Well, we’re innit now.

If AUKUS wasn’t being too raucous of late, it’s only because our new – olde, let’s be honest – Anglo overlords across the Atlantic wanted to keep the best for last. Or for an election.

Yesterday that election got a little closer, as Prime Minister Scott Morrison, clad in the purest of samite, held aloft a new Australian defence workforce plan whereby this nation’s army will be boosted by around 19,000 Aussies to a shade over 100,000 people.

The reaction from local defence stocks was mixed, although names like Electro Optic Systems and Droneshield jumped (both more than 6% higher).

But, a lot like the submarines, all this will be good to go circa, 2040 – though at a relative bargain of around $40 billion.

The trilateral AUKUS security partnership with the UK and the Americans has ensured we won’t hear the first splashes of an actual submarine in the water by then anyway.

But let’s not forget we’ve already been down this road in a pre-COVID way that not many will recall – the Federal Government’s fairly historic 2020 Defence Strategic update, already promised increases in defence spending of $70bn to $270bn over a decade. Admittedly, $121bn of that will go into the subs, so…

 

Meantime, in Queensland…

Morrison, flanked by perhaps our most dangerous Defence Minister yet, Peter Dutton, didn’t actually tell reporters the increase comes amid heightened tension with China and fresh strategic risks posed by Russia. Instead, he just kinda said we should all be as frightened as possible without buying up all the toilet paper at Woolies.

“Our world is becoming increasingly uncertain so it’s important we take steps now to protect our people and our national interest over the coming decades,” Morrison soothed.

“You can’t flick a switch to increase your army, navy and air force overnight,” he added, before remembering that we’re going to immediately add some 800 ADF personnel, 250 public servants and a bunch more quasi-spies at the Australian Signals Directorate in the next 20 months.

Si vis pacem, para bellum

Dutton, planning for peace but expecting war, added that most of the new personnel are going to be getting up to date on the latest “warfighting capabilities.”

Capabilities across the sectors where some of the most ambitious Aussie small caps are already making some solid strides – space, information and cyber-warfare.

In morning trade on Thursday small cap defence stocks were trading mixed with the news certain to be of great interest to established contractors both at home and across the Atlantic with our AUKUS cousins.

Here’s how some of our defence names are traveling:

CODE COMPANY PRICE 1 WEEK % RETURN 1 MONTH % RETURN 6 MONTH % RETURN 1 YEAR % RETURN MARKET CAP
XTE Xtek Limited 0.25 32% 22% -30% -57% $26,161,263.44
OEC Orbital Corp Limited 0.26 18% -10% -58% -64% $23,204,156.97
DLT Delta Drone Intl Ltd 0.021 17% 5% -22% -32% $5,697,839.70
ASB Austal Limited 1.995 5% -4% 14% -17% $694,767,655.68
BIS Bisalloy Steel 1.67 4% 11% 13% 84% $79,258,657.65
EOS Electro Optic Sys. 1.885 4% -19% -48% -62% $273,154,754.49
SOR Strategic Elements 0.205 3% -11% -40% -49% $76,221,578.75
CDA Codan Limited 7.42 1% -17% -47% -47% $1,296,937,813.95
DRO Droneshield Limited 0.18 0% 6% -8% 20% $73,189,576.60
UUV UUV Aquabotix Ltd 0.002 0% 0% 0% 0% $4,776,749.62
QHL Quickstep Holdings 0.47 -1% 13% 2% -33% $33,665,161.88
ELS Elsight Ltd 0.455 -3% -1% -2% -10% $57,392,421.64
KSS Kleos 0.58 -3% -13% -29% -4% $102,121,950.98
3DP Pointerra Limited 0.27 -5% -27% -26% -62% $186,396,706.10
TTT Titomic Limited 0.255 -6% -9% -29% -54% $48,248,225.52
AJX Alexium Int Group 0.055 -8% -11% -25% 4% $35,489,112.45
BCT Bluechiip Limited 0.033 -8% -23% 0% -13% $20,351,169.06
BRN Brainchip Ltd 1.105 -10% -33% 133% 160% $1,808,652,061.92
MOB Mobilicom Ltd 0.045 -15% -2% -6% -42% $14,487,152.22

War and money

Speaking earlier with Stockhead’s Jess Cummins, the Aussie-listed drones, robotics and autonomous platforms cybersecurity provider, Mobilicom (ASX:MOB) founder Oren Elkayam said there’s a strong flow through between war and commerce.

“As with other emerging technologies, innovative solutions that were first used by defence are rapidly adopted by commercial markets on a much larger scale.

“We anticipate that small drones and robotics, as well as related supporting technologies such as cybersecurity and cloud SW for large drones fleets, will see the same accelerated growth as result of its use within the defence sector.”

Cyberwarfare

The first victim of modern war is truth, but not as we knew it. Cyberwarfare is a world of break and enter, disinformation and digital assassination.

Data-centric security tech firm archTIS (ASX:AR9) puts the kybosh on all malicious (and accidental) loss of information for its clients via products like NCProtect and Kojensi, which are multi-government certified platforms for the secure access, sharing and collaboration of sensitive and classified information.

CEO Daniel Lai told Stockhead the situation in Ukraine is already having an impact in Australia that the public can see up close.

“The Australian Cyber Security Centre’s advisory last week to ‘urgently adopt an enhanced cybersecurity posture’ is a warning for all businesses that they might become ‘collateral damage’ in a cyber attack aimed elsewhere,” he said.

The problem is, he added, is that if businesses are only reacting now to the threat, the chances are it’s too little, too late.

“They need to be looking at implementing secure services like the ones used in Defence, and the Government needs to be guiding them in that direction.”

Senetas’ (ASX:SEN) subsidiary Votiro owns the software tools that protect against malware and ransomware attacks.

Founded in Israel, Votiro has developed the tech which can “proactively eliminate all known and unknown threats hidden in files”.

Senetas says it’s  the only SaaS-based file security solution that ensures all files coming into an enterprise are safe from malware threats – and particularly ransomware. CEO Andrew Wilson told Stockhead Russia’s conflict with Ukraine highlights how cyber-attacks are the first weapon drawn during geo-political conflict.

“As tensions arose, cybersecurity experts and key intelligence agencies consistently warned enterprises, defence forces, governments and critical infrastructure operators of increasingly persistent and threatening cyber-attacks by Russian based cyber-crime gangs. These ranged from ransomware, other malware, network infiltration and hacking attacks to data theft, eavesdropping and brute force and denial of service attacks,” Andrews said.

Space, the final (war) frontier

It’s not supposed to be, but space is definitely the new frontier for defence. And as China’s space program has raced ahead, the demand for space systems which detect, track and deal with foreign space tech has become urgent.

Kleos Space (ASX:KSS) is all over that. In September last year, the space-powered Radio Frequency Reconnaissance data intelligence company secured a $12 million cap-raise to fund the launch of future satellite clusters and to scale up Kleos’ data-as-a-service offering.

Then there’s Aussie aerospace Electro Optic Systems (ASX:EOS) which boasts early-stage defence systems like laser physics, advanced optics, precision control systems, space domain sensors and communications technologies, and remote operated combat vehicles.

The company is well positioned to benefit from defence-spending.

“Geopolitical tensions, asymmetric threats, defence spending and manufacturing stimuli in key EOS areas are increasing,” a company presentation said.

“Global demands for advanced technology, real value-for-money, increased automation and responsive delivery all favour EOS.”

Robotics and drone technology

Drone technology has emerged scary-quick as a military threat both cheap to make and deploy and we’ve several ASX small caps which are breaking new ground in the unmanned aerial vehicular space.

Speaking to Stockhead, Droneshield (ASX:DRO) chief executive officer Oleg Vornik says he’s seen both Russian and Ukrainian forces use small drones for battlefield surveillance and dropping charges in the last eight years of the simmering warfare in Ukraine East.

“More generally, cyber warfare and other asymmetric and grey-zone warfare including the deployment of military without ID or unit badges on them have been increasingly used by the Russians,” he said.

Vornik said the company’s received a few “urgent enquiries” by various NATO countries for large amounts of stock purchases right across its product range.

Elsight (ASX:ELS) has developed communication technology for real-time data, video and audio transmission over cellular networks and sees significant opportunities around drones.

Halo is the company’s drone communication technology that allows unmanned aircraft to fly beyond the visual line of sight and is undergoing testing in California.

Aerospace company Orbital (ASX:OEC) makes integrated engine systems for tactical unmanned aerial vehicles too, like its ScanEagle 3 model.

The company also manufactures aeroengines for Boeing from its Perth-based and US facilities and is developing a hybrid propulsion system for a vertical take-off and landing UAV with defence technology company Northrop Grumman.

Xtek (ASX:XTE) managing director Philippe Odouard said he’s seen first-hand the massive change in how the Australian military is adopting drone tech.

The company signed its first sales contact with the Australian Defence Force back in 2017, and since then has sold hundreds of drone systems.