DroneShield Ltd. (DRO:ASX; DRSHF:OTC), an antidrone technology manufacturer, has had its best ever Q3 and year to date, and this performance bodes well for a record 2023, reported Bell Potter analyst Daniel Laing in an October 23 research note.
"The outlook for the company remains positive, with the ongoing conflict in Ukraine and now the Middle East driving increased demand for DroneShield products and technology," Laing wrote. "Increasing hostilities globally are broadly driving a significant increase in defense budgets."
In 2021, he noted, aggregate military spending surpassed US$2 trillion for the first time.
Attractive Return Potential
Bell Potter updated its financial model on the defense equipment company in accordance with the latter's recent Q3/23 update, Laing wrote. For instance, the financial advisory firm raised its revenue targets for 2023, 2024, and 2025 by 7%, 6%, and 5%, respectively.
The result, however, was no change to its target price of AU$0.45 per share on DroneShield. The manufacturer's current share price, in comparison, is about AU$0.285.
Given these two prices, the implied return for investors is compelling, at 58%.
DroneShield is a Buy.
Strong Financial Results
Laing presented some financial highlights from DroneShield's recent update.
Cash receipts in Q3/23 were AU$10.2 million (AU$10.2M), and the total so far this year (Oct. 20, 2023) was AU$48.2M, wrote Laing. These monies were generated from the company finishing multiple orders and partially completing its AU$33M contract with the U.S. government.
Year-to-date revenues were AU$43.3M. This amount is 59% higher than the same time last year and more than two and a half times the total revenue generated in full-year 2022 of AU$16.9M.
"We believe this [earnings] momentum is likely to continue with a particularly strong calendar year 2023," Laing wrote.
As for its current balance sheet, DroneShield has AU$50.1M in cash and no core bank debt.
Robust Backlog, Pipeline
The company very well could have a record year, Laing purported.
Supporting this claim are DroneShield's AU$51M backlog of contracted orders and its roughly AU$400M sales pipeline. In the near term, the company could be engaged to deploy its technology at U.S. military bases and/or Australian airports.
Also, DroneShield is in discussions with an existing customer in Europe for what could be an AU$30M-plus agreement for product delivery in 2024 and 2025.
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Disclosures for Bell Potter, DroneSheild Ltd., October 23, 2023
Disclosure: Bell Potter Securities acted as joint lead manager of DRO's $10.9m capital raising in February 2023 and received fees for that service.
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