At time of writing, the share price of DroneShield Ltd [ASX:DRO] is up 1.79%, trading at 28.5 cents.
After a strong run up in the DroneShield share price at towards the end of July, and a big spike in September when Saudi oil fields were attacked by drones, DroneShield has posted a series of losing sessions:
We look at the latest DroneShield announcement and provide three reasons for DroneShield investors to be optimistic going forward.
DroneShield share price spikes on today’s announcement
With an announcement released this morning, the DroneShield share price spiked shortly after open, going as high as 31 cents.
The announcement was an update to a previous deal with the Australian Department of Defence with the purchase amount changing from ‘approximately $700,000’ to $565,000.
The announcement confirmed that the products were shipped and payment is expected this quarter.
The deal was for portable unmanned aerial system detection devices and it was the company’s first order from the Australian DoD.
We now present three interrelated reasons we think DroneShield could have further upside potential.
Reason #1: The world is getting messier (especially the Middle East)
William S Burroughs once said:
‘This is a war universe. War all the time. That is its nature.’
The observation certainly rings true, but perhaps now more than ever.
Iran appears increasingly belligerent, there is still a proxy war going on in Yemen, and Syria remains a chaotic theatre.
It remains to be seen if various bad actors will soon replicate the Saudi oil field attack tactic of using weaponised drones, but another incident could lead to greater interest in DroneShield’s products.
It is also worth noting that the Russian military has recently announced that it will be arming its soldiers with weaponised drones.
Russia has increased its military presence in the Middle East of late and more dangerous drones call for more powerful counter-drone tech.
Reason #2: Drone technology could go mainstream in the next few years
The global drone industry is projected by Frost & Sullivan to grow to US$5.04 billion by 2022. And Asia-Pacific drone-related revenues are actually expected to outstrip North American revenues by 2022.
With a base in Sydney, DroneShield is well placed to capitalise on this region.
Reason #3: Global defence spending is growing and DroneShield is in the right industry
According to the Stockholm International Peace Research Institute, global defence spending was up 2.6% in real terms in 2018 and has been trending up from a low in the mid-90s:
The Australian government has launched a massive defence spending program of its own, with $200 billion earmarked for defence in the next decade.
Australia has also together with CSIRO and Defence Science and Technologies (DST) launched the Next Generation Technologies fund which has $730 million at its disposal for ‘focusing on emerging and future technologies.’
If DroneShield can get a slice of this pie and grow its revenues, its share price would likely respond positively.
For Money Morning