Long Term Certification Progress And Order Book Expansion Will Support Future Evtol Demand

Catalysts

About Vertical Aerospace

Vertical Aerospace is developing the VX4 electric and hybrid-capable aircraft as a pure-play OEM focused on certification and production for commercial and potential defense use cases.

What are the underlying business or industry changes driving this perspective?

• Progress toward piloted transition flights under close U.K. CAA oversight, along with extensive early regulatory engagement and design organization approval, reduces uncertainty around the certification path and timing. This can support future revenue visibility and capital spending discipline.
• A larger, more flexible cabin that can scale from 4 to 6 passengers, along with substantially greater luggage capacity, is tailored to high-demand airport-to-city routes and can support higher ticket volumes per flight, which directly affects potential operator revenue and VX4 pricing power.
• The pure-play OEM model with Tier 1 aerospace suppliers, contracted nonrecurring costs and U.K.-based cost advantages is designed to keep the guided US$700 million certification cost and US$1.1 billion total certification investment contained. This can influence future net margins and returns on invested capital.
• The ability to retrofit the existing airframe with a gas turbine hybrid powertrain, combined with very strong interest from European defense stakeholders and scope for nondilutive funding, points to incremental use cases in defense and long-range missions that could broaden the revenue base and support earnings diversification.
• One of the largest and globally diversified order books in the sector, supported by relationships with a Tier 1 lessor and major operators, combined with plans to reopen and selectively expand that order book and ramp manufacturing across multiple regions, underpins potential long-term revenue growth and scale-driven margin improvement.

Assumptions

How have these above catalysts been quantified?

• Vertical Aerospace currently has no revenue. Analysts are forecasting revenue to reach £53.0 million by August 2029.
• Analysts are not forecasting that Vertical Aerospace will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Vertical Aerospace's profit margin will increase from 0.0% to the average US Aerospace & Defense industry of 9.3% in 3 years.
• If Vertical Aerospace's profit margin were to converge on the industry average, you could expect earnings to reach £4.9 million (and earnings per share of £0.03) by about August 2029, up from £651.0 thousand today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 253.7x on those 2029 earnings, up from 119.6x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 39.9x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.53%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The company targets certification in the second half of 2028 and plans to publish a detailed quarterly road map. Management is clear that the process will "take what it will take" with no scope to pull timelines forward, so any regulatory delay or additional testing requirements from the U.K. CAA or other authorities could push back entry into service and slow the path to meaningful revenue and earnings.
• The business model relies on a relatively lean US$700 million certification budget and US$1.1b total certification investment, with key nonrecurring costs largely fixed through supplier contracts. If supplier estimates prove too low, if additional design iterations are needed before or after CDR, or if inflation in aerospace labor and materials persists, total cash burn could rise and weigh on future margins and returns on invested capital.
• Management highlights a large and globally diversified order book, potential hybrid aircraft sales to defense customers and the intent to reopen and grow orders. Orders are not the same as firm, fully financed deliveries, so any slowdown in customer funding availability, changes in airline or lessor priorities, or slower than expected uptake in defense and regional mobility could limit realized revenue and earnings growth even if certification is achieved.
• The VX4 is positioned around passenger comfort, larger cabin volume, higher luggage capacity and flexible seating for 4 to 6 passengers, but these design choices add weight and complexity. If future battery technology or hybrid performance does not support the intended payload and range at competitive unit costs, operators may face weaker route economics, which would pressure aircraft pricing, operator profitability and ultimately Vertical Aerospace's own revenue and gross margins.
• The long term thesis leans on securing a global industrial partner, ramping from a single U.K. facility to three regional manufacturing sites and accessing nondilutive defense and government funding. If partnership talks stall, if government support is smaller or slower than hoped, or if build out of production capacity in the U.S., Europe and Asia takes longer than guided, the company could remain production constrained and underutilize its order book, limiting scale benefits, net margin expansion and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $7.88 for Vertical Aerospace based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.12, and the most bearish reporting a price target of just $2.03.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be £53.0 million, earnings will come to £4.9 million, and it would be trading on a PE ratio of 253.7x, assuming you use a discount rate of 8.5%.
• Given the current share price of $0.77, the analyst price target of $7.88 is 90.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.