Russia’s invasion of Ukraine has drawn condemnation from much of the world, but the fighting could present defence companies with opportunities to showcase their ability to provide much-needed support.

One such company is ~$73 million defence play Droneshield (ASX:DRO) – focused not on making drones but on the design of weapons and systems used to defend against them through the provision of artificial intelligence-based platforms.

For example, its DroneGun works by scrambling the controller-inputs on airborne drones to render them incapacitated and its DroneSentry-X product uses sensors to detect and disrupt unmanned aerial systems (UAS) moving at any speed after being masted to vehicle roof racks or other fixed applications.

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The DroneSentry-X. Pic: Droneshield

 

Small drones for battlefield surveillance and dropping charges

Speaking to Stockhead Droneshield chief executive officer Oleg Vornik says while drones are routinely used in conflict zones worldwide, the company has 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.

“Russian military doctrine is very much around ‘holistic warfare” – cyber, information warfare, black ops, and asymmetric warfare go together with conventional means like tanks and missiles.

“I believe we are also about to see Russia and its allies ‘testing’ Europeans elsewhere, all along the NATO border. Sanctions will not have near term effect and NATO seems unlikely to step into the war, so using asymmetric warfare on NATO countries (such as drone attacks or cyber-attacks) may well come next.”

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The DroneGun MKIII. Pic: Droneshield

 

A few urgent enquiries

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

“Our advantage is that we have built up material amount of stock for quick fulfilment for flaring situations just like this one,” he said.

“Defence has come to be seen as an afterthought in recent decades, unfortunately – it’s been where politicians often save money if budget needs to be reduced but this will all be reconsidered now.

“Smaller but higher innovative companies like DroneShield provide not only great value for money for ready made solutions, but also are great tech disruptive environments,” he said.

“We may well see a major war in the next 10 years and we need to be ready when it comes.”

 

Here’s how ASX-listed defence stocks are tracking

Code Company Price 1 week return % 1 month return % 6 month return % 1 year return % Market Cap
QHL Quickstep Holdings 0.48 26% 13% -4% -37% $31,516,321.76
TTT Titomic Limited 0.275 22% 6% -30% -51% $48,248,225.52
ELS Elsight Ltd 0.465 11% 3% 12% -15% $58,727,129.12
OEC Orbital Corp Limited 0.235 7% -36% -61% -71% $20,474,256.15
DRO Droneshield Limited 0.17 3% 3% -19% 0% $73,189,576.60
BIS Bisalloy Steel 1.59 3% 13% 8% 33% $74,348,829.30
MOB Mobilicom Ltd 0.056 2% 27% 4% -32% $18,672,329.53
UUV UUV Aquabotix Ltd 0.002 0% 0% 0% -33% $4,776,749.62
AJX Alexium Int Group 0.058 -3% -6% -15% 4% $36,779,625.63
ASB Austal Limited 1.915 -5% -2% -8% -17% $692,958,364.91
KSS Kleos 0.605 -6% -12% -35% -4% $107,450,052.77
BCT Bluechiip Limited 0.037 -8% -12% -5% -14% $21,548,296.66
CDA Codan Limited 7.32 -10% -25% -53% -51% $1,372,909,066.65
XTE Xtek Limited 0.18 -10% -12% -52% -71% $16,602,340.26
EOS Electro Optic Sys. 1.84 -13% -3% -56% -62% $313,901,596.32
BRN Brainchip Ltd 1.2 -15% -16% 155% 126% $2,082,950,004.96

 

Revenue growth pushes share price up 10%

About a week ago, Droneshield’s share price soared 10% on the back of its full year results for 2021, which reflected positive revenue growth – up 91% to $10.6 million compared to the prior year.

Cash receipts reached $14.8 million, an increase of 174% from FY20 after securing a strong sales pipeline worth more than $100 million from active project discussions for 2022.

Around $3.8 million was secured for a two-year AI contract with the Australian Department of Defence in 2021, and the company saw repeat blue chip customers, alongside new ones too.

Non-executive chairman Peter James said the US Government and military market is expected to be “the single largest opportunity for DroneShield, being the largest counter drone customer in the world.”

In 2021 DroneShield positioned itself for that market, with additional hires in its Virginia office, making multiple initial smaller sales and ensuring compatibility to standard US Government software interfaces.

 

Partnership with US-based Allen Vanguard

The Sydney-based company also recently announced a partnership with Allen Vanguard – a US owned provider of counter improvised explosive devices with facilities in the UK and North America.

Both companies are respective global leaders in their fields. DroneShield’s Counter Unmanned Aerial Platforms (C-UAS) solutions include a variety of multi-mission AI-powered C-UAS platforms such as RfPatrol body-worn sensor, DroneGun portable countermeasure, DroneSentry-X on-the-move system and DroneSentry base protection system.

Allen-Vanguard have an extensive C-IED history and portfolio of solutions that has been bolstered in recent years by their ANCILETM C-UAS system, an operationally proven and highly effective RF countermeasure.

Vornick said many of Droneshield’s customers have mission sets that requite both counter unmanned aerial platforms (C-UAS) and counter improvised explosive device (C-IED) solutions so by combining the two, the two entities can provide a more complete offering.

“There are a number of active combined opportunities that we are excited to be pursuing,” he said.