The ongoing conflict in Ukraine has underscored the growing significance of drone warfare and anti-drone technology in modern military strategy. With defence spending on the rise globally, investors are increasingly turning their attention to companies involved in this sector. Three Australian Securities Exchange (ASX) stocks stand out for those interested in capitalising on this trend.
DroneShield Ltd: A Market Leader in Drone Defence
DroneShield Ltd (ASX: DRO) is arguably the most recognised stock in drone defence on the ASX. The company’s shares have experienced significant volatility in the past year, ranging from a low of 58.5 cents to a peak of $6.70. Recently, the stock slipped below $3 after a series of major share sales by executives and a mix-up regarding a contract announcement already made public.
Despite the turbulence, investor sentiment has shown signs of recovery in December. Christopher Watt, an analyst at Bell Potter Securities, has issued a hold recommendation, citing short-term challenges but emphasising the company’s “sound” fundamentals. Investors should approach this stock with caution, given its precarious position in the market.
Elsight Ltd: Expanding Communication Capabilities
Another noteworthy player is Elsight Ltd (ASX: ELS), which focuses on communication modules for drone manufacturers. In mid-December, the company announced it had secured contracts exceeding US$20 million for delivery scheduled between January and April 2024. This deal illustrates the robust demand for its Halo platform, which enables “beyond visual line of sight” (BVLOS) operations for drones.
The Halo technology combines various communication networks to ensure reliable connections for unmanned aerial vehicles (UAVs) and ground systems, even in challenging environments. Over the past year, Elsight’s shares have surged more than tenfold to $3.17, prompting analysts at Bell Potter to advise caution, setting a price target of $2—well below the current trading price.
Electro Optic Systems Ltd: Securing Major Contracts
Also in the spotlight is Electro Optic Systems Ltd (ASX: EOS), which has recently announced several significant contract wins. In December, it secured a $32 million international contract for its R400 Remote Weapon System. This follows a $125 million deal in August for a high-energy laser weapon and an $108 million order for additional R400 systems in October.
Bell Potter has indicated that these developments could lead to increased revenue estimates due to a global uptick in capital allocation toward counter-drone capabilities. The current price target for EOS shares stands at $8.10, slightly below the current price of $8.82.
As investors consider these opportunities in the drone defence sector, it is essential to evaluate the market conditions and individual company performances. The evolving landscape of military technology presents both challenges and opportunities, making it critical for investors to stay informed and strategic in their choices.
