DroneShield Ltd. (DRO:ASX; DRSHF:OTC) 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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1) Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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