DroneShield Ltd (ASX: DRO) shares have been on fire in recent months.
So much so, the counter drone technology company's shares are up 60% since the start of the year.
Can they keep climbing? Let's find out.
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Are DroneShield shares heading even higher?
According to a note out of Bell Potter, its analysts believe that the company's shares are still very good value despite their heroics this year.
In response to the company's quarterly update, the broker has reaffirmed its buy rating with an improved price target of $1.50 (from $1.30).
Based on its current share price of $1.21, this implies potential upside of 24% for investors over the next 12 months.
Commenting on its first quarter update, the broker said:
DroneShield (DRO) recently released its Q1 update and Appendix 4C, which detailed a record Q1 result and a level of contracted revenue ($94.4m) for delivery in CY25 that substantially exceeds the CY24 result ($57.5m). The company recorded Q1 revenue of $33.5m (+102% vs pcp), including SaaS revenues of $1.7m (+198% vs pcp), and cash receipts of $16.7m (+135% vs pcp).
DRO recorded an operating cash outflow of $16.8m, however this is largely a timing issue due to final customer payment due 30 days after delivery and we expect this to smooth out throughout the year. The cash balance was $196.8m as at 14-Apr-24.
Reasons to be positive
As well as its strong start to the year, Bell Potter highlights the broadening of its customer base as a reason to be positive. It said:
As discussed in our previous note, a key positive from DRO's performance in CY25 has been the broadening of its customer base. The geographical breakdown of contracted revenue YTD includes: Europe 24%, Asia (exc. China) 23%, USA 22%, UK 10%, Australia <1% and Other (Middle East and Latin America) 20%. In comparison, USA accounted for 70% of the company's CY24 revenue, and whilst we expect it to remain the largest market, the increasing level of demand from new markets demonstrates the growth of the business.
In light of the above, the broker has upgraded its revenue and earnings per share estimates. It explains:
We have upgraded our revenue forecasts based on DRO's compelling performance YTD and a diversified sales pipeline of $1.6b. Additionally, we have increased our operating expenses as we get better visibility on the growing cost base following the company's conscious effort to scale up its operations. The net result of these changes is EPS upgrades of 9%, 14% and 19% in CY25, CY26 and CY27, respectively.
All in all, this means that DroneShield remains its "key pick in the Defence sector, with macro tailwinds driving increasing customer demand and the company well capitalised to fund further R&D to maintain its market leading position."
