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Analyst Sees Strong Growth Potential in Counterdrone Tech Co.
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Shaw and Partners recently initiated coverage on DroneShield Ltd. (DRO:ASX; DRSHF:OTC). Read on to see why the firm has given the counterdrone company a Buy rating.

Shaw and Partners analyst Abraham Akra initiated coverage on DroneShield Ltd. (DRO:ASX; DRSHF:OTC) with a Buy recommendation and a price target of AU$1.40, according to a research report published on May 31, 2024. The analyst believes that DroneShield is well-positioned to benefit from the rising global defense spending and the increasing focus on counter-drone (C-UAS) capabilities.

"DroneShield is a market leader and early mover in counter-drone (C-UAS) tech. 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," Akra stated. "DRO customers include the military, intelligence communities, government agencies, law enforcement, critical infrastructure operators, and airports globally."

The analyst estimates the total addressable market for C-UAS technology to exceed US$10 billion (B), 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.

Akra highlighted the rising global defense spending driven by escalating geopolitical tensions and advancements in military technologies.

"The U.S. Department of Defence (DoD) is expected to increase its budget by 4% Y-Y in FY25 to US$850B. NATO member nations are also projected to boost defense spending by 10% Y-Y to US$380B in CY24. We expect DRO to benefit, as have comps, from a focus on C-UAS," the analyst stated.

The analyst also pointed out that DroneShield is part of a select few C-UAS systems approved by the US DoD in mobile and fixed site defense.

"The usage of DRO products and systems in Ukraine, as well as the ability to rapidly deliver equipment from existing inventory, separates DRO from its competitors," Akra commented.

Moreover, the recent NATO agreement clears regulatory hurdles for European adoption, de-risking DroneShield's revenue base. "This is the first-ever procurement framework agreement for C-UAS in NATO's history. This agreement simplifies the procurement process for DRO products across NATO member countries by streamlining and unifying their requirements," Akra explained.

Shaw and Partners' valuation of DroneShield is a blend of discounted cash flow (DCF) and sum-of-the-parts (SOTP) analysis. "We see DRO reaching an inflection point in sales and profitability with the NATO agreement supplementing the DoD recommendation and solidifying DRO as a market leader in C-UAS," Akra stated. "The valuation is attractive, with offshore comps trading at 16x FY24 EBITDA. DRO turned FCF and EBITDA positive in FY23 and exhibits a strong medium-term growth profile."

The analyst identified several key catalysts for DroneShield, including the C-UAS Airservices Australia Tender, quarterly financials, material contract announcements, and NATO orders post-agreement.

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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.  This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

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Disclosures for Shaw and Partners, DroneShield Ltd., May 31, 2024

Shaw and Partners Limited ABN 24 003 221 583 (“Shaw”) is a Participant of ASX Limited, Cboe Australia Pty Limited and holder of Australian Financial Services Licence number 236048.

ANALYST CERTIFICATION: The Research Analyst who prepared this report hereby certifies that the views expressed in this document accurately reflect the analyst's personal views about the Company and its financial products. Neither Shaw nor its Research Analysts received any direct financial or non-financial benefits from the company for the production of this document. However, Shaw Research Analysts may receive assistance from the company in preparing their research which can include attending site visits and/or meetings hosted by the company. In some instances the costs of such site visits or meetings may be met in part or in whole by the company if Shaw considers it is reasonable given the specific circumstances relating to the site visit or meeting. As at the date of this report, the Research Analyst does not hold, either directly or through a controlled entity, securities in the Company that is the subject of this report, or where they do hold securities those interests are not material. Shaw restricts Research Analysts from trading in securities outside of the ASX/S&P100 for which they write research. Other Shaw employees may hold interests in the company, but none of those interests are material.

DISCLAIMER: This report is published by Shaw to its clients by way of general, as opposed to personal, advice. This means it has been prepared for multiple distribution without consideration of your investment objectives, financial situation and needs (“Personal Circumstances”). Accordingly, the advice given is not a recommendation that a particular course of action is suitable for you and the advice is therefore not to be acted on as investment advice. You must assess whether or not the advice is appropriate for your Personal Circumstances before making any investment decisions. You can either make this assessment yourself, or if you require a personal recommendation, you can seek the assistance of your Shaw client adviser. This report is provided to you on the condition that it not be copied, either in whole or in part, distributed to or disclosed to any other person. If you are not the intended recipient, you should destroy the report and advise Shaw that you have done so. This report is published by Shaw in good faith based on the facts known to it at the time of its preparation and does not purport to contain all relevant information with respect to the financial products to which it relates. The research report is current as at the date of publication until it is replaced, updated or withdrawn. Although the report is based on information obtained from sources believed to be reliable, Shaw does not make any representation or warranty that it is accurate, complete or up to date and Shaw accepts no obligation to correct or update the information or opinions in it. If you rely on this report, you do so at your own risk. Any projections are indicative estimates only and may not be realised in the future. Such projections are contingent on matters outside the control of Shaw (including but not limited to market volatility, economic conditions and company-specific fundamentals) and therefore may not be realised in the future. Past performance is not a reliable indicator of future performance. Except to the extent that liability under any law cannot be excluded, Shaw disclaims liability for all loss or damage arising as a result of any opinion, advice, recommendation, representation or information expressly or impliedly published in or in relation to this report notwithstanding any error or omission including negligence. Depending on the timing and size of your investment, your portfolio composition may differ to the model. Performance figures are derived from the inception date of the model and its investment transactions from that date, therefore the performance for your portfolio may be different. If you have any questions in connection with differences between your portfolio and the model, you should speak with your adviser.

IMPORTANT INFORMATION TO CONSIDER: It is important that before making a decision to invest in a Shaw Managed Accounts, a managed fund, an exchange traded fund, an individual hybrid security or listed debt instrument that you read the relevant Product Disclosure Statement (“PDS”). The PDS will contain information relevant to the specific product, including the returns, features, benefits and risks. The PDS can be found at:

RISKS ASSOCIATED WITH HYBRID SECURITIES: Hybrid securities and listed debt instruments differ from investments in equities and cash products in a number of important respects. The liquidity risk associated with an investment in hybrid securities and listed debt instruments will generally be greater than that associated with equities. The credit risk associated with hybrid securities and listed debt instruments is higher than that of a cash product or term deposit. Some hybrid securities may be perpetual in nature, meaning that they can only be redeemed or exchanged for cash or equity at the issuer’s option. Hybrids may also contain terms which automatically trigger the deferral of an interest payment or cause the issuer to repay the hybrid earlier or later than anticipated. ASIC has published information to assist consumers in understanding the risks and benefits associated with an investment in hybrid securities or listed debt instruments. This information can be found under the heading ‘Complex Investments’ at
DISCLOSURE: Shaw will charge commission in relation to client transactions in financial products and Shaw client advisers will receive a share of that commission. Shaw, its authorised representatives, its associates and their respective officers and employees may have earned previously or may in the future earn fees and commission from dealing in the Company's financial products. Shaw acted as Joint Lead Manager and Underwriter in the DRO April 2024 share placement for which it received fees or will receive fees for acting in this capacity. Accordingly, Shaw may have a conflict of interest which investors should consider before making an investment decision.

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