Companies Could Benefit From US Arms Cash For Ukraine

The United States is continuing to send millions in military aid to Ukraine, which could be a boon for some companies in the sector.

The US$300 million arms package was announced last month. Part of the money will go to air defense systems made by companies like Australia's DroneShield Ltd. (DRO:ASX; DRSHF:OTC) with its counter-unmanned aircraft systems (C-UAS).

But U.S. National Security Council spokesman John Kirby warned that the money should not be used to attack targets within Russia. DroneShield's products are defensive.

"We have been very clear with the Ukrainians privately — we've certainly been clear publicly — that we do not support attacks inside Russia. We do not enable, and we do not encourage attacks inside Russia," Kirby said.

The shipments will bring the total U.S. security assistance given to Ukraine to US$37.6 billion since Russia invaded the country in February 2022.

The war has heightened interest in products like DroneShield's, Peloton Capital analyst Darren Odell wrote. It doesn't hurt that the U.S. Department of Defense also recommends the company.

The Catalyst: Protecting From Terror From Above

DroneShield develops technologies to protect people, vehicles, and installations from UAS. It provides artificial intelligence-based platforms for protection against drone threats and other hostile autonomous systems with off-the-shelf products designed for a variety of terrestrial, maritime, and airborne platforms.

Its customers include military and intelligence community members, governments, law enforcement, critical infrastructure providers, and international airports.

Peloton Capital analyst Darren Odell rated the stock Buy with an AU$0.84 per share target price.

Odell predicted that the company will be operating cash flow positive by the end of the year and "is an acquisition target."

He pointed to cash raised through a recent stock purchase plan and placement, two major new contracts, and the fact that the company has "a robust AU$200 million sales pipeline."

"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," wrote Odell.

Odell rated the stock Buy with an AU$0.84 per share target price.

Company Well-Positioned

Technical analyst Clive Maund of CliveMaund.com noted that the company is well-positioned to do well with increases in defense spending like the one just announced by the U.S.

He wrote in March that the company was a "Strong Buy" at AU$0.30 per share and that any short-term drop below that level is an opportunity to add positions. It was AU$0.18 Thursday afternoon.

Technical analyst Clive Maund of CliveMaund.com noted that the company is well-positioned to do well with increases in defense spending like the one just announced by the U.S.

"With business set to continue to grow, this looks like a good point to buy the stock ahead of a renewed advance," Maund said.

DroneShield has an advantage because it offers a unified system, Chief Executive Officer Oleg Vornik has said.

"DroneShield is unique globally, in being both a sensor developer/manufacturer, as well as designer of own Command-and-Control/C2 system," Vornik said. "This enables streamlined end-user experience with the DroneShield ecosystem."

Military Spending Increasing Worldwide

The C-UAS market was valued at US$1.34 billion in 2021 and is forecasted to grow from US$1.58 billion in 2022 to US$6.95 billion by 2029 with a compound annual growth rate (CAGR) of 23.55%, Fortune Business Insights reported. 

Pentagon Comptroller Mike McCord said the U.S. could be nearing a "watershed moment" as the country moves toward a US$886.3 billion budget for national defense in 2025. The country could be eyeing a US$1 trillion defense budget within a few years.

Military spending has increased for seven consecutive years, according to the Stockholm International Peace Research Institute. The five largest spenders, accounting for 62% of expenditures, included the U.S., China, India, the United Kingdom, and Russia. 

"The rising military spending in North America and Europe will be driven by both regions' need to re-fill weapons and equipment stockpiles that have been heavily drained by their support for the Ukrainian war effort," MRP said.

Ownership and Share Structure

DroneShield's management and insiders own 11% of the company. Vornik holds 1.4% or 8.18 million shares, according to Reuters. Chief Financial Officer Carla Balanco maintains 1.44% with 8.45 million shares, Bean has 1.26% with 7.39 million shares, and Board member Peter James has 1.09% with 6.40 million shares. 

Strategic investors hold 13.99%, while the remaining shareholdings are in retail.

DroneShield has a market cap of US$113.76 million with about 588 million shares outstanding. It trades in a 52-week range of US$0.34 and US$0.10.

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Important Disclosures:

1. DroneShield Ltd. is an affiliate of has a consulting relationship with Streetwise Reports and has paid a consulting fee between US$8,000 and US$20,000. 
2. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of DroneShield Ltd.
3. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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