CRITERION: As the use of military drones intensifies, these ASX stocks are taking flight
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Among the conventional heavy weaponry on display at last week’s contentious Land Forces expo in Melbourne, dozens of drone makers were showcasing their wares.
The rows of booths shows that drones – and drone detection – have become an integral part of modern warfare. Look no further than the Ukraine, where a $5,000 hovering object has been known to destroy a $5 million tank.
Formally known as unmanned aerial vehicles, or UAVs, drones are not only potent, but low cost. A 2023 federal government strategic defence review highlighted new technology to provide “asymmetric advantage” over the enemy – and drones are one way to achieve this.
Civilian uses, such as drone detection at airports or above jails, are also booming.
The $1 billion market cap anti-drone detection house DroneShield (ASX:DRO) has hogged the headlines – for right and wrong reasons – but there are other lower-profile drone exposures to choose from.
One example is the $20 million market cap 3D printer Aurora Labs (ASX:A3D), which serviced the oil and gas sector but has decided to focus solely on defence.
Aurora’s piece de resistance is a microgas propulsion turbine, designed to propel heavier drones over long-range flights of up to 1,000 kilometres (which battery-powered engines can’t do).
The Perth-based company is “actively engaged” with the Australian Defence Force and its suppliers, whilst highlighting its credentials as the only sovereign supplier of these units.
CEO Rebekah Letheby says each UAV has its own requirements in terms of range and weight, or they might need to carry a specific payload.
“With our 3D printing we can modify the design to suit the specific platform,” she says.
Aurora’s key route to the defence heavies is by way of a memorandum of understanding with the WA-based Innovaero, which is prototyping drones in joint venture with prime defence contractor BAE Systems.
Letheby says the company only has been working on its turbine for seven months, but expects “transformational” contracts in the next 12 to 18 months. The company last year generated a modest $174,000 in revenue from legacy oil and gas work.
And let’s not forget the chamelionic ASX stalwart Orbital Corporation (ASX:OEC), which now goes by the name of Orbital UAV and is also emphasising military drone propulsion systems.
In August Orbital entered a new collaborative agreement with the India-based Dynamatic Technology, to integrate its 150cc heavy fuel engine into a Dynamatic-designed UAV “for potential supply to defence force users.”
Also at the smaller end, Elsight (ASX:ELS) provides an AI-based tool, Halo, to improve connectivity with the drones when they are beyond the operator’s line of sight.
Elsight reported June half revenue of $1.09 million, up 83 per cent. Clients include defence contractor Lockheed Martin and Japan’s biggest drone maker, ACSL.
Better known is the $250 million market cap Electro Optic Systems (ASX:EOS, which does a swift trade in space junk detections systems.
But two-thirds of June half revenue – $142 million, up 92 per cent – derived from defence hardware such as remote weapons and counter-drone systems.
Meanwhile, Droneshield shares have risen 300 per cent over the past year and were 760 per cent higher before a savage mid-July sell-off.
Defence work accounts for about 75 per cent of Droneshield’s revenue, which doubled to a record $24.1 million in the June half.
Droneshield CEO Oleg Vornik estimates the military and security drone sectors are worth $US10 billion, but in the military there’s less than one per cent saturation.
“The sector is so new that the customers purchasing so far have been very much early adopters and now is the time for mass deployment,” he says.
This column does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision