Counterdrone Tech Co.'s Stock Rises in Uncertain World

As geopolitical fires continue to rage globally and an industry competitor is being acquired, DroneShield Ltd. (DRO:ASX; DRSHF:OTC) saw its stock rise to a new record of AU$1.35 per share on Wednesday, up 238% since the start of the year.

DroneShield provides counter-unmanned aerial systems (C-UAS) protection with a focus on radio frequency sensing, artificial intelligence (AI) machine learning, sensor fusion, electronic warfare, rapid prototyping, and MIL-SPEC manufacturing, the company's website said.

There's still room for the stock to grow. Technical Analyst Clive Maund has written that the sky is literally the limit for DroneShield. "The company looks set to make huge profits for years to come and thus should prove to be a solid investment," he wrote in April. "The company has an AU$500 million sales pipeline with a target of AU$300 million to AU$500 million in annual revenue, and it has some 90 qualified projects with government customers — including the Australian Department of Defence and the U.S. State Department."

According to the Motley Fool, in May, before this week's run, the share price was "up an eye-watering 246% since this time last year, when you could have bought shares for 28 cents."

Drone defense startup and competitor Dedrone, which works with governments and law enforcement and has provided security for major events like the FIFA World Cup, is being acquired by public safety technology Axon (known best for Tasers), it was announced in May. The terms of the deal were not disclosed, but it was expected to be completed in the second half of this year. Dedrone serves the military, government, and commercial customers in airports, stadiums, and correctional facilities.

'A Market Leader and Early Mover'

Shaw and Partners recently initiated coverage on DroneShield with a Buy recommendation and a price target of AU$1.40. Analyst Abraham Akra noted that the company is well-positioned to benefit from billions being spent on global defense and the increasing focus on counter-drone (C-UAS) technology.

"DroneShield is a market leader and early mover in counter-drone (C-UAS) tech," Akra wrote. "DRO specializes in advanced AI-driven counter-drone and electronic warfare solutions for terrestrial, maritime, and airborne platforms. Products can support fixed and mobile deployment."

Shaw and Partners recently initiated coverage on DroneShield with a Buy recommendation and a price target of AU$1.40.

DRO customers include the military, intelligence communities, government agencies, law enforcement, critical infrastructure operators, and airports globally, Akra wrote. He estimated the total addressable market for C-UAS technology to exceed US$10 billion, with the military accounting for approximately 37% of the addressable market and less than 1% market saturation.

"We expect DRO's 10-year track record, certifications, product suite across mobile and fixed site CUAS will facilitate sales growth to exceed market growth rates," Akra noted.

Bell Potter analyst Daniel Laing maintained his Buy rating on DRO in March after the company's "outstanding" 2023 performance.

In 2023, the company reported its first profitable year with a net income of AU$9.3 million on revenue of AU$55 million (three times 2022's revenue).

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 Catalyst: Market Has Major Upside

As bad actors continue to expand their use of unmanned aerial systems, the global anti-drone market has major upside, analysts said. The market was worth US$1.87 billion in 2023 and is expected to grow at a compound annual growth rate (CAGR) of 28.1% from 2023 to 2030, according to Grand View Research. The increasing prominence of unmanned aerial vehicles is expected to lead to increased government safety concerns, analysts said.

"Governments often use missiles and standby air force fighters as part of air defense," Grand View analysts wrote. "However, fighter jets and missiles appear to be less effective in the face of threats from small drones and UAVs. To address such threats, governments and companies worldwide are increasingly investing in the development and marketing of anti-UAV technology."

According to a report by research firm Markets and Markets, in August 2023, the U.S. Department of Defense planned to spend US$668 million in fiscal 2023 on C-UAS research and development and an additional US$78 million to procure the hardware. 

"Drones are becoming increasingly sophisticated and capable, and they are being used by a variety of actors, including terrorists, criminals, and rogue states," the report said. "This has led to growing concerns among governments about the potential for drone attacks on critical infrastructure, military assets, and civilian populations. In response to these concerns, governments around the world are increasing their spending on anti-drone technologies."

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 company reports that 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.

The company reports that there are about 70 million shares outstanding and about 526.8 million free-float traded shares.

Its market cap is about AU$977.57 million, and it trades in a 52-week range of AU$1.37 and AU$0.21.

Important Disclosures:

1. 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.
2. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
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