Drone Delivery Canada ready to take flight

DDC was the first Canadian drone operator to recognize the advantages of drones for specialized delivery systems and they are now on the brink of achieving operational stability and financial success. Seeking forgiveness for his pun, Investor’s Digest of Canada columnist Mike Kachanovsky says the sky is definitely the limit for this ambitious company.

drone_deliveryJunior technology stock Drone Delivery Canada Corp. (TSXV—FLT; OTCMKTS—TAKOF), or DDC, has been on a roll this past year and the successful achievement of several important corporate milestones have now paved the way for future commercial operations. The company has been active on several fronts since 2014 to advance from the concept stage to the ultimate achievement of a working system that is regulatory compliant, safe and fully operational.

Development of the cost-effective solution using drones for delivery of essential packages to remote communities is rapidly moving forward. The highlight of this process was the completion of a pilot project program in September at the remote northern Ontario communities of Moosonee and Moose Factory.

Thorough field trials were completed using the Sparrow drone to simulate daily operating circumstances under a variety of conditions. About 50 people participated in the process including senior management and operational staff along with personnel from Transport Canada and Nav Canada. During a period of two weeks the pilot project delivered real payloads including necessities such as food and medical supplies. Daytime and evening operations were conducted on approved flight paths in a variety of beyond visual line-of-sight scenarios. The pilot project achieved 100 per cent success for all phases of the test regime.

DDC worked closely with Nav Canada

Procedures for the safe management of drone flight in controlled airspace were developed with and approved by Nav Canada. In fact, DDC operations were conducted in a similar fashion as airlines and general aviation operations in that DDC personnel co-ordinated their flight operations on the same approved radio frequencies and using the same radio procedures as other flight operations being conducted in the Moosonee area.

Based on the outstanding results and the lessons learned from the recent field testing, DDC continues to move closer to commercialization of drone delivery technology. It appears that 2019 will be the pivotal year for the company as the focus starts to shift from development towards achieving financial milestones and growth.

DDC has been engaged in discussions with representatives from many other northern communities that are investigating establishing drone delivery services. Over 1,000 smaller remote communities have been identified just within Canada that would be beneficiaries of logistical advantages afforded by the drone delivery system. Many are First Nations communities.

First Nations relationship established

As part of the strategy to build support among leadership within First Nations groups, DDC has appointed Stan Kapashesit to its advisory board. Currently serving as Director of Economic Development for the Moose Cree First Nation, he is an ideal candidate and ambassador for DDC. Mr. Kapashesit knows the difficulties involved to source necessities in remote communities using conventional delivery options, and he also understands the economic benefits to be gained from participation in the DDC program. The potential for new job opportunities for local residents along with lower costs for essential supplies, with more regular and reliable shipment schedules, are attractive incentives for participating communities.

Now that a working framework for the program has been demonstrated in Moosonee and Moose Factory, the support from a respected leader in the First Nations community and his connections to make introductions with other indigenous groups will assist DDC to establish new drone delivery hubs in similar communities across the North.

Infrastructure costs will be paid by recipient clients

Since the up-front infrastructure costs to build secure drone landing pads and delivery stations (also known as Drone Spots) will be paid by clients as part of the setup fee, the company may look forward to a very rapid growth phase without the burden of funding incremental costs associated with each new community added to the network. Each drone flight thereafter would generate operating revenues so the potential for a very rapid revenue growth curve is built-in with this powerful business model.

Corporate partnerships are also in the offing and discussions have been underway with several companies to develop delivery networks for their own internal logistical needs.

Meanwhile, the pace of technology development continues to accelerate in the sector. The Condor, a larger and more advanced drone, is being considered as an expansion to the current fleet of Sparrow drones in operation by DDC. With a 400-pound (181.4-kilogram) payload capacity, the Condor may add clout to the shipping options and yet would still be compatible with the infrastructure serving the network, and under similar functional processes and procedures already developed for the system.

DDC is able to adapt its industry-leading software and management systems to the new technology as it becomes available. The leverage of more powerful equipment and more efficient drone shipment options will enhance the benefits of the program and attract more potential client communities.

Growth potential based on sound finances

Along with the growth potential, DDC presents appealing investment fundamentals. A strong balance sheet with about $25 million in cash should be sufficient to fund the business plan until operating cash flow is achieved. The company has no long-term debt. Considering the market cap in the range of $250 million, the story is advanced enough to fit the criteria for institutional ownership, and yet most of the upside is still ahead to attract aggressive growth funds.

It appears that DDC has already resolved many of the risk factors that are typical of speculative technology stocks. With its advanced drone management software, the system has been granted several regulatory approvals for its current operations, and aims to deploy to Canadian communities with the prospects for rapid growth. And the company is fully funded so even that potential risk is a non-issue going forward.

DDC was the first Canadian drone operator to recognize the advantages of drones for specialized delivery systems and they have followed the concept through to where it is now on the brink of achieving operational stability and financial success. Excuse the obvious pun, but the sky is definitely the limit for this ambitious company. And while exceptional growth prospects may power the market performance in the next year or so, as more communities embrace the efficiency of this drone technology I expect the internal cash flow generation and long-term profitability will eventually earn a premium valuation for the stock.

Mike Kachanovsky is a freelance writer who specializes in junior mining stocks and also covers technology companies.

This is an edited version of an article that was originally published for subscribers in the December 21, 2018, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

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