Bell Potter analyst Daniel Laing reinstated his Buy rating on DroneShield Ltd. (DRO:ASX; DRSHF:OTC) in a March 4 research note following the company's standout 2023 performance.
"DroneShield (DRO) has had an outstanding last 12 months, which has been reflected in the share price performance YTD," Laing wrote.
With the stock pulling back recently, Laing sees an attractive entry point supported by a robust sales pipeline and clear earnings growth trajectory.
Financial Results and Projections
In 2023, DroneShield reported:
- Cash receipts of AU$73.5 million (5x 2022)
- Revenue of AU$55.1 million (3x 2022)
- First profitable year with net income of AU$9.3 million (versus AU$0.9 million loss in 2022)
The analyst made no forecast changes in the update but remains confident in continued earnings expansion through 2024.
Industry Backdrop
DroneShield is well-positioned to capitalize on several converging macro trends:
- Rising global defense spending
- Increasing risk and prevalence of drone threats
- Growing adoption of AI/ML technologies
Recent Business Momentum
2023 was a breakout year punctuated by major contracts.
Laing noted that "operational highlights for the year include four contracts with a total value in excess of AU$10m, including an AU$33m U.S. Government contract, and a US$9.9m R&D contract with the Australian Government relating to the company's proprietary AI/ML driven software."
The company also significantly expanded its workforce to 115 employees and production capacity to AU$300-400 million annually with a larger facility.
Most notably, DroneShield provided unprecedented visibility into its opportunity set, detailing a current sales pipeline of AU$510 million, with AU$388 million of potential orders for 2024 alone.
"DRO's confidence in the sales pipeline is reflected in its recent investment (committed supply chain payments of AU$30m) in its inventory balance, which we view as a leading indicator of near-term sales announcements," Laing commented.
Valuation and Upside
With greater confidence in the pipeline conversion, analyst Laing reiterated his AU$0.90 per share price target, implying a significant upside from current levels.
He views DroneShield's AU$30 million investment in inventory as a positive leading indicator of anticipated sales growth.
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- 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.
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Disclosures for Bell Potter, DroneShield Ltd., March 4, 2024
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