The drone industry is already a $100bn market — here are some clues for where it may fly next
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With a laundry list of different use-cases, many investors are keeping an eye out for which applications in drone technology will stand out from the pack.
For Paul Hart and the team at Canary Capital, developments in the global market for commercial drones continue to be a trend of interest.
And in the ASX-listed space, Hart has pinpointed some sector-based stocks that fit the bill for his investment thesis.
Assessing the space more broadly, Hart told Stockhead that he looks at the sector “from two angles” — “drone applications themselves, and also capturing data and what will happen to that data to help clients gain a clear value-add.”
On the application side, Hart said one of the most obvious examples was in commercial delivery. He noted the example of Wing, a subsidiary of Google’s parent company Alphabet, which tested its first commercial delivery service in Canberra earlier this year.
But he also cited a further five industries:
Security — monitoring systems for key infrastructure such as airports;
Emergency response — safety checks and observation during natural disasters such as bushfires;
Asset scanning — system checks on hard assets such as commercial buildings or oil & gas rigs;
Infrastructure — council applications such as identifying roads in potholes before they develop; and
Gaming — use in image sequencing for augmented reality in the gaming industry.
With so many potential industries, it’s clear why multiple analysts including Goldman Sachs have applied value estimates for the global drone market of more than $100+ billion.
But like any nascent growth sector, the outlook can become more clouded once the regulatory backdrop is factored in, as authorities race to catch up with technological developments.
Geo-political shifts also play a role. Earlier this month, the US Department of the Interior grounded its entire fleet of 800 drones built by Chinese manufacturer DJI, due to security concerns around data capture.
“We think the move by the US government to down all CJI drones is significant. That said, the commercial drone market is still likely to grow exponentially, even with the associated regulatory issues that need to be addressed,” Hart said.
“So in that environment, we’re aware of the various issues and we want to identify companies that will do well in that space.”
Closer to home, a number of ASX-listed companies — both drone manufacturers and drone-adjacent players — are still looking to position for growth in the current market environment.
Hart highlighted two stocks that the investment team at Canary Capital have taken a position in — Mobilicom (ASX:MOB) and Pointerra (ASX:3DP).
The revenue-generative Mobilicom is a component manufacturer which sells communications equipment for use in drones and robotics.
The stock hit a 2019 high of 15c before declining in line with a $3.725m share placement in April priced at 10c per share.
“For me it looks poised to take another step up, provided they’ve got news-flow to follow on with, which we believe they do,” Hart said.
Deploying tech developed in Israel, Mobilicom has signed agreements to supply components with 74 of the 160 drone manufacturers globally.
Hart also noted the potential of additional memorandums of understanding (MOUs) the company has signed with other major distributors.
“They’ve also set up a communications platform which can operate independent of network infrastructure, which means it’s not dependent on towers or satellites,” he said.
“So that’s a relevant use-case on days like today in NSW, where emergency services in areas with low coverage could use a secure reliable communications network.
“So we think that gives the company a platform for growth that’s in line with the broader growth in commercial drone technology, because of their offerings that address a lot of those problems that applications in the sector are looking to solve.”
Hart was also bullish on the outlook for Pointerra, which operates slightly adjacent to the drone sector where it specialises as a data-capture and storage platform.
As an example of the company’s potential, he cited an ongoing contract with US drone company Precision Hawk, which is mapping the utility infrastructure — eg roads and power-line infrastructure — for an entire US state.
“That data will all be stored in Pointerra’s platform. Say a storm rolls through, they can capture drone images of the affected area and use the Pointerra data on file to run a before/after assessment,” Hart said.
The company also offers a data-as-a-service platform on a model where it gets paid per petabyte, allowing clients such as government councils to run automated data analytics which are currently done manually.
Like Mobilicom, shares in Pointerra have traded in a relatively flat range in 2019, as investors look for the next tangible catalyst for further growth.
Hart said a recent $2.5m capital raise had eased some investor uncertainty by strengthening the company’s cash position, while there are recent signs the company’s US business is “starting to find traction”.
“There’s significant opportunities in data-capture services for government infrastructure,” he said.
“One existing utility customer has already begun negotiating a considerably larger contract which will generate $US350k in incremental revenue over the next four months.”
With more than 2,500 local government utilities across the US, Hart said the company was well-positioned for the ongoing demand in data-capture and data-analytics based on the information collected by drones.