saw "huge" demand for its share purchase plan, having raised through it AU$40.3 million (AU$40.3M) before costs so far versus an anticipated AU$3M, reported Bell Potter analyst Daniel Laing in a March 7 research note.
"It is positive to see the high level of demand for the stock from existing shareholders," Laing commented.
Building Up Inventory
The Australian counterdrone technology, products, and solutions firm will likely use the new monies to quickly build up inventory, to scale up certain parts of the business, and for working capital, wrote Laing. The company bolstering its inventory is a sign it expects and is preparing for significant near-term sales.
"The possible near-term catalysts that may be driving the significant buildup of inventory include an initial contract for the counterdrone rollout across U.S. military bases or some level of involvement in the Biden Administration military aid package to Ukraine," purported Laing.
Buy Recommendation Retained
Because the share purchase plan was upsized, the resulting share dilution will be greater than projected, Laing noted. Thus, Bell Potter adjusted its corporate model on DroneShield to reflect the dilution by modestly decreasing earnings per share (EPS) forecasts for the next three years. Specifically, the investment and financial services firm lowered its 2023 EPS estimate by 10% and its 2024 and 2025 EPS projections, by 17%.
Bell Potter also upgraded its inventory and working capital forecasts, wrote Laing; it now expects DroneShield will end 2023 with AU$31.5M in cash. All revenue estimates stayed the same.
Laing pointed out that the aforementioned changes resulted in a slight decrease in its target price on DroneShield to AU$0.40 per share from AU$0.41.
In comparison, the current price of the company is about AU$0.33 per share.
"We retain our Buy recommendation," noted Laing.
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Disclosures For Bell Potter, DroneShield Ltd., March 7, 2023
Authoring Research Analyst’s Certification: The Authoring Research Analyst is responsible for the content of this Research Report, and, certifies that with respect to each security that the Analyst covered in this Report (1) all the views expressed accurately reflect the Analyst’s personal views about those securities and were prepared in an independent manner and (2) no part of the Analyst’s compensation was, is or will be, directly or indirectly, related to specific recommendations or views expressed by that Research Analyst in the Research Report.
Research Analyst’s Compensation: Research Analyst’s compensation is determined by Bell Potter Securities Research Management and Bell Potter Securities’ Senior Management and is based upon activities and services intended to benefit the investor clients of Bell Potter Securities Ltd. Compensation is not linked to specific transactions or recommendations. Like all Company employees Research Analysts receive compensation that is impacted by overall Company profitability.
Disclaimers: 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.
This is general investment advice only and does not constitute personal advice to any person. Because this Research Report has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives (‘relevant personal circumstances’), a Bell Potter Securities Limited Broker (or the financial services licensee, or the representative of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be made aware of your relevant personal circumstances and consulted before any investment decision is made on the basis of this Research Report.
While this Research Report is based on information from sources which are considered reliable, Bell Potter Securities Limited has not verified independently the information contained in this document and Bell Potter Securities Limited and its directors, employees and consultants do not represent, warrant or guarantee expressly or impliedly, that the information contained in this Research Report is complete or accurate.
Nor does Bell Potter Securities Limited accept any responsibility for updating any advice, views, opinions or recommendations contained in this Research Report or for correcting any error or omission which may have become apparent after the Research Report has been issued. Bell Potter Securities Research Department has received assistance from the Company referred to in this Research Report including but not limited to discussions with management of the Company. Bell Potter Securities Policy prohibits Research Analysts sending draft Recommendations, Valuations and Price Targets to subject companies. However, it should be presumed that the Author of the Research Report has had discussions with the subject Company to ensure factual accuracy prior to publication.
All opinions, projections and estimates constitute the judgement of the Author as of the Date of the Research Report and these, plus any other information contained in the Research Report, are subject to change without notice. Prices and availability of financial instruments also are subject to change without notice.
Notwithstanding other departments within Bell Potter Securities Limited advising the subject Company, information obtained in such role is not used in the preparation of the Research Report.
Although Bell Potter Research does not set a predetermined frequency for publication, if the Research Report is a fundamental equity research report it is the intention of Bell Potter Research to provide research coverage of the covered issuers, including in response to news affecting the issuer. For non-fundamental Research Reports, Bell Potter Research may not provide regular updates to the views, recommendations and facts included in the reports.
Notwithstanding that Bell Potter maintains coverage on, makes recommendations concerning or discusses issuers, Bell Potter Research may be periodically restricted from referencing certain Issuers due to legal or policy reasons. Where the component of a published trade idea is subject to a restriction, the trade idea will be removed from any list of open trade ideas included in the Research Report. Upon lifting of the restriction, the trade idea will either be re-instated in the open trade ideas list if the Analyst continues to support it or it will be officially closed.
Bell Potter Research may provide different research products and services to different classes of clients (for example based upon longterm or short term investment horizons) that may lead to differing conclusions or recommendations that could impact the price of a security contrary to the recommendations in the alternative Research Report, provided each is consistent with the rating system for each respectiveResearch Report.
Except in so far as liability under any statute cannot be excluded, Bell Potter Securities Limited and its directors, employees and consultants do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in the document or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of the document or any other person. In the USA and the UK this Research Report is only for institutional investors. It is not for release, publication or distribution in whole or in part in the two specified countries. In Hong Kong this Research Report is being distributed by Bell Potter Securities (HK) Limited which is licensed and regulated by the Securities and Futures Commission, Hong Kong. In the United States this Research Report is being distributed by Bell Potter Securities (US) LLC which is a registered broker-dealer and member of FINRA. Any person receiving this Research Report from Bell Potter Securities (US) LLC and wishing to transact in any security described herein should do so with Bell Potter Securities (US) LLC.