Defense Tech Co. Wins $3.1M Order from US Government

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DroneShield Ltd. (DRO:ASX; DRSHF:OTC) garnered a repeat order from the U.S. government, this one a US$3.1 million (US$3.1M) contract for maritime counter-unmanned systems, or C-UxS, noted a news release.

The Australian defense technology company expects to complete fulfillment of the order this month using existing inventory. Payment should be received in Q4/24. 

DroneShield provides end-to-end counterdrone solutions, combining proprietary artificial intelligence-backed software with a suite of hardware products for detecting, identifying, and defeating aerial, ground, and maritime threats, the release noted. DroneShield's customers include military and intelligence, government, and law enforcement, along with critical infrastructure and commercial entities.

The busiest time of year, historically, for DroneShield is Q4/24, noted Bell Potter Analyst Daniel Laing in an August 27 research report. In 2023, the counterdrone company recorded 80% of the year's revenue in the second half.

Shaw & Partners Senior Analyst Abraham Akra expects sales to accelerate in H2/24, he wrote in an August 27 research report. DroneShield's robust sales pipeline, valued at AU$1.1 billion (AU$1.1B) at the end of Q2/24, should help drive additional orders. Other impetuses are the existence of the NATO Framework Agreement, signed earlier this year, and the U.S. Department of Defense's recommendation of DroneShield.

To date, the biggest contract DroneShield was awarded was US$33M from a U.S. government agency last July.

26% CAGR Projected for Sector

The global counterdrone market is forecasted to expand at a compound annual growth rate of 26% between 2023 and 2032, according to Global Market Insights, reaching US$15.3B in value, up from US$1.9B during the period.

Increasing advancements in drone technology, including longer range, larger cargo capacity, autonomous flying, communication, and control technologies, are expected to contribute to sector growth, the marketing firm indicated. Increasing geopolitical security concerns, the need for military forces to defend their bases, troops, and critical operations, and surging cases of unauthorized drone activities by terrorists, for example, are other growth drivers.

Akra has a Buy rating on DroneShield and a target price, implying a 4.8% return. Laing also rates the company Buy, and his target reflects an 8.9% return for investors. 

Rising government expenditures on the defense and aerospace industry are also forecasted to impact the sector.

A September 12 Wealth Daily article reported that the U.S. defense budget is about US$895B and is likely to hit US$ trillion in the next few years.

Further, NATO is already set to spend more than that this year.

"In fact, a record 18 NATO members are on track to hit the alliance's oft-stated target of 2% of GDP — up from just three in 2014. And some of those countries — most threatened by Russia’s aggression — are exceeding it," the reporter wrote. 

Poland, for example, is spending about 4% of its gross domestic product (GDP) on defense this year, and it is lobbying NATO to raise spending guidance to 3% of GDP from 2%. 

The Catalysts: More Orders

Sector growth is a catalyst for DroneShield, noted Akra, adding, "We expect DroneShield to experience considerable operating leverage due to rising global defense budgets and a focus on C-UAS."

Nearer-term catalysts for the company include additional contracts/orders and quarterly financials reflecting cash flow growth. As mentioned above, investors may want to keep their hand on the pulse during the last quarter of the year. 

Akra has a Buy rating on DroneShield and a target price, implying a 4.8% return. Laing also rates the company Buy, and his target reflects an 8.9% return for investors.

Ownership and Share Structure

Management and insiders own 11% of the company. CEO Oleg Vornik owns 2.23% of the company with 15 million options on a fully diluted basis.

Non-Executive Chairman Peter James owns 0.58% of the company with 920k shares and 3 million options, on a fully diluted basis, and Non-Executive Director Jethro Marks owns 0.22%, with 1.5 million options, on a fully diluted basis, according to DroneShield.

The largest independent investor, Charles Goode, owns 4.41% of the company with 21.5 million shares, while strategic investors own a total of 13.99% of the company.

Eprius Inc. is the second largest shareholder, with 3.16% of the company having 18.5 million shares.

Regarding capital structure, DroneShield has 872.02M outstanding shares, 782.35M free float traded shares and 27,000 shareholders.

The company's market cap is AU$1.16 billion. Its 52-week trading range is AU$0.245–2.72 per share.