DroneShield Ltd.'s (DRO:ASX; DRSHF:OTC) Q2/25 financial results show that "revenue acceleration is now translating into free cash flow generation," reported Abraham Akra, senior analyst at Shaw and Partners, in a July 30 research note. As such, Shaw and Partners upgraded its recommendation to Buy from Hold and raised its target price by 80%.
"We see the business pivoting from capex and inventory buildout to cash generative, with operating scale and a capital light balance sheet underpinning an expansion phase that is derisked by full-year 2025 revenue visibility at AU$176 million (AU$176M)," Akra wrote.
14% Uplift Suggested
Shaw and Partners' new target price on DroneShield is AU$3.60, up from AU$2 per share previously, noted Akra. Compared to AU$3.60, the company was trading at AU$3.16 per share at the time of the analyst's report.
The difference between these prices implies a potential return for investors of 14%. The company's market cap is AU$2.8 billion (AU$2.8B).
Akra reported that DroneShield's major shareholders are Fidelity Management & Research Co. LLC with 8.1%, The Vanguard Group Inc. with 5.5%, Regal Funds Management Pty. Ltd. with 5.4%, State Street Global Advisors Australia with 4.1% and Epirus Inc. with 2.1%.
Free Cash Now Flowing
Growth and expansion is the theme of Akra's update on DroneShield, a counterdrone solutions developer and manufacturer. The analyst highlighted a significant shift for the company: free cash flow began in Q2/25. Net operating cash was AU$13.4M, boosting liquidity at quarter's end to about AU$204M with zero debt.
"With about AU$204M cash and strong gross margins, the company can fund growth organically while retaining mergers and acquisitions optionality," Akra wrote.
DroneShield achieved this despite greater need for working capital, the analyst pointed out. The company's baseline fixed cash opex rose in Q2/25 to about AU$8.5M per month, up from AU$6.5M in Q1/25. DroneShield bolstering its staff and facilities have caused costs to rise, but interest income and operating leverage offset some of them.
DroneShield now has 363 employees. Of this total, 285 are engineers, to support the company's growing product portfolio and quarterly artificial intelligence-powered software releases. An increase in software-as-a-service (SaaS) sales is expected as a result. DroneShield just introduced SentryCiv, a civilian, detect-only subscription targeted to airports and utilities, which expands its total addressable market beyond government defense.
The company also is expanding its manufacturing capacity to AU$2.4B from AU$500M, in part with a new 3,000-square-meter Sydney line and partnerships in the European Union and the U.S.
Also in Q2/25, DroneShield's net profit exceeded Shaw and Partners' expectation, noted Akra. Revenue increased 3–4%. These achievements led the financial firm to raise its estimates for EBITDA and net profits after tax by 15% and 33% for 2025, 20% and 57% for 2026 and 13% and 28% for 2027, respectively.
Growing Pipeline, Inventory
Akra also noted that DroneShield's visible sales pipeline consists of 284 live opportunities and totals $2.33B. Thirteen of the deals are for more than AU$30M, and 52 exceed AU$5M. The largest of these opportunities is from Europe, no longer the U.S., a result of the NATO rearmament and DroneShield's plans to establish a regional manufacturing hub on the continent.
The company boasts an inventory of AU$81M (book), equating to AU$270M in sales. This on-hand stock protects DroneShield's lead times and allows the company to quickly fill large orders, the analyst wrote.
Pivotal Events for Investors
Three high-profile events changed what investors expect from drone and counterdrone suppliers, wrote Akra. One was Ukraine's Operation Spiderweb, a covert attack deep inside Russia in which swarms of long-range drones struck five air bases and reportedly destroyed dozens of bombers. The operation proved that inexpensive drones can penetrate deep, strategic targets.
Israel's Operation Rising Lion was the second pivotal event. Drones smuggled into Iran silently blinded more than 70 radar and missile batteries, thereby carving out a pathway for Israeli Air Force jets. This operation showed how offensive drones can neutralize high-end air defense grids.
The third event was the U.S. Congress extending the Department of Homeland Security and Department of Justice's counterdrone powers through fiscal year 2028. Relatedly, at the time of Akra's report, Congress was considering bills allowing airports, stadiums and utilities company to deploy drone mitigation technology. In July hearings, the U.S. House of Representatives warned that hostile drone swarms could overwhelm unprotected sites.
"Together with the U.S. funding to drones/counterdrones in the Big Beautiful Bill and Europe's wider 'rearm' spend, these events crystalize a global shift from experimental trials to urgent procurement," Akra wrote.
What to Watch For
According to DroneShield, it sees three notable near-term potential catalysts. Recently it was awarded AU$5M in contracts from the LAND 156 Australian Army program, and progress fulfilling these could catalyze its share price. Conversion of the company's $2.3B pipeline into incremental 2025-2026 purchase orders could boost DRO. Another possible catalyst is the expected surge in SaaS business when the company introduces next-generation products in 2026r.
"Index reweighting (ASX100 inclusion plausible) and potential U.S. defense authorizations could provide additional tailwinds," Akra wrote.
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Important Disclosures:
- 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.
- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
- 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., July 30, 2025
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. For U.S. persons only: This research report is a product of Shaw and Partners Limited under Marco Polo Securities 15a-6 chaperone service, which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account. Research reports are intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a-6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Shaw and Partners Limited has entered into a chaperoning agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be affected through Marco Polo or another U.S. registered broker dealer. 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 Sole/Joint Lead Manager and Underwriter in the last 12 months in the placement of DRO securities 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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