Today AVTECH announced the long-awaited commercial cooperation with Lufthansa Cargo. This is our second catalyst for the stock that is fulfilled in a six months period. The evaluation period with Lufthansa Cargo started a year ago and this is of course a proof that Aventus Nowcast is a quality product. The contract is a five year long commercial agreement.
The initial revenue for AVTECH is less than SEK 1 million so the financial importance of this contract is not great but much needed to focus on further growth and to reach break-even. More important however is perhaps this sentence in the press release:
“We will shortly discuss our weather service with other airlines in the Lufthansa-group, as each airline in the group independently decides if they will join the signed agreement”.
As we wrote one year ago when the evaluation period with Lufthansa Cargo has announced the likelihood that AVTECH would receive a prestigious contract with one of the world's top airline Lufthansa Group was increased significantly when the first collaboration was announced. After the commercialization that was announced today the likelihood had increased even more.
Lufthansa is when combined with its subsidiaries the largest airline in Europe, regarding fleet size. In total the group has over 600 aircrafts including the subsidiaries Austrian Airlines, Swiss International Airlines Brussels Airlines and more. In comparison Lufthansa Cargo has 17 aircrafts in its fleet.
The next potential catalyst will be a signed contract with one of Lufthansa Groups other subsidiaries. As communicated in the press release “each airline in the group independently decides if they will join the signed agreement”. This should mean that each subsidiary does not have to evaluate the product for 12 months like Lufthansa Cargo. It is more likely there will be no need at all to evaluate the product which means a commercialization with a subsidiary could be imminent. In this business this however means 3-12 months.
Some information about SIGMA was also communicated today. The development team has moved internal testing from inhouse to outhouse. In a very short time AVTECH expects to see SIGMA in use with BRA Airline, the first development customer. AVTECH is are also in the process of developing a SIGMA app for Apples IOS that first will be released to the professional aviation industry.
We will however not at this point make any big changes in our valuation range. We have already estimated a 83% revenue growth in 2018 and a 50% growth in 2019. But we will consider some minor changes in our estimates for 2019, when the likelihood for a contract with a larger financial impact from one of Lufthansa Groups subsidiaries has increased.
Download our latest Research Report from 2017-10-25