GE - SKYX Platforms: Revenue Growth Coming Thanks To General Electric

Summary

• SKYX Platforms Corp. believes that it has the greatest opportunities for marketing its products and licenses in the lighting industry.
• I believe that as soon as more investors learn about the market expectations and incoming free cash flow growth, demand for the stock will likely increase.
• Let’s note that the management, in the last quarterly report, announced commercial manufacturing and marketing in the second half of 2022.

SKYX Platforms Corp. ( SKYX ) recently reported in a presentation that new products will likely be launched in the second half of 2023. The royalty agreement with a massive corporation and analysts expecting revenue growth indicate a beneficial growth phase. In my opinion, even considering risks from lack of new money from investors, SKYX appears to be undervalued and a stock to follow very carefully.

SKYX Platforms: New Products Are Expected In 2022 And 2023

With the mission of making the new standard in the supply of electrical services with high security and development in homes, buildings, and industries, SKYX Platforms presents itself as a growing technological leader.

SKYX Platforms' business strategy is currently segmented into two business segments. The first segment is the direct sale of its products for individuals or companies. The second segment is the sale through licenses, like commercial agreements with General Electric ( GE ), which have allowed indirectly generating profits that end up representing a large percentage of the total number.

SKYX Platforms believes that it has the greatest opportunities for marketing its products and licenses in the lighting industry, fans and air conditioning systems, and the development of smart home products, which have populated the market in the last decade.

With that about the business model, most advisors out there and myself believe that the company’s financial figures will get better from 2022 and 2023. In this regard, let’s note that SKYX Platforms Corp. management, in the last quarterly report, announced commercial manufacturing and marketing in the second half of 2022. In my view, as more products hit the market, we will see sales growth.

While we have developed and created working prototypes of our advanced and smart products, we are continuing to refine the product prototypes and expect to begin commercial manufacturing and marketing in the second half of 2022 for the advanced products and the smart universal power-plug, ceiling fans and lighting products and for the Smart Sky Platform. Source: 10-Q

Market Expectations Include Significant Sales Growth In 2024 And Growing Net Income

Market estimates include 2024 net sales of $192 million and triple-digit sales growth. 2024 EBITDA would be $43.9 million together with an EBITDA margin of 22.86%.

In addition to 2024 operating profit of $79.4 million and an operating margin of 41.30%, analysts expect a pre-tax profit of $43.3 million. 2024 net income would stay at $43.3 million, which would imply a net margin of 22.50%.

Finally, analysts also anticipate an EPS of $0.44 per share with 2024 free cash flow of $40.6 million and a free cash flow ("FCF") margin of 21.15%. I believe that as soon as more investors learn about the market expectations and incoming free cash flow growth, demand for the stock will likely increase.

Balance Sheet

As of September 30, 2022, the company reported cash of $10 million in addition to an investment of $7 million. With inventory worth $1.4 million, total current assets stand at $20 million. Finally, with restricted cash of $2.7 million and right of use assets of $23 million, total assets stand at $47 million. The asset/liability ratio stands at close to 1x, so I would say that the balance sheet appears stable.

Regarding the liabilities, SKYX Platforms reported accounts payable worth $1.92 million, royalty obligations close to $2.77 million, and notes payables worth $5.1 million. With operating lease liabilities of $23 million and convertible notes of $1.3 million, total liabilities stand at $35 million. With more cash than financial debt, I would say that the company’s leverage wouldn’t be a problem.

My Basic DCF Model Implied A Valuation Of $3.36 Per Share

In my view, the most relevant are the agreements with large corporations. SKYX Platforms was able to sign two large commercial agreements with the historic industry leader General Electric, which served, in my view, as a catalyst for market recognition. In my view, with a big name in the annual report, SKYX Platforms may sign new agreements with large corporations. Under this case scenario, I would expect a lot of demand for the stock.

I would also expect revenue generation because SKYX Platforms is targeting a large target market. We are talking about close to $500 billion only in the United States. There is more. A global licensing agreement with GE would most likely bring more revenue growth and FCF growth than expected.

There is another interesting feature, which may indicate larger revenue growth. In the most recent quarterly report, management noted new offices in New York and Miami. If the company hires more employees to fill up these offices, I would expect revenue growth to trend up.

During April 2022, we entered into a sublease agreement, pursuant to which we agreed to sublease approximately 3,400 square feet of office space located on the 54th floor of Carnegie Hall Tower, located at 152 West 57th Street, New York, New York.

During September 2022, we entered into a lease agreement, pursuant to which we agreed to lease approximately 32,200 square feet located at 400 Biscayne Boulevard, Miami Florida. Source: 10-Q

With cash in hand, I believe that SKYX Platforms will likely have success by investing in new online channels and hiring social media influencers. As a result, revenue growth may be even larger than expected.

As part of our sales campaign, we intend to use online channels and also may also utilize social media influencers. As part of the launch of certain products, we may allow customers to pre-order prior to general availability. Our future revenue streams may also include data aggregation and subscriptions. Source: 10-K

Under my previous conditions, I included 2031 net sales of $296.4 million and a net sales growth of 4%. 2031 EBITDA would stand at $47 million in addition to an EBITDA margin close to 15.86%. 2030 FCF would stand at close to $9 million.

By assuming a WACC of 7.87%, I obtained a NPV of future FCF of $138 million. Also, with an EV/EBITDA multiple of 6.3x, the enterprise value would stand at $277 million, the equity would be $278 million, and the fair price would be $3.36 per share.

My Bearish Case Scenario Implied A Valuation Of $1.725 Per Share

SKYX Platforms reports various risks, which may affect the company’s valuation and expected revenue growth.

SKYX Platforms successfully raised a significant amount of dollars to sustain working capital and capex requirements for at least next 12 months. If investment analysts are correct, future free cash flow generation in 2023 and 2024 will likely help finance future operations. Having said that, if FCF is lower than expected, management may need to sell more equity, which may increase the cost of equity.

We believe that our existing cash and debt securities will be sufficient to support our working capital and capital expenditure requirements for at least the next 12 months. Our future capital requirements will depend on many factors, including our revenue growth rate, expenditures related to our headcount growth, and the timing and the amount of cash received from customers. Source: 10-Q

SKYX Platforms’ suppliers of raw materials are mostly Chinese industries, so the company could experience sudden changes in regulations for production and exchange. Considering the tense political and commercial relationship that China and the United States currently maintain, new tariffs to products from China will likely lower the company’s free cash flow growth.

We can add the efficiency of suppliers of raw materials and micro-components and inflation to the risk factors already mentioned above. Besides, an increase in overhead costs and transportation costs could lower the company’s free cash flow. With that, let’s note that management noted in the last quarterly report that it does not expect a lot of trouble from inflation.

Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the foreseeable future due to supply chain constraints, consequences associated with government regulations, and ongoing and potential geopolitical conflicts, employee availability and wage increases. Source: 10-Q

SKYX Platforms signed an agreement with General Electric, which offers the rights to market certain products of the company displaying the GE brand. It is a royalty agreement that expires in November 2023. In my view, if SKYX Platforms does not renew its agreement with GE, many market participants may sell their shares, which may bring a decrease in the demand for the stock. As a result, the fair price would lower.

The agreement cannot be assigned or sublicensed. The agreement imposes certain manufacturing and quality control conditions to continue to use the GE brand. The agreement expires in November 2023.

Under the previous conditions, I assumed 2031 net sales of $199 million together with a net sales growth of -2.5%. In addition, 2031 EBITDA would be $20 million with an EBITDA margin of 10%. 2031 FCF would be around -$14 million with a FCF margin of -6.85%.

If we assume an EV/EBITDA of 4.55x, the 2031 terminal value would be $91.5 million, and the NPV of TV would be $42 million. Finally, I anticipate an enterprise value of $141.5 million, a fair price close to $1.725 per share, and an equity valuation of $142.5 million.

Conclusion

With new products expected for the second part of 2022 and significant revenue generation for 2023 and 2024, SKYX Platforms appears to be a stock to follow carefully. Besides, if the target market announced is as large as expected, and the investments in new online channels are successful, we could expect FCF growth. I obviously see risks from lack of cash in hand to invest or the expiration of the agreement with GE. With that, I believe that SKYX Platforms appears to be undervalued.

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