis ................................................................................ 43
Bear case ............................................................................................. 44
Bull case .............................................................................................. 45
Earnings and multiples comparison ............................................................ 46
Key risk factors ....................................................................................... 49
Summary Redeye Rating ........................................................................ 50
Rating changes in the report ..................................................................... 50
Company analysis
4
CybAero
Glossary
ASEAN
Association of Southeast Asian Nations
AVIC
Aviation Industry Corporation of China
bn
Billion
CBA
Ticker for CybAero AB
DCF
Discounted Cash Flow
DoS
Department of State
IR
Infrared
ISP
Swedish Inspectorate of Strategic Products
k
Thousand
m
Million
MALLS
Mobile automatic launch and landing station
MTOW
Maximum Takeoff Weight
R&D
Research & Development
Recon
Reconnaissance
RFI
Request for information
RFQ
Request for quotation
RFT
Request for tender
RPAS
Remotely Piloted Aircraft System, synonym to UAV
SEK
Swedish Krona; 1 SEK ~ 0.15 USD (2014 average)
UAE
United Arab Emirates
UAV
Unmanned Aerial Vehicle, synonym to RPAS
US
United States of America
USD
US Dollar
VTOL
Vertical Takeoff and Landing
YoY
Year-on-year (compared to previous year)
Company analysis
5
CybAero
Investment Case in Summary
Getting ready for take-off
Major AVIC contract
gives CybAero a good
base to grow upon
CybAero is at an interesting stage in its development. Winning the contract
with AVIC was the firm’s biggest, multi-year business so far and the final
confirmation that CybAero is on to something big. Previously, this could
already be seen by the profiles of its co-development partners, including
Saab, Spanish major defense systems provider Indra Sistemas or Cassidian
which was part of EADS at the time and now a subsidiary of Airbus. After
years of developing their RPAS systems on its own and together with these
partners, the contracts with AVIC and also the Chinese customs office are
CybAero’s basis for moving into the stage of serial sales and production.
This is a key step in the firm’s growth towards its visionary revenue goal of
around 200 mUSD in some years. While this figure sounds rather high, the
current market growth projections and the firm’s positioning compared to
the few competitors make it clear that there is significant growth potential
in the firm.
Major AVIC contract only the beginning of a journey
As for now, the contract with AVIC with its guaranteed revenue potential of
700-800 mSEK over the remaining 7 years gives the firm a perspective of
financial stability for the first time, even if the timing of future call-offs
from the contract is not plannable entirely. At the same time, this is only the
beginning of the journey. Besides seeing several other military and civil
service customers about to purchase RPAS systems in CybAero’s class, the
company currently faces several challenges ahead before it can capture the
market.
The firm faces several
challenges ahead – slow
decision making in the
market, ramping up its
organization and closing
the existing prospects
Firstly, the market itself is a rather complex and slow animal. In the
military and civil segments, the use of non-combat engaging VTOL systems
is still at an early stage compared to the use of combat or reconnaissance
drones with fixed wing architecture (similar to traditional airplanes). This is
partly due to the fact that decision-making processes for defense buying are
rather slow, partly since it is driven by strategic military and political
decisions. In addition, the commercial use of RPAS is at an even earlier
stage. While more and more firms are open to test the use of drones to
validate different potential benefit cases, one key issue remaining to be
solved is that of regulation. First countries like Japan or France have passed
improved regulations, while others including the US and the big part of the
EU are still lagging behind, creating uncertainty for potential commercial
clients to what extent they will be able to use RPAS.
Secondly, with market demand slowly catching on and the first major
contracts flowing in, CybAero as a company is facing the challenge to step
up its game. As with any growth company, CybAero will have to quickly
Company analysis
6
CybAero
evolve key processes such as especially sales, production and aftersales in
line with increased market potential. As this will both take time from
existing staff and management as well as require additional hiring, a key
challenge in to balance this growth and ramp up neither too slow nor too
quickly. If the firm is too slow in making these changes, it might have to
turn down potential sales opportunities or even get into quality issues with
the products it ships. Growing too quickly will increase the cost base
disproportionally and could lead to cash flow issues. At the same time, it
seems that this balancing problem is less pronounced than in more fastmoving industries, due to the aforementioned slow decision making
processes on the customer side. In addition, the management and especially
CEO Mikael Hult have experience from growth companies, meaning they
should be aware of the issue and capable to execute on it accordingly. One
positive signal for this is the recent release of an updated and also
rebranded product program. Now called APID ONE, CybAero is packaging
its helicopters and peripheral systems in a modular way towards its key
customer segments with three basic models. This is part of the firm’s
positioning as a solution provider, and aims at helping clients to more easily
find and configure a system matching their needs.
In addition to the contracts closed, the company seems to have several
prospective clients in the pipeline, especially in the civil and military
segments. Currently, demonstration flights and longer test projects with
individual prospects seem to be a key part in the sales process. This as well
as the recent launch of the new product program continue to require
significant investments into R&D and related costs. As of now, it can be
assumed that the outstanding receivable from the first major order (Chinese
customs agency) will be settled in late 2015. Given that the firm plans to
increase production and build both the demonstration systems for the
Swedish navy as well as a bigger number of systems for delivery to AVIC, a
minor financing round as well as a short-term loan are required to bridge a
cash flow gap during 2015 and 2016. If the call-offs and deliveries by AVIC
come in as expected during the next quarters, this should however not be a
long-term issue. Any additional contracts won will then further accelerate
the firm’s journey to profitability.
Finally, given the size of AVIC’s contract and its importance in terms of
both future orders, cash flow and prestige, this however also means it is a
risk for CybAero’s position and development if anything does not go
according to plan.
Key catalysts
We see several events that could impact the share price of CybAero in the
near- to mid-term future. These include the successful deliveries and
incoming customer payment for the systems to the Chinese customs agency
and the first 5 AVIC systems, the announcement of a second call-off order
from AVIC or the signing of additional medium or major sized orders. A key
Company analysis
7
CybAero
factor in the near-term is also the question of whether the firm chooses to
finance its remaining capital needs partly or fully with a new equity issue.
In the longer run, key drivers for the stock value will also be whether
CybAero’s target market grows as expected, when and to what extent the
regulatory situation in the commercial segment will improve, and how well
the firm can capture this opportunity (including which commercial
customers will chose a product like CybAero’s for their RPAS use cases, and
how the firm has managed to build up its sales and production capacities
until then).
Valuation
Given the situation and future dynamics described, we see a good potential
and position for CybAero in the market. At the same time, our valuation
indicates that a substantial growth of the firm is already priced in the stock
for now. Our fair value base case at SEK 21.9 per share is only 15% from the
current price of SEK 19 (June 5), and we have not adjusted for a potential
equity issue to finance any capital need during the coming quarters. Given
such a financing, we see a fair value share price of around SEK 20 per share.
There is however still a significant upside possible in the mid-term - if the
firm manages to deliver on the existing expectations and additionally closes
and executes on a number of bigger contracts, especially in the size class of
AVIC, in the coming 2-3 years. This is indicated by our bull case fair value
of SEK 41.6, which is a 119% premium over the last stock price.
Our fair value bear case gives an idea of the potential downside risk still
inherent in the firm. It lies at SEK 8.3 with a 56% discount compared to the
last stock price, and is the result of a reasonably negative scenario where the
firm does not close any major contracts apart from the one with AVIC
during the next years.
Company analysis
8
CybAero
Company profile
Background
Development of RPAS
started 1992, major
companies involved as
cooperation partners over
time
Having its roots in R&D projects at Linköping Technical University starting
1992, a company called Scandicraft was founded in 1997 in order to start
the commercialization of the autonomously flying and remotely piloted
helicopter developed. After years of demonstration flights and dialogues
with key potential customer groups, CybAero was founded in 2003 to
continue what Scandicraft started. Shortly after, the United Arab Emirates
(UAE) Armed Forces placed the first order of 6 helicopter systems. The
customer already had a contract with main competitor Schiebel, but due to
several reasons chose to find a second source supplier.
Scandicraft APID Mk3 prototype and APID 55. Source: helis.com / Scandicraft AB, CybAero
This contract however required continued, substantial R&D effort, resulting
in a cooperation with Saab AB on certain technical solutions. An era of
different partnership discussions, executions and cancellations followed,
lasting until around 2013. During this time, CybAero has been in
partnerships with Saab AB, Spanish Indra Sistemas, French-based
Cassidian (part of Airbus) and US-based AeroVironment, in addition to
numerous discussions or shorter collaborations with other relevant players.
In the meantime, the firm also sold the rights to its APID 55 helicopter to
Saab in 2005 and released its own new system APID 60 in 2009. This phase
can be somewhat seen as an orientation and development phase, both in
terms of R&D on the product as well as the market. It helped the firm to
identify its future customer segments, understand their needs or even
educate them about the potential with VTOL UAVs. In addition, especially
the partnerships with established players in the defense sector helped the
firm to get access to the market and gain credibility as a future systems
provider. This is an important aspect when selling to buyers in the defense
or civil services area, which is further exemplified by the military
backgrounds of several members of the board. Over the time, CybAero also
established subsidiaries in both the UAE and US to get closer contact to its
prospective customers, but both locations have been closed again later. This
Company analysis
9
CybAero
was due to a pausing of the previous contract in the case of the UAE, and
the initiation of a partnership with AeroVironment in the case of the US.
2014 marked the real
start of commercialization
and saw the firm grow
significantly
In 2014, CybAero took the next steps towards a broader commercialization
of its products. Firstly, it closed two contracts with customers in China –
with the Chinese customs agency ordering 3 systems, and AVIC, a defense
and civil services systems provider, signing a frame agreement over a
minimum of 70 systems over a span of 8 years. Secondly, the launch of the
new product program APID ONE initiated an effort to position the firm as a
solution provider and is in line with the buildup of serial processes in
marketing, sales and production.
CybAero was listed on NASDAQ OMX First North in 2007. It is
headquartered in Linköping, Sweden, which is branding itself as the
“Aviation Capital of Sweden”1. Today, CybAero has around 50 employees
and collaborations with major international players especially in the
defense and civil services supplier segments.
Products and services
CybAero’s product
offering consists of 3
components: helicopter,
peripherals and aftersales
& additional services
CybAero’s product offering consists of three main component groups: the
helicopters itself, peripheral components like payload and operational
systems, and finally aftersales services. Each group will be introduced in
detail in the following sections. For an understanding of the customer
benefits and challenges of the use of VTOL RPAS systems as well as the
competitive advantages of CybAero’s products, refer to the next chapter
“Market opportunity”.
Helicopters
The key component in CybAero’s systems is a remotely piloted helicopter, a
so-called VTOL UAV or VTOL RPAS. The company’s new product program
APID ONE features 3 different helicopters, which are however based on the
same technical platform. This platform is not a complete redesign, but a
significant advancement from the previous helicopter model APID 60.
While the chassis may have different paintjobs and slightly different cuts,
all are the same size, which is comparable to (though 40 cm slimmer than) a
Toyota Aygo. This means that a system consisting of a helicopter and the
relevant peripheral components can be transported with a small-sized
transporter or truck. The frame and chassis are made from carbon fiber,
titanium and aluminum.
1
http://flyghuvudstaden.se/en/
Company analysis
10
CybAero
Previous model APID 60 being shipped for a testing mission. Source: CybAero
All versions feature a rotary (“wankel”) engine with 55 horsepower that can
be supplied in two versions, running either on gasoline or jet fuel with
otherwise identical specifications. The shared and specific technical
features of the helicopters are summarized below. The key differences
between the systems are their takeoff weights (MTOW) as well as the
different peripheral systems that come with it or can be ordered
additionally. An overview of these is provided in the next section.
Company analysis
11
CybAero
Product program APID ONE: overview technical data
Model
Design
Typical buyers
Typical use cases
Rescue
Ranger
Civil service organizations
Civil service or commercial
organizations
Reconnaissance (recon) or
Surveillance and recon,
surveillance during
pipeline inspection, forest &
accidents, catastrophes,
wildlife inventory, traffic
person searches or similar
control
Length
Height
Width
Rotor diameter
Motor
Fuel
320
130
120
330
Military organizations
Surveillance and recon,
object protection,
communications
interference, maritime
operations
cm
cm
cm
cm
Rotary ("wankel") engine, 55 horsepower
Gasoline or Jet A1 fuel depending on customer choice
Operation time
Operation radius
MTOW
Defence
Up to 6 hours
50 to 200 km depending on configuration
200 kg
180 kg
220 kg
So urce: Redeye Research, CybA ero
The APID ONE helicopters are operated by customers in two modes:
autonomous, where the full flight path from start to landing is preprogrammed and controlled using satellite navigation, and semiautonomous, where the system is automatically kept stable but an operator
controls the helicopter manually through joystick, map and for example an
attached camera.
CybAero has developed the helicopter models primarily on its own, but at
the same time tries to maximize the use of standard components and
produces almost no parts itself. For components which cannot be sourced
through suppliers’ standard catalogues, the majority is produced by
subcontractors. This allows both for a leaner manufacturing process and
inventory, with CybAero buying all key parts from suppliers and focusing
only on the final assembly, configuration and testing. In addition, this also
lowers complexity and cost in maintenance for both CybAero and its
customers.
Production and testing is done at the company’s headquarters in Linköping,
with an additional test center being put into operation during Q2 2015
around 1km from the headquarters.
Company analysis
12
CybAero
Peripheral components – payload & operational systems
Peripherals include
payload (cameras and
other sensors) as well as
operating equipment
(ground stations, mobile
landing systems)
The helicopter itself is ultimately only a means to an end for CybAero’s
customers – the real value lies in its use combined with certain peripheral
components. This can be divided into additional equipment which is
mounted on the helicopter, referred to as payload, and such equipment that
is needed to operate the overall systems.
The first category contains sensors of different kinds, including cameras,
sonar systems, distance measurement lasers or radio interference
transmitters. These are produced by third party suppliers and CybAero
works with its clients to integrate the different components into the overall
system. In the new product program APID ONE, the three helicopter
models described earlier feature different standard configurations where
CybAero has selected and integrated certain components already. This can
however be enhanced with a range of other optional peripheral
components. In addition, CybAero will also work with its customers to
fulfill any more specific needs apart from these predefined standard and
optional configurations, in order to adapt the system to the individual
buyers’ needs.
The second category of peripherals, needed to operate the helicopter
systems, includes a smaller mobile as well as a stationary ground station
from where the operator controls the aircraft. Based on the desired use
case, the customers can chose which of those to buy and to use. In addition
to the choice of ground station, customers can also choose between a shortand a long-range communication link, which determines the operation
radius of the system.
Another key component in this is also a marine configuration, including a
special system facilitating fully or semi-automatic starting and landing from
moving objects such as vessels. The system consists of three components:
one to guide the helicopter in the early stages of the approach into the right
position several meters above the vessel; an additional system to manage an
automatized landing itself, and then a device that secures the helicopter on
the vessel’s surface once it has landed.
The first component, to guide the aircraft into a stable position some meters
over the vessel, is a third party solution licensed from Astrium (now part of
Airbus). It was developed with input from CybAero and on the side of
CybAero integrated into their mobile landing system for the APID systems.
The second component is rather complex and still under development by
CybAero. Once finished, it will allow to fully automate the final meters until
a landing on the vessel’s surface. As for now, this still needs to be handled
by an operator. The third component is a device that resembles an anchor
and secures the helicopter on the vessel’s landing area once it has landed.
This component is already in use and standardized by military
organizations globally. With these 3 components, the marine configuration
Company analysis
13
CybAero
allows for secure takeoff and landing from vessels, and is a rather complex
and therefore expensive component in an overall helicopter system
solution.
Aftersales and additional services
In addition to the provision of the helicopter and peripheral systems,
CybAero also provides certain services upon delivery. One key aspect in this
is a series of configuration and testing flights. This not only ensures the
proper functioning of the equipment, but is also part of the handover to the
client, ensuring their requirements have been met as defined in the
contract. Furthermore, this includes a phase of training of key staff on the
customer side regarding the use of the system. Normally, these activities are
part of the initial sales contract and pricing.
Aftersales are likely to
create stable recurring
revenue streams up to
20% of initial sales price
In the initial sales contracts, CybAero also includes a warranty which
normally lasts around 1 year or 500 operating hours, the latter
corresponding to around 100-300 flights, depending on individual mission
times. Warranty times have not been standardized yet and therefore vary
from contract to contract. After this factory warranty, CybAero expects a
relatively steady need for both maintenance services as well as
replacements parts. Aircraft regulations in most countries require a very
regular inspection and even replacement of key parts in the system, and a
variety of components is also subject to wear and tear. As a result, CybAero
expects the yearly revenue potential from aftersales operations to up to 20%
of the initial system cost. The lifetime of a system is expected at around 10
to 15 years.
Business model and sales
The role of strategic partnerships
Partnerships have played
a key role in R&D as well
as establishing contact
with prospective
customers
As mentioned before, partnerships with a number of players mainly in the
global defense supplier industry have been drivers for CybAero’s
development in the past. Saab for example was an early development
partner for the APID 55 system, which was the basis for the APID 60 and
the current APID ONE product range. MALLS, a system for automated
takeoff and landing from moving objects such as ships, has been developed
in cooperation with European Aircraft manufacturer Airbus. Such
partnerships support CybAero’s R&D process due to access to resources and
the network of these established industry players, thereby also reducing
cost compared to complete in-house development. Such collaborations spill
however also over on the sales process. Having its products co-developed
with such major firms provides a relatively small and young company like
CybAero with credibility, an important aspect when it comes to selling to
especially military and civil service organizations. On the other side,
engaging in such partnerships also bears the risk of creating future
competitors. This has been the case with Saab, who got the product and
sales rights to CybAero’s APID 55 helicopter in exchange for R&D
Company analysis
14
CybAero
cooperation in 2005 and now sells the system as a UAV solution to military
clients on its own. In that specific case, it is however noteworthy that the
system does not seem to have been development further significantly, and is
likely part of bigger solution package sales of Saab, which goes in line with a
much higher price tag according CybAero’s management.
Apart from some existing and paused co-development partnerships, the
most significant partnership remaining in place for CybAero today is that
with AeroVironment. The US-based firm is the biggest provider of UAV
solutions to the US military, having supplied about 85% of the US armed
forces’ total UAV fleet by 2011. AeroVironment therefore has an essential
contact base with this customer segment that could be a significant market
for CybAero in the future. The firms have a sales partnership agreement
regarding CybAero’s helicopter systems, where the first major sales
prospect is the US Department of State. They had written a tender for the
sourcing of a significant number of UAV systems, either fixed wing or
VTOL, but canceled the tender mid-2013 since none of the bidding
suppliers seemed to fulfill the necessary requirements. A renewal of the
tender is still expected in the future. CybAero’s partnership with
AeroVironment however covers more than that. The US firm will sell
CybAero’s systems as part of their offering towards military, civil services
and private clients in the US and other NATO countries. In addition,
AeroVironment has contributed to CybAero’s funding during 2012 with two
convertible loans of 10 mSEK each, which they converted during 2014.
Similar as for R&D partnerships, such sales partnerships should be positive
for CybAero if the partner has a good contact network with relevant client
segments, as well as a better understanding of the sales processes in the
individual country. On the downside, selling through partners obviously
results in lower net revenues for CybAero, since the partners take a cut of
around 10 to 15%.
From helicopter platform to system & solution provider
CybAero’s first sales were mostly payments from cooperation partners for
testing systems or services. The first contracts, for example with the
Chinese customs agency, contained the sale of the helicopter itself with an
individual configuration of peripheral components worked out in pre-sales
discussions with the customer. With the introduction of the new product
series APID ONE, CybAero aims to standardize its sales model by
introducing the pre-configured systems described earlier, which may then
be further adapted to customers’ needs.
APID ONE product range
as a base for broad
commercialization
The underlying business model is however still based on an initial purchase
price for the helicopter, the chosen peripheral components, initial training
as well as testing and delivery of the systems. The initial revenue for such a
contract can lie between 8 and 25 mSEK (1 to 3 mUSD), strongly depending
on the configuration chosen. Systems for military use and more complex
components like an automated landing system or a stationary base station
Company analysis
15
CybAero
are the most expensive components, apart from the helicopter itself.
Additional pricing details are not known to avoid sharing too much with
competitors and maintain some flexibility in pricing towards different
customer segments.
As described earlier, sales can be supported through partners and
distributors in various steps of the process, depending on the type of
customer as well as the geographic market. The use of partners and
distributors in sales typically reduces net sales for CybAero by 10-15%. It is
noteworthy that the exact business model and processes for the aftersales
market are currently being designed. CybAero expects the aftersales
revenue potential to lie at up to 20% of the initial systems sales price per
year, which is relatively high but explained by the factors mentioned in the
product description section. The final setup of the aftersales value chain,
including the decision how much to handle via partners and distributors,
will determine what proportion of this revenue potential the company will
be able to capture. Given an expected lifetime of these UAV systems of
around 10 to 15 years and the significant size of aftersales revenues, it will
however be in the interest of CybAero to capture a reasonably big part, since
this generates a stream of recurring revenues over time and ensures a
continued close client relationship.
Business model and role of suppliers & partners
Process
Suppliers
CybAero
Partners &
distributors
PRODUCTION
Helicopter
Parts
Concept, design
Configuration, systems integration, assembly
Assembly
Testing
Base station & related
Production
Systems integration, testing
Payload equipment
Production
Systems integration, testing
SALES
Awareness
Pre-sales
Tender / offer
Delivery
AFTERSALES
depends
depends
tbc
So urce: Redeye Research, CybA ero
tbc = to be co nfirmed as pro cesses will evo lve o ver time
Company analysis
16
tbc
depends
depends
depends
depends
tbc
CybAero
Customer segments and the move to serial sales & production
CybAero has 3 key
customer segments, of
which only two are truly
addressable as of today
As seen from the product program earlier, CybAero’s sales are directed
towards three main customer segments: military, civil service and
commercial organizations. Buyers in the category military organizations
could be for example defense ministries as well as individual divisions like
marine or army corps. Civil service buyers may include coastal guard,
border patrols and their related mother organizations. The commercial
segment are private sector customers.
As of today, the commercial market for drones in general is at a very early
stage. With increased popularity of miniature and even consumer-oriented
drones in recent years, the discussion around regulation have gotten
increased public attention. At the same time, regulatory limits or unclear
rules regarding the use of unmanned aircraft in civil airspace are however
still a key limiting factor for the growth of this market. Given this limitation,
many commercial organizations have not started to analyze or even test the
potential use cases of drones in their business yet. Only a few exceptions to
this have surfaced in recent years, such as Amazon, Google or several bigger
delivery services experimenting with drone-based package delivery, for
example. Other cases more relevant for CybAero include test projects
regarding the surveillance of longer stretches of gas pipelines or bigger
wildlife areas, which are however limited to individual projects so far.
Sales process towards military & civil service organizations
Phase
Create
awareness
Duration
Ongoing
6-24 months
6-12 months
Key aspects
Educate future
buyers about use
cases
Help client to
formulate need
and get budget
Match customer
Get export
Deliver in time
requirements with clearance from ISP direct or via
offer
partners
Create interest &
awareness for
CybAero
Introduce CybAero Respond with
Deliver according
system and key
competitive pricing to specification
benefits
and in time
Pre-sales
discussions
Tender / offer
process & order
Delivery
~6 months
Aftersales
Ongoing
Meet warranty
obligations during
relevant time
period
Receive order and Receive final
downpayment
payment
Key activities
Represent CybAero Direct meetings
on trade fairs
discussing use
cases and
solutions
Direct meetings to Production,
discuss offer and factory &
any questions
acceptance tests
delivery,
configuration &
final test flights
Execution of
maintenance
during warranty
period
Assess & monitor
interest across
potential buyers
Demonstration
flights
Demonstration
flights
Provision of
replacement parts
Demonstration
flights
Reply to RFI
Reply to RFP/T or
RFQ
Provide training
(direct or via
partner)
So urce: Redeye Research, CybA ero
RFI = Request fo r info rmatio n: a po tential custo mer reaches o ut to a base o f suppliers, requesting info rmatio n to understand what they can o ffer
RFP /T = Request fo r pro po sal o r tender: a custo mer has preliminary decided to buy a system to fulfill a need, but leaves the final co nfiguratio n o f the so lutio n up to the seller
RFQ = Request fo r quo tatio n: like an RFT, but the pro duct is mo re standardized o r the desired, specific co nfiguratio n already kno wn, so the fo cus is mo re o n price.
Company analysis
17
CybAero
It is therefore hard to really describe a sales process for the commercial
customer segment. Based on past experience, it is however possible to draw
a picture of the process for military and civil customers. An overview of the
process is illustrated below:
The sourcing of such equipment as RPAS systems is driven by both political
and military decisions, often on a strategic level. This could include aspects
such as which countries a buyer wants to source such systems from, but also
from the side of Swedish authorities which countries and customer types a
company like CybAero should be allowed to sell its products to. As a result,
the sales process is not really too linear and standardized across different
customers, and can range from something like 6 months if a buyer has
already identified a specific need for a UAV system and written a detailed
specification for it, up to several years if this is not the case or if the use case
is very special and requires additional configuration and testing of the
system.
The firm’s organization –
including sales and
production processes – is
evolving with its
commercial success
At the same time, it needs to be noted that CybAero’s sales process is also
still evolving as part of the growth in the company’s organization. Today,
sales are structured around both customers, partners and customer
segments. Regarding outgoing sales, CybAero is mostly active by
participating at relevant global trade fairs (air shows, defense & security,
other UAV related) and conducting demonstration flights for selected
customer groups, for example in collaboration with its Chinese customer
AVIC. Another important aspect in prospecting future customers especially
in the defense and civil services segment is to keep an eye on the
discussions around the sourcing of UAVs in different countries’
governments. The company however only has a small proportion of own
direct sales efforts. Instead, many contacts are inbound, meaning they are
initiated from the side of the customers or through one of CybAero’s local
agents and partners around the globe.
Also CybAero’s production and delivery capacities are just starting to be
scaled up, as mentioned earlier in an attempt to grow the organization in
line with winning new orders. With the new testing center put in service
and an extension of the production floor in place, CybAero’s production
capacity will double to around 2 to 3 helicopters per month by August 2015.
At the same time, the team has its schedules filled by the delivery of 3 units
to the Chinese customs agency during Q2 and Q3 and 5 units to AVIC also
in China during fall 2015, added by further test and demo flights in China,
Sweden and elsewhere. More details on the production capacity, as well as
current sales prospects and ongoing projects of the firm can be found in the
financial forecasts chapter.
Future sales to commercial customers are expected to be shorter and less
complex in terms of tender and similar official processes, but as said it is
hard to anticipate the exact duration and process as of today. It is however
Company analysis
18
CybAero
likely that it takes several years for this customer segment to get a full
understanding of and validate the different use cases of RPAS technology in
their specific businesses, even after the regulatory questions have been
solved.
Team
Management
CybAero’s management
has seen some recent
additions and seems now
geared for scaling up the
organization
CybAero’s leadership team consists of five roles – CEO, CFO, COO (Chief
Operating Officer), CPO (Chief Process Officer) and Head of HR.
Mikael Hult is CEO of the firm since 2013, after serving 3 years as
Chairman of the Board at CybAero. Even before that, from 2004 through
2010, he had already been in the CEO role. Before and during his time at
CybAero, Mikael has worked in different roles with startup and growth
companies. Most of the organizations he worked with had an engineering
focus, including Instrutec, PS Presentation System and Surgvision AB but
also business incubators and seed capital investment organizations such as
Teknikbrostiftelsen, Innovationsbron and Mjärdevi Business Incubator.
Anna-Lena Rahm joined CybAero as CFO in fall 2013. Before that, she
was CFO at Innovativ Vision AB, a company providing technology to the
wood industry, for more than 10 years, collecting experience with project
accounting.
Rolf Schytt joined the company in April 2014 as COO and deputy CEO.
His previous roles include thirteen years as CEO and in other positions at
different production-focused firms like STIGA, Expander, Animex and
Motalaverken.
Thomas Hall joined CybAero in June 2014 in the CPO role, like AnnaLena Rahm coming from Innovativ Vision. Previous experience includes
roles within process-, project- and quality management, software
development, product improvement and technical sales.
Malin Höög joined the company in January 2015 as Head of HR. Before
CybAero she worked for IUC Öst in roles such as project- and
administrative manager in professional development and training. She also
has experience from leading positions within the IKEA Group and within
HR from Stadium AB.
Based on their industry experience and previous roles, we see positive on
the mix of profiles in the management team. All five have been almost
exclusively working with production-related companies, and in roles
directly relevant to their position at CybAero today. Mikael Hult and deputy
CEO Rolf Schytt also have experience from fast growing and/or bigger
Company analysis
19
CybAero
companies, which will likely be critical when it comes to growing CybAero,
its organization and processes over the next time.
Board of Directors
Apart from CEO Mikael Hult, the company’s board contains 6 other
members as of May 2015. The detailed profiles can be read in the firm’s
annual report and on its website. What is important to see is that all
members have been in the board during several years, including the latest
member who joined the board in April 2015, but had been working as a
consultant for CybAero since 2014.
The firm’s board features
a strong mix of relevant
backgrounds, but with a
special focus on military
and related organizations
The board members have a mix of relevant backgrounds, with several
underlying themes. Firstly, Mats Westin, Göran Larsbrink and Jan Ahlgren
have worked in relevant positions with the Swedish military and related
public organizations or military suppliers. This is an important addition
given the importance of the military and civil services segments, and can
help CybAero to better understand and access this customer base. Secondly,
the other four board members have extensive practical and academic
experience with growth companies. A good example for this is the latest
new board member Mats Jacobson, who works as a consultant specialized
in fast growing companies. He was previously CEO for Scalado, a software
company that doubled its turnover 7 years in a row before being sold to
Nokia. Given the challenges ahead of the firm in the coming years to scale
up their organization and processes around product management,
production and sales for example, this is a further critical skill set to have
on board.
The board of directors therefore features a good combination of the relevant
skill sets. While none of the major shareholders are represented in the
board, this team has the right background to help the firm develop during
the upcoming exciting quarters and maybe years. That said, depending on
the future development of both ownership in the firm as well as market
traction around the commercial segment, the composition of the board
might evolve over time as well. One weakness we see is the lack of one or
several active majority shareholders, who would also have a board seat.
Biggest shareholders as of 2015-03-31
Person / entity
Avanza Pension
Boston State Street Bank & Trust Com.
Aerovironment Inc
Lars Svensson
Swedbank Robur Fonder
Amer Al-Khalili
Goldman Sachs International LTD
Nordnet Pensionsförsäkring
Mikael Hult
Henrik Lewander
So urce: Ho ldings.se, Redeye Research
Company analysis
20
% capital
9.2%
5.6%
3.9%
3.0%
2.7%
2.5%
2.4%
2.3%
2.1%
1.4%
Country
SE
USA
USA
SE
SE
SE
UK
SE
SE
SE
CybAero
Management and board ownership in the firms is rather uneven, but some
key persons own significant stakes in the firm. We see it as positive that
both the CEO as well as three of the board members have personally
significant stakes in the firm. At the same time, looking at the fixed
remuneration, it is surprising to see that both CEO and Chairman are paid
via invoice. This is not the most transparent approach, but it has historically
evolved and there is no indication for extremely inappropriate fixed
remunerations.
Management & board stock ownership as of 2015-03-24
Name
Mikael Hult
Anna-Lena Rahm
Rolf Schytt
Thomas Hall
Sum management
Role
CEO
CFO
COO
CPO
% capital
2.27%
0.02%
0.01%
0.00%
2.30%
Claes Drougge
Chairman
Mats Westin
Board member
Göran Larsbrink
Board member
Jan Ahlgren
Board member
Anna Öhrwall-Rönnbäck Board member
Mats Jacobson
Board member
Sum board excl. Mikael Hult
0.13%
0.23%
0.12%
0.03%
0.00%
0.00%
0.52%
kSEK % options
8,338
0.16%
80
0.16%
50
0.16%
0
0.08%
0.57%
486
849
457
107
1
0
0.16%
0.08%
0.08%
0.08%
0.08%
0.00%
0.49%
So urce: Redeye Research, CybA ero , Ho ldings.se
Market opportunity
Global RPAS market status & outlook
The concept of unmanned aircraft has been around for over two decades,
and is therefore not new as such. But it is only in recent years that the
former R&D projects and prototypes have evolved into systems that can be
used at scale. So-called UAVs or RPAS are available in more and more
variations, sizes and configurations. They can be fixed-wing (like traditional
airplanes) or rotary systems (like helicopters), capable of horizontal and/or
vertical take-off and landing, weighing a couple of grams up to over a ton
and controlled through apps, small joystick controllers, bigger ground
stations or even completely autonomously flying based on a route predefined on a map. Just as diverse as these configurations are also the use
cases and payloads which can be thought of. This explains the fact that
there is an increasing number of different customer segments who have
already adopted RPAS, while many other areas and use cases have not been
realized so far.
Company analysis
21
CybAero
Need for general RPA systems in key segments
CybAero’s three target
customer segments –
military, civil service and
commercial - can clearly
benefit from RPAS
Compared to manned aircraft, RPA systems have the key advantage of not
being dependent on one or several humans having to operate the system
onboard. While this most obviously reduces the risk of human casualties in
case of crashes and similar situations, it also allows the systems to be
constructed to a much smaller size. This in turn reduces the unit and
operating cost including fuel, transportation and maintenance. In addition,
new use cases are opened, with the units for example being easier to
camouflage, having a potentially longer mission time and range and being
able operate them in harsher conditions compared to aircraft with humans
on board. More general benefits and use cases of RPAS are discussed
individually for the key customer segments below.
Military: The most significant customer segment for UAVs so far have
been military customers. Driven by well-known buyers such as the United
States armed forces, who have attracted a lot of media attention for their
“drone wars” during the last years, military organizations around the world
have increased their use of RPAS. But apart from their use in combat
missions with weaponry as payload, many systems are also used in other
use cases. Most frequently, this includes reconnaissance missions to analyze
wide territories in an efficient way, or using UAVs for the surveillance and
to ensure security of areas, buildings or for example convoys of land and
marine vessels. But also other, more specialized missions can be conducted
efficiently by UAVs, such as using them as extenders or interferers for
communication networks. For these use cases, a wide range of payloads
such as cameras, communication equipment and different sensors are
mounted to the RPAS.
Civil service: Following the adoption in the military sector and seeing the
relevant use cases there, different groups within civil services also started to
see the potential benefits of using UAVs in their operations. Some groups,
such as coast guard or border protection units as well as rescue services,
had previous experience of using especially helicopter systems in their
work. At the same time, many others such as firefighters might have used
UAVs to a lesser extent and now see additional potential use cases possible
compared to the use of full-sized and manned systems. The first areas for
which RPAS are tested and used in this customer segment include routine
surveillance of bigger sea or coastal areas as well as reconnaissance
missions during accidents, catastrophes or person searches. This customer
segment does not yet have the same routine in buying and using RPAS as
the military segment, so more interest from them is expected in the future.
Commercial: This is the customer group which as of today has the
smallest adoption ratio and at the same time a possibly huge usage
potential for UAVs. Several subgroups in this segment have started to
experiment especially with micro & gadget as well as small-sized UAVs for
an increasing number of use cases during recent years. These include film
Company analysis
22
CybAero
production, agriculture, wildlife protection, inspection of pipelines and
power networks as well as shipping packages. Their tests of various types of
RPAS for different use cases have often gone along with significant media
coverage, which also holds for frequent coverage about numerous new
manufacturers of especially micro & gadget sized “drones”.
The commercial segment
is still at a very early
stage – both regulation
and unexplored use cases
for RPAS are holding back
growth for now
A key aspect in these public discussions is often regulation, which is still a
critical limiting factor for a more widespread testing and adoption of RPAS
in the commercial market segment. This is a rather complex issue,
comprising discussions around privacy in areas surveilled by UAVs,
insurance coverage and responsibility in case of accidents as well as more
technical challenges with integrating UAVs into existing civil airspace
operations infrastructure. Several countries including Japan and France
have allowed the commercial use of UAVs in certain use cases and weight
classes, often requiring the operators to be certified. As a result, these
countries have seen a significant increase in the interest from commercial
players in the years after the regulation was implemented. Other countries,
including the US, have not been as progressive and therefore faced criticism
from companies like Amazon and others, who moved their test operations
for UAVs to other countries as a result. Also the European Union is rather
slow to define and implement a broader set of rules regarding the
commercial use of drones. They however communicated in a specific RPAS
roadmap that they want to start integrating such systems into the
commercial airspace from 2016 onwards.
Specific challenges for CybAero in the context of regulation are both the size
class and operating radius of their systems. One discussion point in EU
regulation is for example whether the European or rather the national
airspace security bodies are responsible for aircraft with an MTOW over 150
kg, which includes CybAero’s. In addition, the rules for systems that are
operated outside the direct line of sight of the operator are more complex
and strict compared to those for smaller systems such as consumer drones
that are often operated only within the direct sight of the pilot. At the same
time, it should be noted that regulation is not the only challenge, since the
different customer groups also need time to constantly identify and test new
use cases for RPAS before they adopt them on a broader scale.
As a result of the aforementioned benefits and potential use cases of RPAS,
experts see a bright future in this market. Teal Group, a leading research
provider specialized in the aerospace and defense industry, forecasts a
doubling of the global market for RPAS between 2014 and 2024. This
comprises an increase from around 6.5 bnUSD to almost 13 bnUSD, or an
average growth rate of around 7% per year. Most notably, they expect the
commercial market for RPAS to grow from almost nothing in 2013 to more
than 3 bnUSD, compared to an expected absolute growth of the defense
segment of around 4 bnUSD.
Company analysis
23
CybAero
Source: Teal Group, BI Intelligence, Michael Toscano, 2014
The Aerospace Industries Association estimated in its 2013 report on UAVs
that only around 14% of a total of 1.500 UAV types produced in 2012 were
procured for civil use. At the same time, they also confirm the significant
potential in the commercial segment for the future. This is further
confirmed by a 2014 report from the European Commission, which
reported a rapid increase in the number of licensed (commercial) UAV
operators in France after the passing of regulation easing the use of UAVs
below 25 kg MTOW in civil airspace.
Areas and drivers for VTOL adoption
VTOL RPAS are one product type in the overall market, who are currently
much less sold and used compared to aircraft which start and land
traditionally (horizontally), and which are normally fixed wing. It needs to
be noted that this classification is not perfectly correct, since also some
fixed wing aircraft, both manned and unmanned, have VTOL capabilities,
for example by rotating their engines. The majority of VTOL aircraft are
however rotary wing based, similar to traditional helicopters. There are no
specific numbers or forecasts available about how high the share of VTOL
RPAS is compared to the overall number of systems developed or sold
today. Most market analyses are focused more around weight and size
classes, military versus commercial use as well as geographic markets
rather than type of product or specific use cases by the end users.
Market analysts Teal Group estimate that the market demand for marine
UAV applications will grow significantly during the five years or so, from
around 50 mUSD up to over 500 mUSD globally.
Company analysis
24
CybAero
Source: Teal Group, CybAero, 2011
Given the fact that VTOL RPAS are the best and almost only feasible
alternative for marine use, the majority of this growth is expected to be in
the VTOL product segment. As with the overall UAV market, there are
therefore high expectations regarding a significant market growth in the
coming years. The big question is then which type of product and supplier
will be most successful in capturing this market growth. This will be
discussed in more detail in the next section.
VTOL systems feature
several unique benefits
compared to traditional
systems with horizontal
takeoff and landing
Apart from the numbers, it is however clear that VTOL systems have a
number of unique characteristics which make them more suitable and
attractive for various customer groups. One key advantage is that such
systems can be stationary in the air or fly slowly. Fixed wing aircraft – even
those with VTOL capabilities – cannot do this to the same extent due to
their technical construction, since they will lose uplift if they fly too slowly.
In addition, VTOL systems can land on much smaller and unstable surfaces,
such as moving vehicles or ships. Miniature versions of VTOL UAV can even
be launched from and landed on a person’s hand. These unique benefits
make VTOL systems attractive for use cases such as marine operations as
well as surveillance and security tasks of specific areas and objects which
might be stationary. One key customer group for VTOL systems are
therefore again military organizations. Specifically, such systems will likely
be used for reconnaissance and surveillance missions from ships, surveying
for example coastal areas or the area around a convoy of ships for other
military ships, submarines or pirate activity. Such security missions around
convoys are also a relevant use case on land, as well as the surveying of
areas around key strategic landmarks and military camps for example.
Company analysis
25
CybAero
Regarding civil service and commercial use, there a number of potential
similar use cases. They include the surveillance of large land areas to
inspect for example wildlife, pipelines or agricultural surfaces. VTOL UAVs
can even fly such missions in difficult conditions such as reduced visibility
due to heavy rain, fog, smoke or snow.
Key competitors
Product segments
In the three customer segments in focus for the company, competition and
substitutes for CybAero’s products can best be divided by the weight class
they play in. This is illustrated in the table below, together with names of
key players in each class.
Product classes and peers / competition
Segment
MTOW
Key peers & competitors
Big
> 1,000 kg
Bell
Airbus (ex-EADS)
Boeing
Northrop Grumman
Lockheed Martin
Medium
250 - 1,000 kg
Bell
EADS
Boeing
Small
50 – 250 kg
CybAero
Schiebel
Saab (CybAero’s APID55)
Indra Sistemas (CybAero’s APID60)
UMS Group (earlier Swiss UAV)
IAI (Fixed wing VTOL)
Advanced UAV Technology / AUAVT
BVE (China)
R&D stage: EADS Sharc / RWTH Aachen
Micro & Gadget
< 50 kg
IAI
UAV Solutions
DJI
Intuitive Aerial
Prox Dynamics
Delta Drone
Numerous others
So urce: Redeye Research, CybA ero
M TOW = M aximum takeo ff weight
CybAero today has a
limited number of direct
competitors in its product
segment
Only the majority of players named in the category of small UAVs are direct
competitors to the company’s products today. The developments of the
companies in the other segments can however still be of interest since they
can indicate and contribute to underlying trends in the market relevant to
CybAero, such as increased usage of VTOL systems or a change in
regulatory conditions. Out of the direct competitors, Schiebel (AT), Saab
(SE), Indra Sistemas (ES), UMS Group (CH) as well as several Chinese
companies seem currently most relevant. Interesting to see is that both
Saab’s Skeldar and Indra Sistemas Pelicano are essentially selling CybAero’s
Company analysis
26
CybAero
systems, Skeldar being a highly modified APID 55 and Pelicano an APID 60
fitted for maritime use in co-development with CybAero.
Direct competitors
CybAero’s key competitors and their systems are summarized below. For a
discussion of the firm’s competitive advantages and positioning, please
refer to the section directly after the competitor summaries.
Schiebel’s CAMCOPTER S-100 has features that are almost equal to
CybAero’s APID ONE. It has a MTOW of 200 kg, measurements within +/10% of APID ONE, a 50 horsepower rotary (“wankel”) engine enabling a
cruise speed of 90 km/h. Its mission radius can be 50 to 200 km and
mission time up to 6 hours or even 10 hours with an extension tank. It can
be operated from a stationary or mobile control center, has an automatic
“fly-to-home” function and automated takeoff and landing capabilities even
in maritime applications.
Schiebel is the potentially
most critical competitor –
with a longer history,
bigger team and very
similar product
Schiebel is an Austrian company with headquarters and production in
Vienna and subsidiaries in Washington D.C., Abu Dhabi and Phnom Penh
(Cambodia). The company was founded in 1951 and produced mine
detection and composite technologies until it developed its first
CAMCOPTER UAV system in 1995. In 2014, the company had revenues of
over 30 mEUR (ca. 260 mSEK) and around 200 employees. Its current
production plant opened in 2006, with an investment of 8.5 mEUR (ca. 77
mSEK). Schiebel therefore has been on the market and selling its systems
for a longer time than CybAero, and by the end of 2013 they had sold over
140 helicopter systems.
Saab’s and Indra’s
systems are essentially
CybAero technology – but
likely at a higher price
Both Saab’s Skeldar V-200 and Indra Sistema’s Pelicano systems
are similarly close to the specifications of APID ONE as Schiebel’s
CAMCOPTER. In their case, this is however due to the fact that their
Company analysis
27
CybAero
helicopters are derivatives of CybAero’s APID 55 and 60 models,
respectively.
Saab was an earlier development partner to CybAero, who acquired the
product rights to the APID 55 model in 2005. Since then they have
marketed the system under the name Skeldar, mostly in the context of
selling broader aircraft or similar defense related solutions to clients. It is
unclear if they have sold any systems, but Saab has to the knowledge of
Cybaero invested quite big into developing the system further since 2005
and, as one result, the price level at which it is sold is higher than that for
APID ONE. Saab Group is a leading provider of solutions to the defense and
civil security sectors. Saab has around 14,000 employees and annual sales
of 24 bnSEK, with key markets being Europe, South Africa, Australia and
the US.
Indra Sistemas was CybAero’s development partner regarding a maritime
configuration of the APID 60 platform. The partnership ended late 2014
after fulfillment of the contract from CybAero. Indra has the objective to
market and sell its Pelicano system in the future, specifically focusing on
naval military customers. Earlier in 2014, Indra revealed a new lighter UAV
called Cóndor with a MTOW of 75kg, which however doesn’t seem to be
marketed yet. Indra Sistemas is a leading IT company in Spain also selling
to the defense sector. It has around 40,000 employees and total sales of 3
bnEUR (ca. 27 bnSEK) in 2014, mostly from Spain and Latin American
countries and with security and defense customers accounting for around
17%.
UMS Group is the “new
kid on the block” – but
with a slightly weaker
product
UMS Group’s R-350 has an MTOW of 150 or 175 kg and can take two
payloads at the same time. It features an automated takeoff and landing
feature and is powered by a gas turbine providing around 34 horsepower
and supporting both regular and jet fuel. At a cruise speed of 70 km/h, it is
slower than CybAero’s APID ONE and also has a shorter mission time of
around 4 hours. The UAV’s outer dimensions are within several decimeters
of APID ONE’s. UMS emphasize the system’s modular design, allowing for
easy maintenance and for example an engine change within 2 hours. The
company also offers a system for maritime use to enable takeoff and landing
from moving vessels.
Company analysis
28
CybAero
UMS Group, earler Swiss UAV, is a rather new player in the segment. They
have been developing both fixed and rotary wing RPAS since around 2007,
and after the acquisition by Unmanned Systems AG in 2013 the joined
company changed its name to UMS Group in 2014. UMS’s headquarters are
located in Switzerland, with commercial headquarters and production
facilities in two different cities. The firm also has an office close to
CybAero’s headquarter location Linköping with around 11 employees
(2014), which is however currently being shut down and moved to
Switzerland. It is unclear how many VTOL UAV systems UMS Group has
sold, but it is deemed unlikely that it is a significant number as of today.
A number of Chinese
competitors are lining up,
but haven’t found the
success recipe yet
There are a number of Chinese companies developing and selling RPAS
in CybAero’s class. At the same time, the firm argues that the technology in
these Chinese companies is not level with Western competition yet. As a
result, the promising Chinese and also overall Asia marketplace is still very
open to Western providers such as CybAero. In addition, it will have to be
seen in the future to what extent other countries, especially outside of Asia,
will want to purchase such defense or civil service related equipment from a
Chinese supplier.
Apart from these direct competitors, it is as said still relevant to keep an eye
on the other players in the industry. Their developments both drive and
reflect customer’s preferences, and it could well be that certain use cases
originally relevant for CybAero’s systems can also be fulfilled by either
VTOL RPAS in a different weight class or other systems like fixed wing
UAV. The upcoming and growing segment of micro UAVs in both
commercial and consumer use also is a driving force for the regulatory
discussions around such systems in a number of countries.
Positioning & differentiation
There are several key differentiators in CybAero’s product offering. These
include size and usability of the system, low maintenance complexity and
cost as well as high flexibility regarding easiness to change between
different payloads. Another factor is of course also the pricing of the system.
CybAero’s systems are priced at the low end of the range compared to its
competitors. While it is literally impossible to get official, current and
reliable figures, CybAero estimates Schiebel’s systems to be priced around
20-30% and Saab’s and Indra’s up to 50% over CybAero’s price levels.
CybAero’s key
differentiators are ease
and flexibility of
configuration, operation
and maintenance – but
also cost of both systems
and maintenance
CybAero’s systems are designed and developed to facilitate a relatively easy
and quick replacement of payload, limiting the time needed and training of
staff required to operate the units in the field and for example across
different missions or usage areas. A further relevant factor in this is that the
RPAS is sized in a way that allows it to be transported in a medium-sized
transporter or small-sized truck. Together with quick setup times especially
when using the mobile command center, this increases the flexibility and
Company analysis
29
CybAero
mobility of the systems across use cases and geographically. Regarding the
payloads itself, there is not much room for differentiation since most
providers allow similar payloads to be used with their systems, albeit from
different subcontractors who supply the cameras, sensors and other
components. CybAero tries to however position itself as a leader by aiming
to listen closely to its clients and support the integration of new types of
payloads as soon as possible.
Lower cost, ease of
maintenance and lower
reliance on the producer
are key advantages of
CybAero’s systems
As described earlier, CybAero uses as many standard parts in its production
process. This not only helps the firm to keep its processes leaner, but also is
a key advantage for customers when it comes maintenance and spare part
costs as well as serviceability at the place of operation. Compared to
competitors like especially Schiebel, CybAero’s systems can more easily be
serviced by the customer itself or a third party on location or even in the
field. This keeps maintenance costs down, compared to for example having
to ship the units to the producer’s factory more often like in the case of
Schiebel. Costs for spare parts can be reduced through the use of more
standard components, which are more broadly available and can be bought
in bigger volumes. Both this and the previous competitive advantages are of
at least temporary nature. They are based in the design and construction of
the helicopter systems, meaning that these essential concepts have to be
changed by a competitor like Schiebel if they want to make their systems as
easy to operate, maintain and service as CybAero’s. While it is not
unrealistic that the competition will take such steps in smaller or bigger
forms, this will take significant time and monetary investment from the
incumbents.
One challenge facing the firm in its go-to-market today is that it still has to
ramp up its processes and organization, as argued earlier. Even though the
number of employees has almost doubled in the last two years, the firm is
still likely seen as rather a small player from Sweden at least upon initial
client contact. Both the cooperation with major established players
especially in the defense industry earlier as well as the recent major
contracts closed have however confirmed the company’s position as a
central player in its product segment and can serve as a proof and basis for
additional major contracts in the future.
Financial projections
Understanding revenue recognition, orders and calloffs
Revenues are recognized
by percentage of
completion – but cash
flow only comes in after
rather long delivery cycles
During 2013, CybAero adapted the percentage of completion method for
revenue recognition. This means that revenues are recognized already along
with the production of systems for an individual customer, and not only
after the final delivery of the systems. Given potentially longer production,
testing and delivery cycles especially during larger orders, this potentially
Company analysis
30
CybAero
better reflects the activity of the firm over time. At the same time, it needs
to be noted that customers normally only pay with a significant delay after
the delivery of their complete order or call-off. This means that CybAero
might report significant revenues, but at the same time this only reflects in
positive cash flow to the firm with a significant delay. The first major order
from the Chinese customs agency perfectly exemplifies this. Apart from
minor deliveries to partner Cassidian for example, revenues during the
financial year 2014 have been dominated by the gradual recognition of
revenue from the order of the Chinese customs agency, as the systems have
been built throughout the year. At the same time, the final testing and
delivery will only be completed during Q2 and 3 in 2015. The full revenue
from the contract therefore stands as a receivable in the balance sheet, and
the cash flow has not come in as the majority will only be paid after a
successful completion of the client’s acceptance tests for every individual
system.
Current model in AVIC
contract is for customer to
90% upon successful
factory test for the single
systems - but CybAero
aims to get paid more
upfront in future orders
Another important concept used in this context is therefore the distinction
between orders, frame contracts and call-offs. The order from AVIC is a
good example here. The Chinese company has signed a binding frame
agreement to order a minimum of 70 systems over the period of 8 years.
This order will however be structured and executed as several smaller calloffs, such as the first one which came in end of March 2015. In this first
call-off, AVIC orders the production and delivery of the first 5 systems,
which are seen as one individual order, but the systems are considered
individually in terms of revenue accounting and payment (cash flow).
Revenues will be recognized over the time of production, starting already as
CybAero orders and receives the first components from its suppliers. Cash
flow will then come in with a certain delay after the systems have been
completely built. The customer will in this setup pay 90% of the invoiced
amount for each individual system (and not the whole order of 5 systems)
once they have successfully conducted factory acceptance tests at CybAero’s
factory for that system. The remainder is then paid after the final delivery of
the individual systems and successful on-site testing at the customer’s
premises. In the future, CybAero is aiming to realize contract structures
with a significant upfront payment due at the placement of an order. It is
not unusual in the industry for such upfront payments to amount to about
30-50% of a contract’s volume, while the rest will be paid after successful
completion of the customer acceptance tests. Such contract setups would
improve CybAero’s cash flow patterns and its financial stability, and the
next contracts to be signed by CybAero will determine to what extent this
goal can be realized.
Current customer orders
CybAero currently has two confirmed orders to deliver 1 (AVIC
demonstration), 3 (Chinese customs) and 5 (AVIC) systems, respectively,
during 2015 and an additional agreement for the execution of test and
demonstration flights with 2 systems for the Swedish Navy during fall 2015.
Company analysis
31
CybAero
Each existing order is explained in more detail below, and CybAero’s
pipeline of future sales prospects is commented too.
Chinese customs agency
CybAero’s first thirdparty order was the final
proof to the firm’s
commercial ambitions –
and a teaser of market
potential in Asia
In January 2014, CybAero got an order of 3 systems for use by the Chinese
customs agency. The order itself got placed by a Chinese company (Jolly)
who in turn sells the systems to a shipyard (CSSC) that is the customs
agency’s supplier. The helicopters will be stationed on ships and used for
border and customs controls and similar missions. This contract has been
and is key for CybAero in several aspects. Firstly, it is the first bigger order
for the delivery of UAV systems to an independent third party. Secondly,
the customer is located in China, which is interesting since CybAero expects
Asia to be one of the most important markets for its solutions in the future.
Thirdly, the customer had earlier bought a number of systems from direct
competitor Schiebel and is now choosing to buy its first from CybAero. This
shows a potential dissatisfaction with the existing systems, creating the will
to invest in CybAero’s systems. It will have to be seen if this is somewhat of
a test process where the customer might order additional units if they are
satisfied. Finally, the order is a first “real” test to the firm’s processes and
delivery capacity. While both production and the issue of export
permissions have been handled without problems, CybAero had to prolong
its factory tests of the systems. This was mainly due to more complex
system integration issues, which created a delay in the overall testing
schedule. Delivery of the first system is now expected to be finalized June
2015, since factory acceptance tests have been successfully completed in
early June. We expect the other two systems to be delivered in the weeks
after that, so that the delivery is spread over the months of June until
October. Based on the payment terms we expect the bulk of the cash flow
from the order therefore to come in during July 2015 or a bit later, as the
factory acceptance tests for the other systems progress. Especially in the
current financial situation of the company, such unforeseeable delays are
therefore suboptimal, and we hope to see increased planning accuracy in
the future delivery projects of the firm.
AVIC
The AVIC contract is a
huge stability factor in the
firm today – and also
pushes the firm to grow
its organization and
ensure it can deliver
The second and even bigger order announced from China during 2014 was
the frame contract with AVIC. AVIC is a solution provider to the Chinese
defense industry, but also sells aircraft and related systems to other
customer groups. It is state-owned and claimed to have around 400,000 –
500,000 employees and would therefore be one of the biggest companies in
the world. AVIC has signed a binding agreement to buy a minimum of 70
RPAS systems over the next 8 years (until mid-2022), whereof at least 20
shall be ordered during the first 3 years (until mid-2017). AVIC itself will
sell the systems onward to its clients, for example as part of broader
solutions. The first call-off order over 5 systems was placed in March 2015.
Company analysis
32
CybAero
Similar to or even more than the Chinese customs order, this contract is
another critical step in the development of CybAero. Apart from the huge
number of systems ordered – CybAero’s yearly production capacity until
August 2015 lies at around 15 helicopters per year! – new challenges arise
especially in the context of this order. Firstly, the company will likely
continue to be involved in the sales process driven by AVIC towards end
customers, for example by executing demonstration flights for different
customer groups in China. At the same time, every such demonstration
project as well as the fulfillment of the orders from AVIC is subject to export
approval by ISP, and the end customers may not be military organizations
in any case.
Hiccup with export
permissions from ISP has
caused some delay, but
allowed CybAero to learn
Getting export permissions in place is a process that CybAero has started to
get some routine in by now, but at the same time there has been a hiccup in
getting the permission for the first call-off by AVIC. After first having
planned to seek permission for the full order of 70 systems, CybAero
modified its request to only 20 units. The initial request for the delivery of
the first 20 systems has then however been declined by the ISP, primarily
due to the fact that the ISP may only give out permissions covering a
maximum of two years and the 20 systems were to be delivered over a
period of 3 years in total. There were also doubts as to where the systems
should be produced. CybAero explains the issue as a misunderstanding
which arose due to the modification of the initial request. CybAero
submitted a new request during October 2014, with more detailed
descriptions about the contract with AVIC, the production and expected use
of the systems. AS a result, the ISP has then given its preliminary approval
in November for ten systems. Preliminary in that context means that the
ISP will have to approve a final request which will be prepared by CybAero
after AVIC has finalized commercial agreements with the end customers of
the systems. At the same time, this final request will be approved given that
the situation hasn’t changed compared to the general request which the
preliminary approval was granted for earlier. This means that as long as the
nature of the end customers and their expected (non-military) uses of the
systems haven’t changed, the ISP is likely to grant the final permission
rather quickly.
Swedish Navy
In addition to the above-mentioned closed sales contracts, CybAero also has
entered an agreement with the Swedish military procurement agency to
conduct test and demonstration flights from the Navy’s newest generation
of vessels, the “Visby” class. While such flights are normally not paid, it is
understood that the interest for the demonstrations is very high both from
Swedish as well as potential international Navy customers.
Company analysis
33
CybAero
Future prospects
CybAero is currently involved in business discussions in more than 10
countries on most continents. The discussions range from contracts over
one or two systems for smaller applications up to several hundred systems
in national programs. The majority concern civil service or commercial use,
while a few involve military end use.
US Department of State (DoS)
The US DoS is a major
potential client, but the
earlier tender was
canceled – with no news
since then
During 2007, CybAero established a subsidiary in the US in order to
coordinate a contract to be closed with the US Naval Research Laboratory,
which was however laid down to focus on the development of the APID 60
during 2010. In 2012, the US became however extremely relevant again for
CybAero since the US DoS posted a tender for the delivery of contractoroperated UAV systems amounting to around 1 bnUSD over a period of 5
years. The tender covered a mix of fixed wing and VTOL systems, mainly to
be used in the context of securing US embassies around the world. In order
to take part in the tender, CybAero started a formal cooperation with its
current partner AeroVironment, which also should benefit the US-based
company since they had been specialized on fixed wing UAVs before, where
they are a US market leader as described earlier. During mid-2013, the US
DoS however decided to cancel the tender since none of the bidding
companies were able to entirely fulfill all specifications from the request.
The agency has shortly after expressed its intent to reconsider its
requirements and to release a new request for proposal. In the two years
since then, no news have however been released regarding the status of a
potential new tender of this major contract. While it is likely that the DoS
still has a need for these solutions, the cancelation of the tender and the
long period of silence are somewhat strange. We therefore do not expect
that the US DoS will become a major customer to CybAero during the
foreseeable future. CybAero originally expected to hear news from the DoS
the latest at the end of 2014, but a planned meeting with partner
AeroVironment during the next months might bring new insights into the
matter.
UAE Armed Forces
CybAero received an
order from the UAE in
2004 – but it remains idle
until today
The UAE is another example of an idle customer relationship, although in
this case a contract had been signed. Already back in 2004, the UAE armed
forces ordered 6 helicopter systems for surveillance tasks, at that time the
APID 55, worth around 35 mSEK. Originally planned for the end of 2007,
the production and delivery of the units however got delayed further and
further. This was due to challenges to adapt the system for the harsh
conditions in the desert. After some years, the contract has been declared
idle and CybAero is in sporadic contact with the customer, expecting to sign
a renewed contract once the discussions become more serious again. What
is known about the customer is that they have bought a bigger number of
systems from Schiebel in 2006, but seemed not entirely satisfied. Therefore,
they only operate a fraction of the systems as of today, while they
Company analysis
34
CybAero
theoretically have a need for a much higher number of systems to be in
service. This makes it possible that they still want to buy a number of
systems from CybAero or another similar provider in the future. For
CybAero, this raises three key questions. Firstly, whether the UAE would in
such case insist on the fulfillment of the contract at the old conditions or
whether a renewed contract would be closed, covering the delivery of
systems based on the current product range and pricing. While the first
scenario would lead to a legal dispute, the firm does not see this as a major
risk. In our overview of prospects later, we therefore estimate the order size
to be more in the area of 100 mSEK rather than the 30 mSEK from over a
decade ago. The second question in connection is that of timing, meaning
when the customer might want to renew its order. Currently, there are no
indications for renewed discussions. Thirdly, it also has to be noted that the
customer is a military organization, which needs to be kept in mind
regarding a potential ISP approval. As a result of the situation described, we
do not expect that the UAE military will become a major customer to
CybAero in the foreseeable future – at the same time, it might still be
possible that the order gets renewed.
Indian Navy
The Indian Navy published an RFI in Q1 2015 for 50 vessel-based UAV
systems with a potential order volume of around 1 bnSEK. As can be seen
from the earlier description of the sales process, an RFI means that the
customer has identified a need for the systems and likely has an initial
budget on the way for it, and now wants to identify relevant vendors and
initiate pre-sales discussions with them. It is likely that CybAero as well as a
number of other competitors have responded to the tender, and it will be
interesting to follow the further development. Saab has partnered with
Indian business magnate Anil Ambani’s Reliance Group to place their bid.
Given the stage of the process, the expected time to order could be up to two
years.
Korean Navy
Another sales prospect in the pipeline is the Korean Navy. They have
identified a need for 4 RPAS and agreed on a budget of around 100 mSEK,
for which an RFQ has been published. The customer already owns a
number of Schiebel systems, and it is therefore similar as in the case of the
Chinese customs agency interesting to see that they are open to new
suppliers. At the same time, this tender process is a rather complex one as it
has been redone 3 times since negotiations with the shortlisted supplier
have not lead to a contract closure. CybAero and, according to their
knowledge, both Schiebel and Airbus have replied to the most recent RFQ
with their binding offers for the delivery of the systems. The firm expects
that the result from the RFQ will be known in around 6 months, after which
a final negotiation with the selected vendor(s) of another 6 months or so
will follow. This means if the firm is selected as a vendor in the coming
months, an order might be placed within around one year.
Company analysis
35
CybAero
The following table summarizes the key sales prospects and their potential
impact and likelihood for CybAero.
Extract of current sales pipeline
Customer
US DoS
UAE Military
Indian Navy
Korean Navy
Ca. total order
size mSEK*
8,400
105
1,000
100
Potential for
CybAero
High
High
High
Medium
Mid-term
probability
Low
Low
Medium
Medium
Comment
Tender from 2012 was canceled in 2013, no news since then.
Idle contract (7 units, 30 mSEK) from 2004, unclear future outcome.
RFI stage, CybAero is awaiting reply. Time to order up to 2 years.
RFQ stage, CybAero is awaiting reply. Expected time to order ~1 year.
So urce: Redeye Research, CybA ero
* To tal o rder size includes parts which are no t addressable by CybA ero - this therefo re do es NOT equal actual revenue po tential fo r the firm.
Both impact and likelihood are rather subjective and non-academic
assessments, since a reliable prediction of the contract volume and
CybAero’s potential to win it is almost impossible from the outside. The US
and India contracts are so big that they would generate significant revenues
for CybAero, similar to the AVIC order. In the case of the idle UAE order,
the individual order itself is not very big, but the customer has likely a need
for an additional number of units after that which make the customer itself
an extremely valuable prospect. For an explanation of how these prospects
are included in the revenue forecast, please refer to the next chapter.
It should be noted that this is not a comprehensive list, meaning that there
are always a number of other prospects around in different stages. One such
example is the collaboration with AeroVironment, the firm’s partner on the
US market. The US DoS is not the only sales prospect in this relationship AeroVironment has an ongoing dialogue with a number of other UAV
buyers who could be potential customers of CybAero’s VTOL systems, both
in the US and other NATO countries. The partnership with AeroVironment
is exclusive in the US, but not in the other countries. Additional tenders for
RPAS are opening around the world, and especially also in the ASEAN
region. An additional opportunity is that existing customer AVIC might
place orders for additional systems above the currently signed “minimum”
of 70 units, given that they are satisfied with the outcome of the first call-off
orders and deliveries. The demand on the side of their customer base for
such systems seems to be existing.
Predicting aftersales
As described earlier, aftersales is one key component in CybAero’s offer. At
the same time, the firm is just in the process of defining the exact scope,
processes and organization around these services for the future. It is
therefore relatively hard to estimate both the timing, revenue and cash
flows as well as margins of these services as of today. CybAero has however
an initial feeling which is based on its years of research and own testing of
the systems. According to their expectations, the yearly aftersales revenue
could be up to 20% of the initial sales price of the system. This covers
Company analysis
36
CybAero
reserve parts, checks and maintenance services as well as other services
such as training of additional staff for the firm’s customers over time.
Strict rules and
regulations for aircraft
operations contribute to a
stable aftersales demand
– but we take a slightly
more conservative
approach in our estimates
than CybAero
Most countries and also customer organizations have rather strict
regulations on the regularity of checks and even replacements of key
components in aircraft, similar as for example in civil airlines. Therefore, it
is likely that if the systems are used by the customer as intended, there will
be a relatively constant and recurring need for such aftersales services,
starting already early in the lifecycle of a system. CybAero delivers its
systems with a factory warranty which covers replacement parts and
maintenance services during a period of around 1 year or between 250 and
500 operating hours. The total expected usage period of a system can
stretch to about 10-15 years.
Based on this information, we expect aftersales revenue to amount to 15%
of a helicopter system’s average sales price (compared to CybAero’s
estimate of “up to 20%”), starting at 1 year after the planned final delivery
of the individual helicopter system, and lasting for 10 years (compared to an
estimated 10-15 year lifespan).
Resulting revenue forecasts
Combining the information from the previous sections, the following sales
forecast can be derived for CybAero during the next 3 years.
Revenue estimates (system & aftersales)
mSEK
AVIC (signed)
Korean Navy
Indian Navy
Others
Total
2015e
107
0
0
0
107
2016e
109
50
0
110
269
2017e
129
5
100
148
382
So urce: Redeye Research, CybA ero
The revenue estimates for AVIC are based on the binding contract described
earlier, where a minimum of 20 helicopter systems are to be ordered in the
first 3 years (until mid-2017). This contract is a stable pillar also for the
mid-term revenues of the firm, given its length and estimated total volume.
While we do not see it as unlikely that AVIC extends their order, we have
not explicitly included such a scenario in our forecasts for now.
Estimating future revenues for CybAero apart from the AVIC contract is not
easy, and any estimates will likely differ from the final outcome to a bigger
extent. This is due to the stage at which both the company and its market
are, with CybAero scaling up its sales and production capacities and about
to successfully deliver its first customer order to the Chinese customs
agency. The progress, success and learnings from these activities will have a
Company analysis
37
CybAero
major impact on the future development of the company’s sales. As a result,
revenues from the two prospect customers in Korea and India are based on
the information described earlier, but then adjusted with a 50% discount.
This is to account for the well-reasonable possibility of either a competitor
winning the contracts, any delay in the customer’s decision and order
process like it already occurred in Korea, or the orders being (preliminary)
canceled like in the case of the US DoS. The result is a sort of expected order
value we calculate with given these uncertainties.
Finally, the category “Others” outlines a potential order volume which is
based on the remainder of the firm’s production capacity after adjusting for
the aforementioned contracts and prospects. This post also includes
revenues for the 2 demonstration systems for the Swedish navy. While the
demonstration flights themselves are not paid and the navy does not
commit itself to order the helicopter systems, CybAero expects to find a
buyer for these systems within a not too long period of time. All other posts
in this category apart from the Swedish navy helicopters are modeled based
on the assumption that the firm wins orders in the volume of 20% of its idle
production capacity in 2016 and 2017.
One critical factor to be considered especially in revenue forecasting is
currency differences. This is not only due to CybAero’s international
customer and prospect base, but also the long time it can take from the
signing of a contract through one or several separate call-off orders until
final delivery and payment. The order from the Chinese customs agency was
denoted in Euro, meaning the currency exposure has been limited during
the recent time and actually been slightly positive. In the case of AVIC, it
has been agreed to invoice the first 20 units in SEK, meaning there is
literally no exposure for CybAero and the customer takes all currency risk.
It will be determined later in which currency the remainder any call-off
orders after these initial ones will be invoiced.
Margins and key costs
Mid-term: Scaling up sales and production
There are several key cost drivers for CybAero which have to be accounted
for in the buildup of our estimates.
Firstly, the cost of raw materials and the resulting gross margin. This was at
32% compared to total revenue (including activated development cost) and
38% to net sales in 2014, but can be expected to increase significantly
during the next 2-3 years. Currently, CybAero places rather small orders
with its suppliers, which leaves no room for significant discounts. In
addition, the firm also tries to negotiate somewhat longer payment terms
with its suppliers in order to match the currently longer production and
delivery cycles it has. This also contributes to a higher price level compared
to what is possible after production and sales have been ramped up. When
Company analysis
38
CybAero
that happens, CybAero will be able to accept short payment periods and at
the same time order more from its key suppliers, which should both help to
negotiate better prices for the parts bought in. Key competitor Schiebel has
a gross margin of around 63.5% on total revenue (74% on net sales), which
CybAero should be able to reach in 2-3 years.
The two cost factors impacting EBITDA are other external costs and
personnel costs. Other external costs include sales related costs such as
rent, also for the newly built test center in Linköping, as well as expenses
for demonstration flights and the participation at different trade fairs all
over the world. Our estimates of other external costs are based on the
comparison to competitor Schiebel, but also adjusted for the fact that
CybAero will have a somewhat higher ratio of these costs to sales than
Schiebel in the mid-term as the firm will need to rent new office and
aftersales storage space before the respective sales growth comes in.
Personnel cost reflects the other major investment CybAero currently
makes, namely to hire staff that will produce and continuously develop the
helicopter systems and new systems integrations during the next years. We
expect average personnel cost to decrease somewhat during the next years,
as the main buildup will be on staff level and we foresee no major changes
or extensions to the more expensive management structure.
A final factor determining the EBIT result is depreciation and amortization.
We estimate this to stay in the same relation range to capitalized intangible
assets shown in the balance sheet, and also expect the investments into
intangible assets to continue rather stable in the future. As a result,
depreciation & amortization will not change much in absolute terms, and
therefore decrease in significance compared to the strongly growing sales.
Based on information from CybAero, we also do not expect any major
investments into tangible or intangible assets in the mid-term, such as from
setting up shop in a country outside of Sweden. Due to the activation of
development cost via the income statement, EBIT is in the case of CybAero
the better margin level to look at compared to EBITDA.
Our estimates result in the forecasted income statement shown in the
following picture. Please note that interest is disproportionally higher than
in previous years due to the allocation of any future financing need as a
long-term loan, with resulting interest payments. This is described in the
next chapter, and means that if pure equity financing were to be chosen to
satisfy any future capital needs, the net result in 2016 would likely be
positive.
Company analysis
39
CybAero
Income statement estimates
mSEK
Net sales
Activated devcost
Raw materials & co
Gross income
2014
46.8
8.8
-37.8
17.8
2015e
107.1
9.8
-71.4
45.5
2016e
268.8
6.1
-139.8
135.1
2017e
382.1
6.3
-154.1
234.2
Gross margin
on total rev
38.0%
32.0%
42.5%
38.9%
50.3%
49.1%
61.3%
60.3%
Other external costs
Personnel cost
EBITDA
-16.6
-23.5
-22.3
-21.4
-33.6
-9.5
-60.8
-52.1
22.2
-114.6
-78.0
41.6
-47.7%
-40.1%
-8.9%
-8.1%
8.3%
8.1%
10.9%
10.7%
-11.4
-33.7
-15.4
-24.9
-19.1
3.1
-17.7
23.9
-71.9%
-60.5%
-23.2%
-21.3%
1.2%
1.1%
6.2%
6.1%
Financial income
Financial expenses
EBT
0.0
-0.6
-34.2
0.0
-1.2
-26.1
0.0
-3.4
-0.2
0.0
-1.2
22.7
Taxes
NI
0.0
-34.2
0.0
-26.1
0.0
-0.2
0.0
22.7
EBITDA margin
on total rev
Depreciation & amortization
EBIT
EBIT margin
on total rev
So urce: Redeye Research
Long-term: sustained growth seems possible for several years
While the mid-term forecasts for both revenues and key cost drivers as
described earlier are based on specific assumptions, this is even harder to
estimate for the long-term. As a result, we are building our forecasts based
on higher-level information. Most importantly, this is relative sales growth
(% compared to previous year) and the EBIT margin achieved. The table
below shows these estimates for the longer-term future, compared to the
levels in 2017, the final year of our mid-term forecasts.
Key income statement estimates 2017-24
mSEK
Net sales
YoY growth
…
EBIT
EBIT margin
2017e
382
42.2%
2018e
481
26.0%
2019e
590
22.5%
2020e
708
20.0%
2021e
814
15.0%
2022e
895
10.0%
2023e
940
5.0%
2024e
987
5.0%
24
6.2%
45
9.3%
61
10.4%
76
10.8%
88
10.8%
97
10.8%
102
10.8%
107
10.8%
So urce: Redeye Research
Sales might well grow in higher double-digit regions over the next couple of
years, given the expectations in the market for strong underlying growth in
both the marine as well as commercial application segments. At the same
time, it is hard to assess when especially the commercial segment will really
grow and how quickly. This is mainly due to the aforementioned
uncertainties regarding regulatory changes and that the market likely will
Company analysis
40
CybAero
need time to fully appreciate the use cases RPAS offer, and which systems
work for what customer segment.
We expect the long-term development of CybAero’s margins to be in the
region of those that competitor Schiebel shows today. Schiebel has
delivered over 150 systems during the last couple of years, and can
therefore be seen as a valid illustration for how a business like CybAero
might look like once sales, production and aftersales are fully ramped up. At
the same time, there are some structural differences between the firms.
Schiebel is selling their systems at a higher price than CybAero, as
mentioned earlier. At the same time, we also expect their cost base to be
higher since they use more custom made components in the production.
Schiebel’s gross margin to net sales lies at around 74%, and EBIT margins
at around 10% to net sales. For CybAero, we assume that the gross margins
in the long run from initial sales of helicopter systems lie around 60-65%
while aftersales bring up to 80%. In the long-run, the resulting mixed gross
margin is likely to get to levels similar to those of Schiebel.
At the same time, it has to be noticed that both revenues and cost base may
of course change significantly over time, based on the future decisions by
CybAero’s management. Examples for such decisions might be writing
certain contracts in foreign currency or moving certain production or
aftersales activities to other countries and closer to certain customer
segments, for example in Asia. Since no such plans are communicated as of
today, we assume a progressing of the business according to the official
information by the firm.
Valuation
DCF
Key value drivers and result
Our base case DCF
analysis indicates a fair
value of SEK 21.9 per
share
We have built our DCF model based on all the information described in this
analysis document. The list below summarizes the most important input
factors and assumptions:

Revenues – short-term based on specific prospects and excess
capacity as described earlier (winning both India and Korea with
50% likelihood plus 20% of idle capacity in 2016-17), long-term
based on YoY growth

EBIT – short-term based on forecasting of individual cost lines as
described eralier, long-term based on convergence to peers

Terminal growth – based on market reports, adjusted for inflation
and competitive convergence over time

Discount rate (WACC) – as in our other analyses, this is based on
the company’s score in the Redeye Rating™
Company analysis
41
CybAero

Working capital – short-term based on information from CybAero
regarding payment terms in receivables and payables on existing
contracts, long-term based on percentage relative to sales

Future financing needs and how they are addressed – our estimates
indicate a total capital need around 35 mSEK until 2016
Given these inputs, our DCF model yields a fair value of SEK 21.9
per share.
Working capital and the development of both accounts receivable and
payable over time play a special role in the context of both valuation but
more specifically also financing needs. In the short-term, we have planned
the balances in accounts receivable, payable and other relevant posts like
accrued income based on the information available by CybAero. We expect
the payment by the Chinese customs agency for at least the first system in
June and the remainder in July 2015. We assume a production of 10
systems for AVIC during Q3 and 4 2015, with the buildup of payables in the
same quarters, and both the payables and receivables being settled with one
quarter delay. This is somewhat a simplification, since payables currently
have a settlement time of 45 to 60 days while receivables still might have a
longer average time to settlement due to the time CybAero needs to
produce, factory test and deliver the systems. In the mid- and long-term, we
forecast the balance of receivables as a fixed, decreasing percentage of net
sales, and payables as a fixed share of receivables.
As a result of these working capital assumptions, but also other estimates
impacting cash flow, our estimates indicate a capital need of around 35
mSEK until 2016. We have explicitly NOT simulated any equity issues or
short-term loans into our main forecast model. The required financing is
instead shown in the balance sheet under long-term debt, which is priced at
12% yearly interest. We believe that the creation of any specific forecasts of
equity issues or short-term loans would be misleading, since the impact of
such transactions on CybAero’s share price depends highly on the exact
timing of the actions, the stock price development until then in any equity
financing as well as the interest rate and terms in the case of debt financing.
Another option the firm might explore is of course a convertible structure,
combining the two financing alternatives. The following table summarizes
our key assumptions and outcome of the DCF fair value calculation, without
assuming a new equity issue as explained just above.
Company analysis
42
CybAero
DCF Base Case Overview
Assumptions
2015-24
CAGR Net sales
28.0%
Avg weighted EBIT margin
9.3%
DCF value
WACC
Discounted sum of FCF
Discounted terminal value
16.2%
103
279
Maturity phase - 2024 onwards
Long-term FCF growth
5.0%
Horizon EBIT margin
10.8%
EV
Net cash end 2014
DCF value
Value per share
Share price today
Potential upside
382
24
406
21.9
19.0
15.4%
Multiples today
EV/Sales
Implied multiples
Implicit EV/Sales
Implicit EV/Sales 2015e
Implicit EV/Sales 2016e
7.0
8.2
3.5
1.4
So urce: Redeye Research
In order to validate this outcome and set it into a perspective, we have
conducted three additional exercises. Firstly, we show the result of a
sensitivity analysis below, based on the key variables in the DCF. Secondly,
we calculated the fair value for two alternative cases, Bull and Bear, which
yield the Redeye Valuation Range as result. This gives a feeling for the
potential development of the share price given both a reasonably bullish or
bearish chain of events for CybAero as described separately. Finally, we set
this valuation of CybAero in context with a range of relevant close as well as
more remote peers.
Sensitivity analysis
The assumptions feeding into our base case fair value calculation are based
on our research and the information available from CybAero, but given the
stage of the firm the actual results will likely vary from these estimates
significantly during the next 1-2 years. In order to understand the impact of
the two key variables growth in net sales and EBIT margin, we have
conducted a detailed sensitivity analysis covering these two key
assumptions. The results are shown below.
WACC
Fair value SEK per share
14.0%
15.0%
16.2%
17.0%
18.0%
-2.0%
25.8
22.0
18.4
16.5
14.4
EBIT margin (% point change)
-1.0%
0.0%
1.0%
2.0%
28.1
30.5
32.8
35.1
24.0
26.1
28.1
30.1
20.2
21.9
23.7
25.4
18.1
19.7
21.3
22.9
15.8
17.3
18.7
20.2
So urce: Redeye Research
Company analysis
43
CybAero
WACC
Fair value SEK per share
14.0%
15.0%
16.2%
17.0%
18.0%
Net sales growth (% point change)
-10.0%
-5.0%
0.0%
5.0%
10.0%
23.2
26.5
30.5
35.3
41.2
19.9
22.7
26.1
30.2
35.1
16.8
19.1
21.9
25.1
29.1
15.1
17.2
19.7
22.7
26.3
13.3
15.1
17.3
19.9
23.6
So urce: Redeye Research
What can be seen from these analyses is that the market, given the current
share price, expects either somewhat lower net sales or EBIT margins or both
during the next 10 years. This can be seen from the fact that our model still
yields around the current share price when reducing growth 2015-24 by 5
percentage points. The same holds for a decrease of the EBIT margin from
2015 to the terminal period by 1%.
In order to account for the fact that there are a number of key assumptions
and events implied in our base case fair value estimate, we have also
defined and calculated two alternative scenarios. These are reasonable, but
rather aggressive pessimistic and optimistic scenarios, respectively. Their
aim is to illustrate how the share value could develop given that the firm
performs much worse or much better, respectively, over the coming years
compared to the current expectation and most likely scenario.
Bear case
Given a reasonably
pessimistic scenario, the
fair value could lie at
around SEK 8.3 per share
Our bear case captures a rather negative scenario for the firm, namely what
would happen if CybAero does not manage to close any additional contracts
in the future and therefore only delivers to AVIC during the next years.
Another similar scenario would be that the delivery to AVIC does not go as
planned, and the partner therefore somehow wants to get out of the
contract and CybAero only signs a few, much smaller contracts with smaller
customers. In either case, revenues gradually increase up to around 170
mSEK by 2024, which is around a 2.5 fold increase compared to 2014.
Terminal growth is at 3%. EBIT margins also gradually increase, but the
firm only achieves a margin of around 9%, lower than in the base case
(around 11%) and competitor Schiebel (around 10%). This scenario is quite
pessimistic, but at the same time gives a good feeling for the value of the
firm given a reasonable worst case scenario. Our bear case estimated
fair value is SEK 8.3 per share.
Company analysis
44
CybAero
DCF Bear Case Overview
Assumptions
2015-24
CAGR Net sales
6.6%
Avg weighted EBIT margin
5.3%
DCF value
WACC
Discounted sum of FCF
Discounted terminal value
16.2%
17
113
Maturity phase - 2024 onwards
Long-term FCF growth
3.0%
Horizon EBIT margin
9.0%
EV
Net cash end 2014
DCF value
Value per share
Share price today
Potential upside
130
24
154
8.3
19.0
-56.3%
Multiples today
EV/Sales
Implied multiples
Implicit EV/Sales
Implicit EV/Sales 2015e
Implicit EV/Sales 2016e
7.0
2.8
3.5
3.3
So urce: Redeye Research
Bull case
If all goes extremely well,
CybAero’s fair value
might be up to SEK 41.6
per share
On the other side of the spectrum, our bull case describes a much more
positive image of the future for CybAero. In it, we assume that the firm gets
both the Korea and India prospects in the short-term, and also sells orders
for 15% of its remaining production capacity. Long-term sales therefore
reach the firm’s visionary ambition level of around 200 mUSD (around 2bn
SEK) by 2024, with a terminal growth of 6%. In addition, EBIT margins
develop more favorably and the firm outperforms its competitor Schiebel by
achieving a long-term EBIT margin of around 13%. This scenario is very
positive, but at the same time deemed reasonable since significant growth
especially in the commercial VTOL drone sector is anticipated within the
next decade and CybAero’s products are attractive for a number of
customers in this segment. Our bull case estimated fair value is SEK
41.6 per share.
DCF Bull Case Overview
Assumptions
2015-24
CAGR Net sales
38.2%
Avg weighted EBIT margin
11.7%
DCF value
WACC
Discounted sum of FCF
Discounted terminal value
Maturity phase - 2024 onwards
Long-term FCF growth
5.0%
Horizon EBIT margin
13.0%
EV
Net cash end 2014
DCF value
Value per share
Share price today
Potential upside
Multiples today
EV/Sales
Implied multiples
Implicit EV/Sales
Implicit EV/Sales 2015e
Implicit EV/Sales 2016e
So urce: Redeye Research
Company analysis
45
7.0
16.2%
223
523
747
24
771
41.6
19.0
119.2%
16.0
3.5
1.4
CybAero
The two illustrations below summarize our key assumptions for the three
cases (sales and EBIT margin). It illustrates that in the current stage of
CybAero’s development, it is clear that the firm is onto something, with a
good product, first major customer orders and a likely high underlying
growth in their niche market in the mid-term future. At the same time, the
key challenges ahead of the firm which have been highlighted in detail in
this analysis mean that there still is a rather high uncertainty as to how well
CybAero can cease the opportunity it has. As a result, both our discount rate
and the resulting valuation range in our scenario analysis are rather big.
Source: Redeye Research
Earnings and multiples comparison
Given the fragmented market and low number of direct competitors, we
have to look at bit broader in order to find applicable listed peers for
CybAero. We find these by looking at the peer selection from a more
financial and market based perspective instead of screening for them based
primarily on the product characteristics.
We have identified two main groups of peers. Firstly, it is interesting to see
the broader context of established, major firms that deliver some sort of
unmanned aircraft systems to military and civil service customers.
Secondly, a group peers that are closer to CybAero in terms of company size
and market capitalization, but mostly deliver smaller drones, primarily with
a commercial or even consumer focus. Since the group of listed firms that
can be considered direct peers to CybAero is so short, we are also including
two other listed Nordic firms: Invisio and Sectra. They are (in the case
among Sectra only with parts of their business) developing and selling
defense and security products to CybAero’s current key customer segments
Company analysis
46
CybAero
military and civil services. The table below shows the different firms in the
peer groups and their key valuation indicators.
Peer valuation overview (Data from late May 2015)
SEKm
Company
Market Cap Net Debt
2014
P/E
2015E
2016E
2014
EV/EBIT
2015E
2016E
EV/Sales
2014 2015E
17.3
16.7
17.9
17.9
n/a
17.5
17.6
16.4
16.9
17.5
16.4
n/a
16.8
16.7
15.0
15.3
17.8
15.4
11.7
15.1
15.3
11.0
11.6
13.4
13.5
10.6
12.0
11.6
n/a
n/a
10.8
n/a
n/a
10.8
10.8
11.2
11.2
10.8
11.0
10.3
10.9
11.0
1.5
1.4
0.8
1.1
0.8
1.1
1.1
1.5
1.4
0.7
1.0
n/a
1.2
1.2
1.4
1.4
0.7
1.0
0.7
1.1
1.0
2016E
Established major global defense players
Northrop Grumman
Lockheed Martin
Airbus / EADS
Boeing
Indra Sistemas
Avg
Median
262,965
508,159
457,022
838,314
13,837
16,084
36,839
-29,286
-31,372
6,339
Closer peers - market cap, product category, customer focus
Intuitive Aerial
Delta Drone
ECA Group
Invisio Communs.*
Sectra
Avg
Median
CybAero
51
423
1,083
665
4,314
1
4
-73
-5
-398
neg
neg
28.7
12.2
34.2
25.0
28.7
n/a
n/a
19.1
10.5
n/a
14.8
14.8
n/a
n/a
15.4
7.6
23.3
15.4
15.4
neg
neg
17.0
15.4
20.3
17.6
17.0
n/a
n/a
12.4
9.0
n/a
10.7
10.7
n/a
n/a
10.0
6.0
16.4
10.8
10.0
10.2
48.6
1.1
2.7
3.6
13.2
3.6
n/a
n/a
1.1
2.4
n/a
1.7
1.7
n/a
n/a
1.0
1.7
3.1
1.9
1.7
360
-24
neg
neg
neg
neg
neg
130.2
8.2
3.6
1.5
Source: Bloomberg, Redeye Research
* = data from March 2015
A good peer group is hard
to find, but the ones
identified give an idea of
reasonable future
valuation multiples
In addition, it is interesting to compare the underlying growth and margin
developments in these businesses. Doing so, it can be seen that there is a
rather broad variety of outcomes. In the group of major global defense
providers, Northrop Grumman and Lockheed Martin show rather
unimpressive or even negative growth, but with good margins while Boeing
and Airbus are growing significantly, but with resulting lower margins.
Indra is somewhat in the middle, struggling with both growth and
profitability.
Benchmark financial performance
Company
Sales growth
2012
2013
2014
Established major global defense players
Northrop Grumman
Lockheed Martin
Airbus / EADS
Boeing
Indra Sistemas
Avg
Median
-0.4%
5.9%
10.8%
24.0%
5.5%
9.1%
5.9%
-5.9%
-7.5%
1.3%
2.0%
-1.5%
-2.4%
-1.5%
2.5%
6.0%
10.9%
10.4%
6.1%
7.2%
6.1%
2012
12.4%
9.4%
3.3%
7.7%
7.5%
8.1%
7.7%
EBIT margin
2013
2014
12.7%
9.9%
3.8%
7.6%
6.8%
8.2%
7.6%
13.3%
12.3%
5.3%
8.2%
0.0%
7.8%
8.2%
Closer peers - market cap, product category, customer focus
Intuitive Aerial
Delta Drone
ECA Group
Invisio Communs.*
Sectra
Schiebel (private)
Avg
Median
CybAero
n/a
530.4% 123.8%
5600.0%
103.5%
34.9%
-26.2%
-6.3%
6.0%
3.8%
98.1% 136.5%
-0.7%
4.5%
12.6%
n/a
n/a
7.4%
1394.2% 146.1% 53.5%
1.5%
98.1% 23.8%
111.9%
Source: Bloomberg, Redeye Research
Company analysis
47
53.1%
91.9%
-106.9% -75.8%
-82.2%
n/a
n/a -11418.2%
3.5%
6.9%
6.2%
-60.0% -12.3%
17.2%
12.6%
10.5%
17.2%
n/a
10.7%
9.4%
-37.7% -12.0% -1908.4%
-28.3%
6.9%
7.8%
-119.1%
-99.7%
-71.9%
CybAero
As for the closer peers, Intuitive Aerial is in a similar situation than
CybAero, growing at extremely high rates with big losses. This is no surprise
as the maker of micro sized drones specialized for aerial professional
filming is establishing itself on the market commercially. The same holds
for French Delta Drone, a provider of mini drones for commercial
surveillance and data collection. As a result, these companies have rather
high EV/Sales multiples and accordingly negative P/E and EV/EBIT values.
ECA Group, a smaller French specialist provider of automated systems for
defense & security clients, is just achieving a turnaround in sales growth. At
the same time, it needs to be said that their micro UAVs are only a very
small part of the business, and separate results for it are not available. Both
Invisio and Sectra are as mentioned not peers to CybAero in terms of
product, but they give an idea of the valuation multiples a firm can achieve
that has ramped up its sales and production, and is targeting similar
customers with defense and security focused products.
Compared to both the available EV/Sales valuation multiples for ECA,
Invisio and Sectra as well as the group of established major defense players,
CybAero is relatively higher valued in 2015 and also 2016. This is due to the
fast growth of the firm and the ramp-up of its organization. Our estimated
EV/Sales ratio for CybAero in 2016 is however closing in on the peer
group’s level. It is also interesting to note that 2015 and 2016 multiples for
the two peer groups are rather aligned, which is why we would expect
CybAero to converge to similar levels during the longer-term future.
A detailed comparable
valuation is likely of
limited use given current
growth in the firm and the
major assumptions in our
forecasts
A quick comparable valuation using P/E and EV/EBIT multiples of 15.2 and
10.5, respectively and our base case estimates of CybAero’s net income and
EBIT in 2019 yields a share price estimate of SEK 20 and 18, respectively.
This is in line, but somewhat more conservative than our base case DCF
valuation. At the same time, it is also based on a number of major
assumptions which lead to our estimates of 2019 net income and EBIT,
which is why we do not go deeper into a comparable valuation of the firm at
this point. Once sales have ramped up into a more serial mode and our
estimates have been iterated and confirmed after the upcoming reports, we
will conduct a more detailed multiple valuation in addition to our DCF.
Besides the listed peer comparison, it is interesting to know that a lot of
investor attention internationally has been focused on various drones
during 2014 and 2015. Besides the ever increasing presence of small
consumer drones in stores and the hands of early adopting customers, this
is illustrated by the all-time high in UAV company investments shown in
the following graph.
Company analysis
48
CybAero
Source: CBinsights
This is important since - together with the rising availability and popularity
of micro and gadget-sized drones especially for consumers - it puts
additional pressure on regulators in all countries to implement reliable
regulation that creates certainty for commercial drone customers and
manufacturers.
Key risk factors
These have been highlighted throughout this analysis and can also be found
in the Investment Case summary at the beginning of the document.
Company analysis
49
CybAero
Summary Redeye Rating
The rating consists of five valuation keys, each constituting an overall
assessment of several factors that are rated on a scale of 0 to 2 points. The
maximum score for a valuation key is 10 points.
Rating changes in the report
This is the first Redeye Rating of the firm
Management 6.0p
Ownership 5.0p
Growth prospect 6.5p
CybAero has an experienced and competent management team. Most of
the C-level team have however joined rather recently, so it will have to be
finally proven that the team works. The firm also has strong and relevant
profiles in the board, which have been with the firm for several years on
average. The firm could improve its rating by communicating specific
financial and operational goals, and by constantly improving its
communication with the stock market. In addition, the performance
based pay for management is not optimal, with one option program
being rather short-term and the CEO and chairman being paid via
invoice.
Most of the board members hold a bigger stake in the firm, and also the
CEO and chairman of the board have significant positions compared to
their salary. While the firm recently attracted several international
institutional investors, we see it as a disadvantage that there is no clear,
active owner in the firm who also would have a board seat. In addition,
the firm will likely need to raise further external equity and/or debt
capital in the coming quarters, which might change the ownership
dynamics additionally.
It lies in the nature of CybAero's products that the average customer will
have a rather long decision and order process, will order several systems
at the same time, and use them over 10-15 years. This will likely generate
a rather predictable, stable order pipeline and later a recurring stream of
aftersales revenues for the firm. CybAero has however only recently
closed its first long-term customer contract, and is scaling up its sales
and production processes. Once serial sales and production are rolling
and the firm has proven its ability to satisfy its customers' expectations,
this rating will therefore be increased.
Profitability 0.0p
The company has developed its products during the last years, and just
now received its first major customer orders. As a result, profitability will
not be a relevant issue to discuss until either 2016 or 2017.
Financial strength 0.0p
CybAero had an acceptable cash and balance liquidity at the end of 2014,
but due to the ongoing buildup of the organization to fulfill the first
customer orders, the coming quarters will remain cash flow negative.
This means the firm has additional funding needs at least in 2015 and
possibly also parts of 2016. In addition, CybAero's plans are currently
very much based on especially the big AVIC order signed and the
payment from the Chinese customs deliveries. Future financial stability
will therefore depend on executing on these first orders, but also
diversifying the client base in the near-term future.
Company analysis
50
CybAero
Income statement
Net sales
Total operating costs
EBITDA
2013
24
-39
-15
2014
47
-69
-22
2015E
107
-117
-10
2016E
269
-244
24
2017E
382
-335
48
Depreciation
Amortization
Impairment charges
EBIT
0
-9
0
-24
0
-11
0
-34
0
-15
0
-25
-1
-21
0
3
-2
-21
0
24
Share in profits
Net financial items
Exchange rate dif.
Pre-tax profit
0
-1
0
-25
0
-1
0
-34
0
-1
0
-26
0
-3
0
0
0
-1
0
23
Tax
Net earnings
0
-25
0
-34
0
-26
0
0
0
23
2013
2014
2015E
2016E
2017E
8
2
5
1
16
24
50
5
1
81
0
54
9
31
94
0
59
20
1
81
0
96
29
1
126
1
0
0
0
0
27
0
28
0
1
0
0
0
0
40
0
42
0
2
0
0
0
0
50
0
53
0
5
0
0
0
0
52
0
57
0
8
0
0
0
0
50
0
58
0
44
123
146
138
184
Balance
Assets
Current assets
Cash in banks
Receivables
Inventories
Other current assets
Current assets
Fixed assets
Tangible assets
Associated comp.
Investments
Goodwill
Cap. exp. for dev.
O intangible rights
O non-current assets
Total fixed assets
Deferred tax assets
Total (assets)
Liabilities
Current liabilities
Short-term debt
Accounts payable
O current liabilities
Current liabilities
Long-term debt
O long-term liabilities
Convertibles
Total Liabilities
Deferred tax liab
Provisions
Shareholders' equity
Minority interest (BS)
Minority & equity
1
0
9
10
1
1
20
31
0
0
13
0
13
0
28
2
30
0
1
0
31
0
0
93
0
93
0
59
0
59
20
1
0
80
0
0
67
0
67
0
34
0
34
37
1
0
72
0
0
66
0
66
0
72
0
72
23
1
0
95
0
0
89
0
89
Total liab & SE
44
123
146
138
184
Free cash flow
Net sales
Total operating
costs
Depreciations total
EBIT
Taxes on EBIT
NOPLAT
Depreciation
Gross cash flow
Change in WC
Gross CAPEX
2013
24
-39
2014
47
-69
2015E
107
-117
2016E
269
-244
2017E
382
-335
-9
-24
0
-24
9
-15
-2
-17
-11
-34
0
-34
11
-22
-29
-25
-15
-25
0
-25
15
-10
-7
-26
-21
3
0
3
21
24
-12
-26
-24
24
0
24
24
48
-7
-25
-34
-76
-43
-14
16
Capital structure
Equity ratio
Debt/equity ratio
Net debt
Capital employed
Capital turnover
rate
2013
29%
168%
14
26
0.6
2014
75%
0%
-24
69
0.4
2015E
45%
30%
20
87
0.7
2016E
48%
56%
37
104
1.9
2017E
48%
26%
23
112
2.1
Growth
Sales growth
EPS growth (adj)
2013
53%
12%
2014
92%
neg
2015E
129%
neg
2016E
151%
neg
2017E
42%
n/a
Free cash flow
DCF valuation
WACC (%)
16.2 %
Assumptions 2015-2021 (%)
Average sales growth
57.9 %
EBIT margin (weighted)
8.1 %
Profitability
ROE
ROCE
ROIC
EBITDA margin
EBIT margin
Net margin
Cash flow, MSEK
NPV FCF (2015-2017)
NPV FCF (2018-2024)
NPV FCF (2025-)
Non-operating assets
Interest-bearing debt
Fair value estimate MSEK
-39
142
279
24
0
405
Fair value e. per share, SEK
Share price, SEK
21.9
19.0
2013
-156%
-73%
-140%
-62%
-100%
-104%
2014
-65%
-53%
-128%
-48%
-72%
-73%
2015E
-33%
-28%
-36%
-9%
-23%
-24%
2016E
0%
3%
4%
9%
1%
0%
2017E
29%
22%
23%
12%
6%
6%
Data per share
EPS
EPS adj
Dividend
Net debt
Total shares
2013
-2.93
-2.93
0.00
1.55
8.69
2014
-1.99
-1.99
0.00
-1.39
17.16
2015E
-1.41
-1.41
0.00
1.09
18.50
2016E
-0.01
-0.01
0.00
2.02
18.50
2017E
1.23
1.23
0.00
1.23
18.50
Valuation
EV
P/E
P/E diluted
P/Sales
EV/Sales
EV/EBITDA
EV/EBIT
P/BV
2013
148.2
-5.3
-5.3
5.5
6.1
-9.9
-6.1
10.4
2014
405.3
-12.5
-12.5
9.2
8.7
-18.2
-12.0
4.6
2015E
371.5
-13.5
-13.5
3.3
3.5
-39.0
-14.9
5.3
2016E
388.8
-1,520
-1,520
1.3
1.4
15.9
124.3
5.3
2017E
374.3
15.5
15.5
0.9
1.0
7.9
15.7
4.0
Share performance
1 month
3 month
12 month
Since start of the year
-9.5
-14.0
-37.7
-24.0
%
%
%
%
Shareholder structure %
Avanza Pension
Boston State Street Bank & Trust Com.
Aerovironment Inc
Lars Svensson
Swedbank Robur Fonder
Amer Al-Khalili
Goldman Sachs International LTD
Nordnet Pensionsförsäkring
Mikael Hult
Henrik Lewander
Share information
Reuters code
List
Share price
Total shares, million
Market Cap, MSEK
Management & board
CEO
CFO
IR
Chairman
Growth/year
Net sales
Operating profit adj
EPS, just
Equity
Capital
9.2%
5.6%
3.9%
3.0%
2.7%
2.5%
2.4%
2.3%
2.1%
1.4%
13/15e
109.6 %
1.1 %
-30.6 %
126.8 %
Votes
9.2%
5.6%
3.9%
3.0%
2.7%
2.5%
2.4%
2.3%
2.1%
1.4%
cba.st
First North
19.0
18.5
351.4
Mikael Hult
Anna-Lena Rahm
Ina Nehr
Claes Drougge
Financial information
Analysts
Alexander Sattelmaier
[email protected]
Company analysis
51
Redeye AB
Mäster Samuelsgatan 42, 10tr
111 57 Stockholm
CybAero
Revenue & Growth (%)
EBIT (adjusted) & Margin (%)
450
400
350
300
250
200
150
100
50
0
180,0%
160,0%
140,0%
120,0%
100,0%
80,0%
60,0%
40,0%
20,0%
0,0%
2012
2013
2014
2015E
Net sales
2016E
0,0%
-20,0%
-40,0%
0
-10
2012
2013
2014
2015E
2016E
2017E
-60,0%
-80,0%
-20
2017E
-100,0%
-30
-120,0%
-40
-140,0%
Net sales growth
EBIT adj
EBIT margin
Equity & debt-equity ratio (%)
2
2
1
1
0
0
-1
20,0%
20
10
Earnings per share
2012
30
2013
2014
2015E
2016E
2017E
-1
0,8
0,6
0,5
0,4
0,3
-2
-2
0,2
-3
-3
0,1
-4
-4
EPS, unadjusted
180,0%
160,0%
140,0%
120,0%
100,0%
80,0%
60,0%
40,0%
20,0%
0,0%
-20,0%
0,7
0
2012
2013
EPS, adjusted
2014
Equity ratio
Sales division
2015E
2016E
2017E
Debt-equity ratio
Geographical areas
System
Aftersales
Conflict of interests
Company description
Alexander Sattelmaier owns shares in the company : No
CybAero develops, produces and sells unmanned helicopter systems.
These systems can be equipped with different sensors for military, civil
and commercial use cases. Having its roots in university R&D projects
starting 1992, the firm was founded 2003 and is headquartered in
Linköping, Sweden. Today, CybAero has over 50 employees and
collaborations with major international players especially in the
defense and civil services supplier segments.
Redeye performs/have performed services for the Company and
receives/have received compensation from the Company in connection
with this.
Company analysis
52
CybAero
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Redeye Rating (2015-06-08)
Rating
7,5p - 10,0p
3,5p - 7,0p
0,0p - 3,0p
Company N
Management
Ownership
30
53
2
85
29
48
8
85
Growth
Prospect
14
69
2
85
Profitability
7
31
47
85
Financial
Strength
16
34
35
85
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Company analysis
53