Vertical Aerospace: Rising Like A Phoenix!

As avid readers will have noticed recently, and those on my newsletter were informed before the event in this case, I purchased 10,000 shares in Vertical Aerospace (NYSE: EVTL) this week. Why you may ask, well, in my opinion there is a possibility of a 28.5% share price increase in the next three or four months. Let me explain…

Vertical, unlike German competitors Lilium and Volocopter who recently filed for bankruptcy, has defied the evident cash crunch affecting nascent eVTOL air taxi manufacturers, particularly outside of the US and China. While Archer Aviation and Joby Aviation are riding high on a wave of international risk capital, Vertical has had to make do with more modest funding, that is until recently.

And while British companies are not always as well funded as their US cousins, they can and do produce world leading technology, such as from Rolls Royce aerospace and defence as well as Jaguar Land Rover automobiles, and sometimes for far less money than international competitors. That may be partly why in a recent survey by PwC Britain surpassed Germany, China and India to become the second most important destination for investment after the US¹.

It may have also partly contributed to US based Mudrick Capital’s decision along with others to substantially refinance Vertical recently. It was announced² only two days ago that Jason Mudrick has agreed to reduce Vertical’s debt by $130m in a debt for equity swap, while also injecting a further $25m, along with with $60m from new investors (and and additional $5m, possibly from Stephen Fitzpatrick if I have deduced correctly).

Overnight this has helped transform Vertical it into a relatively well capitalised business with a cash runway approaching 18 months in my opinion, when also taking into account current cash and $12.5m being due in 2025 from British government related funding. This is in addition to further financing arrangements having been made as part of the recent process (i.e. Tranche A & Tranche B Warrants³) that could extend that cash runway by a further year or more. In total, the recently agreed funding is $84m (after fees) as well as potentially a further $101m.

This potential cash runway may take them well towards their intended certification target of 2028, where they are working with Britain’s Civil Aviation Authority (CAA), and concurrently with Europe’s EASA, while also having certification efforts underway with the US’s FAA, Japan’s JCAB, Singapore’s CAAM and Brazil’s ANAC.

What I particularly like about the recent offering is that, according to the Form 6-K, the additional Tranche A funding (presumably $50.5m from extrapolation of various sources) is conditional upon it being received prior to crewed wing-borne flight with conventional takeoff and landing. Having recently become only the second company in the world to achieve piloted thrust-borne flight with a full-scale vectored thrust eVTOL aircraft, perhaps this additional cash is not that far off.

Additionally, Vertical’s current goal, as part of their Flightpath 2030 strategy, is for piloted wing-borne and transition flight in 2025, so a step beyond the Tranche A condition. That gives me confidence that should Vertical’s testing continue to proceed well this year, then an additional $50.5m is potentially accessible without having to approach the capital markets again.

So in my opinion the finances are looking in fairly rude health and well positioned for potentially taking the company to the latter stages of certification around the world. Furthermore the pedigree of senior staff at Vertical is impressive with backgrounds at Rolls-Royce, Leonardo, the Royal Air Force, Gulfstream, Vodafone, Ovo, Avast and Jaguar Land Rover. Together they have previously certified and supported over 30 different civil and military aircraft and propulsion systems. Furthermore aviation Industry Veteran, Dómhnal Slattery, was announced as Chairman on January 15th. Mr Slattery brings over three decades of aviation expertise including founding and scaling two of the leading global aviation finance firms: Avolon and SMBC Aviation.

Development-wise Vertical is taking a similar approach to Archer Aviation in its approach to its aircraft, de-risking its execution with Tier 1 industrial partners including; Honeywell, Dassault Systems, Leonardo, GKN Aerospace, Molicel, Hanwha and Syensqo⁴. Vertical is currently sourcing approximately 60% of its aircraft’s subsystems and components from these leading suppliers.

Headquartered in Bristol, Vertical is at the heart of Britain’s aerospace cluster, giving access to top talent, and aerospace technical and supply chain ecosystems. Given $60m of the recent funding was from new investors, I would not be surprised to learn one or more of these partner companies had invested, or perhaps nearby Jaguar Land Rover Automotive PLC, or leading private British technology company Dyson. For me, this concentration of talent and expertise is what gives Vertical a competitive advantage.

With an international array of partners it is no surprise that Vertical also has an international array of indicative orders for 1,500 aircraft, worth $6 billion from companies around the world (albeit like other competitors; those orders are not guaranteed). These potential customers include American Airlines, Japan Airlines, Marubeni, Avolon, Bristow and AirAsia; orders from whom will hopefully start being fulfilled from 2028 onwards as Vertical’s manufacturing ramps up towards a target run rate of over 200 aircraft a year by 2030, supported by its 5 year order book.

Given the recent changes in the White House, together with Vertical’s ownership structure now more heavily centered towards the US thanks to Mudrick Capital, I would not be surprised to see a US manufacturing facility announced at some point to support this target and potentially avoid US import tariffs.

With a market capitalisation of only $477m, Vertical is currently valued at 1/10th of the value of Archer Aviation with a similar indicative order book, and 1/14th value of the potential market leader Joby Aviation. I often talk about the jaw dropping value of Archer relative to Joby, however Vertical’s relative valuation in my opinion is far beyond that, and well into the realms of mind blowing value!

So, this week I bought 10,000 shares at an average of $5.65 and hope to see over $7.26 a share by April or May this year, which would be a potential 28.5% gain over the next three or four months. With a recent high in December of $15.99, an average analyst forecast of $9.39 and the share price having traded at over $9 prior to this refinancing, $7.26 does not seem unreasonable to me.

Disclaimer: The information available from DoubleBubbler.com is for your general information and use and is not intended to address your particular requirements. In particular, the information does not constitute any form of advice or recommendation by me and is not intended to be relied upon by anyone making (or refraining from making) any investment decisions.

You should carry out your own due diligence and make your own decision as to whether to invest based on aspects such as but not limited to personal research, appropriate independent advice, your circumstances, your appetite for risk etcetera. I am not a professional, just a successful private investor who is motivated by many things including helping my community, having fun while making money and having once been homeless.

¹ Source. ² Source. ³ Source. ⁴ Source.

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