DroneShield Ltd. (DRO:ASX; DRSHF:OTC) garnered analyst coverage by financial firm Bell Potter, which initiated it with a Buy recommendation and an AU$0.24 price target, reported analyst Daniel Laing in a September 26, 2022 research note. In comparison, the counter-drone technology manufacturer is currently trading at about AU$0.10 per share.
The company is well positioned to "capitalize on favorable macroeconomic conditions accelerating structural growth in the market," Laing pointed out.
"DroneShield differentiates itself from the rest of the market by offering an end-to-end counter-drone solution with largely in-house technology," Laing wrote.
The analyst highlighted the key factors that make this Australian company a compelling investment.
1) DroneShield has exhibited strong recent revenue growth, which is expected to continue. In 2021, the company grew revenue by 89% year over year to AU$10.6 million (AU$10.6M) and is expected to have a "particularly strong" H2/22, noted Laing. DroneShield generates revenue from hardware sales, research and development (R&D) contracts, and software-as-a-service (SaaS). The latter is expected to drive margin expansion and eventually be the company's primary revenue source.
2) DroneShield has a robust sales pipeline, which suggests long-term demand. The company reported AU$100 million worth of sales opportunities this year and another AU$250M worth for next year plus.
"Potential catalysts include validation of the sales pipeline through consistent contract wins and greater visibility over the pipeline through the calendar year 2023 and beyond," Laing noted.
3) DroneShield has the chance to expand outside of its core business of counter-drone defense into adjacent markets such as electronic warfare.
"DroneShield's appointment to the ISREW Panel (intelligence, surveillance, reconnaissance, and electronic warfare) and its ongoing R&D contracts are a strong endorsement of its capabilities in this field and raise the prospect of future revenue streams outside its core competencies," wrote Laing.
4) The company is well positioned to "capitalize on favorable macroeconomic conditions accelerating structural growth in the market," Laing pointed out. These include a global increase in defense budgets, rapid growth of the counter-drone defense industry, and domestic defense funding on the part of the Australian government.
5) DroneShield has ample cash and no bank debt, thus does not currently need to raise capital, noted Laing.
6) DroneShield has more than 8,000 shareholders, four of which own more than a 1% interest, indicated Laing. A handful of DroneShield insiders own shares, including Chief Executive Officer and Managing Director Oleg Vornik (3.5%), Non-Executive Chairman Peter James (2.2%), Chief Financial Officer Carla Balanco (0.7%), Chief Technology Officer Angus Bean (0.5%) and Non-Executive Director Jethro Marks (0.2%).
"This aligns the interests of shareholders and management," Laing wrote.
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Disclosures For Bell Potter Securities Ltd., DroneShield Ltd., September 26, 2022
This Research Report is a private communication to Clients and is not intended for public circulation or for the use of any third party, without the prior written approval of Bell Potter Securities Limited. The Research Report is for informational purposes only and is not intended as an offer or solicitation for the purpose of sale of a security. Any decision to purchase securities mentioned in the Report must take into account existing public information on such security or any registered prospectus.
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