Counterdrone Co. Maintains Buy Rating as it Targets AU$2.3B Sales Pipeline in 2026
Research Report

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Disclosures for Bell Potter, DroneShield Ltd., February 25, 2026

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On February 25, 2026, Bell Potter Securities analyst Baxter Kirk maintained a Buy rating on DroneShield Ltd. (DRO:ASX; DRSHF:OTC) while trimming the 12-month target price to AU$4.80 from AU$5.00. The adjustment reflects minor earnings revisions, though the analyst remains constructive on the company's positioning in the rapidly growing counter-unmanned aerial systems (C-UAS) market.

DroneShield, an Australian defence manufacturer specializing in counter-drone technology, reported CY25 revenue of AU$216.5 million, representing 276% year-over-year growth and in line with Bell Potter's estimates. The company provides end-to-end counter-drone solutions integrating proprietary AI software with hardware products used to detect, identify, and defeat aerial, ground, and maritime threats across handheld, vehicular, and fixed installations.

Gross margin excluding inventory impairment came in at 64.8%, slightly below Bell Potter's 67.9% estimate, with the shortfall attributed to weaker-than-expected margins in the second half. The company recorded AU$10.3 million in total inventory impairments related to earlier-model DroneGun units as customer demand shifted to the latest DroneGun Mk4. A new ERP system implementation is expected to reduce future wastage.

Operating expenses totaled AU$125.3 million, driven by headcount growth and elevated share-based payments of AU$23.5 million. Stripping out those share-based payments, the underlying EBITDA reached AU$36.5 million, a significant improvement from the CY24 loss of AU$4.0 million. Statutory net profit after tax was AU$3.5 million.

Looking ahead, DroneShield reported a AU$2.3 billion sales pipeline, which grew by AU$259 million due to APAC additions, partially offset by an AU$87 million negative foreign exchange impact. Bell Potter forecasts revenue of AU$324.2 million in CY26, rising to AU$417.8 million in CY27 and AU$495.0 million in CY28, with EBITDA expected to scale from AU$82.4 million to AU$177.4 million over the same period.

The analyst made EPS revisions of -7%, -3%, and +1% across CY26, CY27, and CY28, respectively, reflecting the reclassification of share-based payments out of underlying EBITDA and refined diluted share count forecasts. Other changes include higher recurring revenue assumptions, lower gross margins, and higher depreciation and amortization.

Bell Potter's valuation is derived from a weighted average of base case (75% weighting) and bull case (25% weighting) DCF scenarios, producing a blended equity valuation of AU$4.79 per share across 929 million diluted shares.

Key risks include competition from large multinational defence contractors, supply chain concentration with a limited set of contract manufacturers, foreign exchange exposure, particularly on the USD/AUD rate, and dependence on defence export licensing approvals in Australia and the United States. Obsolescence risk is also highlighted, given the rapid technological advancement in the sector.

At the current price of AU$3.39, DRO trades at 35x CY26 estimated EV/EBITDA, which Bell Potter notes is at a discount to the global drone peer group. The target price of AU$4.80 implies 41.6% potential upside. The analyst expects 2026 to be an inflection point for the global C-UAS industry and sees upside risk to revenue forecasts given the opportunities in the market.

It should be noted that Bell Potter acted as Joint Lead Manager and Underwriter of DRO's AU$100 million capital raising in April 2024 and AU$120 million capital raising in August 2024, and received fees for those services.