Anti-Drone Firm Finding Profitability after Decade of Development

Founded in 2014, DroneShield Ltd. (DRO:ASX; DRSHF:OTC) is a Sydney, New South Wales, Australia-based company developing technologies to protect people, vehicles, and installations from unmanned aerial threats.

Technologies the firm has developed over the past decade include radio frequency sensing, artificial intelligence and machine learning, sensor fusion, electronic warfare countermeasures, rapid prototyping, and MIL-SPEC manufacturing.

DroneShield Limited now provides artificial intelligence-based platforms for protection against advanced drone threats and other hostile autonomous systems. The company offers bespoke counter-drone and electronic warfare solutions and off-the-shelf products designed to suit a variety of terrestrial, maritime, and airborne platforms.

Bell Potter Analyst Daniel Laing explained in a Jan. 9 research note that "this contract is from a completely different customer to the Dec. 22 order, demonstrating significant demand for the company's products from a variety of sources." 

Current products include DroneGun Tactical, DroneGun MKIII, DroneSentry, DroneSentry-C2, DroneSentry-X, and RfPatrol.

The DroneGun Tactical is a man-portable countermeasure designed for two-hand operations and the long-range defeat of drone threats across the operational spectrum. The system was notably used to protect Brazil’s recent presidential election.

RfPatrol is a passive wearable drone detection device that provides situational awareness regarding unmanned threats without producing any active signature that can be tracked by hostile actors.

DroneShield Limited’s customers span the globe and include military and intelligence community members, governments, law enforcement, critical infrastructure providers, and international airports.

The Catalyst: Decade of Development = Mature, Salable Product

The company is at a very important point along its maturation journey. With its main line of products already fleshed out, functional, and scaled for production, DroneShield Limited is now actively building up its customer base, securing new contracts at a respectable cadence.

In January, the company announced its first new contract of the year, worth US$11 million, causing Bell Potter to raise its target price for equity in the firm by two cents to US$0.34 per share.

Bell Potter Analyst Daniel Laing explained in a Jan. 9 research note that "this contract is from a completely different customer to the Dec. 22 order, demonstrating significant demand for the company's products from a variety of sources."

Peloton Capital analyst Darren Odell issued a February 13 research note considerably raising his firm’s target price for DroneShield Limited stock.

The previous order mentioned was also for US$11 million. With those two contracts alone, DroneShield had secured US$16.5M in contracted revenue for 2023, 62% of Bell Potter's US$26.5M revenue estimate for the entire year.

The next month brought further good news for the corporation, with Peloton Capital analyst Darren Odell issuing a February 13 research note considerably raising his firm’s target price for DroneShield Limited stock.

"We have increased our DroneShield valuation to AU$1 (from AU$0.30) based on increased confidence on the closure [of] larger contracts in 2023 and beyond," Odell wrote. "DroneShield has undertaken material groundwork over the last four years and has finally reached its tipping point."

In addition to the two recently-closed contracts, the company has a sales pipeline of about AU$200 million comprising roughly 20 AU$10M contracts, Odell explained.

"With its footprint in Five Eyes countries, it is reasonable to assume that certain existing contracted customers are likely to grow their DroneShield product base in time," Odell explained, and so Peloton expects DroneShield to seal three larger and several smaller deals — potentially more — as the year progresses.

Why This Sector: Threat of Drones Increasing

Odell also pointed out the recent evaluation and likely recommendation of DroneShield by the U.S. Department of Defense's Joint Counter-Small Unmanned Aircraft Systems Office. As drone warfare becomes more ubiquitous, the market demand for simple, effective solutions will no doubt grow in tandem. 

"The global anti-drone market size was valued at US$1.3 billion in 2021,” according to a recent market report from Allied Market Research, "and is projected to reach US$14.6 billion by 2031, growing at a CAGR of 27.9% from 2022 to 2031.”

One contributor to this expansion is the Russia-Ukraine war potentially having "ensured elevated interest in the capabilities of the likes of DroneShield, which is not expected to dissipate any time soon," Odell writes. "The geopolitical situation is a net positive for DroneShield, evident by recent drone attacks in Ukraine."

Why This Company: Proven Tech, Strong Market

In a report posted on January 20, analyst Clive Maund laid out why he thinks DroneShield Limited is well-positioned to capture the lion’s share of this burgeoning market.

In a report posted on January 20, analyst Clive Maund laid out why he thinks DroneShield Limited is well-positioned to capture the lion’s share of this burgeoning market.

"With the third World War having now 'officially’ begun," he opines, "companies like DroneShield, which make military class drones and also drone defense technology, look set to do very well indeed . . .  DroneShield is now starting to win some very big orders and is going from strength to strength.”

"It was last recommended on the site several days back . . . before it broke powerfully higher on heavy volume, a big move for a stock with over 400 million shares in issue, which seems to be ‘par for the course’ with Australian stocks."

"Price/volume action in DroneShield is very bullish indeed, and the fundamental outlook for the company could scarcely be better. It is therefore believed to be just beginning a major bull market that should take it to much higher levels."

Why Now: Positive Cashflow = End of Startup Phase

On March 9, Odell issued new research, reporting that the company will be operating cash flow positive by year-end and "is an acquisition target." DroneShield raised AU$29.4 million through a stock purchase plan resulting from an AU$ 10.9 million placement in February.

"The recent capital raise has provided DroneShield the ability to build inventory in anticipation of material contracts (and fulfill smaller contracts faster) that are expected to close, in the short to medium term," he wrote.

Concerning DroneShield likely being acquired, Odell pointed out that one of DroneShield's shareholders is Epirus Inc., a California-based defense firm with a 3.16% existing interest.

A March 2 newsletter from National Inflation Association pointed out that the company’s stock "closed this morning's Australian trading session at a new 1-month high of US$0.37 per share where it is currently up by 85% from NIA's suggestion price. DRO will probably hit new 52-week highs very soon and become a takeover target of the world's largest defense contractors."

Ownership and Share Structure

Approximately 11% of DroneShield's stock is owned by management. CFO Carla Balanco holds 8.45 million (1.44%). CEO Oleg Vornik owns 8.18 million shares (1.40%), CTO Angus Bean owns 7.39 million (1.26%), and Independent Chairman Peter James owns 6.40 million (1.09%).

According to Reuters, 13.99% is owned by strategic investors.

Independent Investor Charles Goode has 21.5 million shares (4.41%).

The largest single shareholder is Eprius Inc., which holds some 18.5 million shares (3.16%).

The company currently has introduced ten institutional investors as part of its February placement. No further details have been released to the public at this time. 

DroneShield Limited has a market cap of $US 110.32 million, with 585,179,443 shares outstanding and a free float comprising some 83.51% of traded shares.

Disclosures:
1) Owen Ferguson wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. He or members of his household own securities of the following companies mentioned in the article: None. He or members of his household are paid by the following companies mentioned in this article: None.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. As of the date of this article, an affiliate of Streetwise Reports has a consulting relationship with: DroneShield Ltd. Please click here for more information. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

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