Revenue rose 74% to AU$125.8m in 1H26, but opex growth of 122% produced a A$12.4m underlying EBITDA loss, while committed revenue climbed to AU$240m.
On August 26, 2026, analyst Baxter Kirk of Bell Potter Securities reiterated a Buy rating and lowered his 12-month price target to AU$2.40 (from AU$2.50) on DroneShield Ltd. (DRO:ASX; DRSHF:OTC), implying a 38.3% total expected return from the August 26, 2026 closing price of AU$1.735, following a first-half result in which revenue landed in line with expectations but a sharply expanded cost base drove a material earnings miss.
1H26 Results
DroneShield reported underlying EBITDA of -AU$12.4m for the half, against Bell Potter’s forecast of a AU$1.3m profit and an AU$8.0m profit in 1H25. Revenue, which had been pre-reported, grew 74% year-over-year to AU$125.8m, matching the firm’s estimate, and gross margin, including impairment, came in at 60.0%, also in line. Margin nonetheless compressed 5.3 percentage points year-over-year on a temporary sales-mix shift toward lower-margin third-party hardware integration, adverse currency moves, and an AU$2.8m raw material inventory write-down taken during the company’s factory relocation.
The miss sat entirely in costs. Operating expenditure, including share-based payments, reached AU$87.9m, 18% above the AU$74.2m modeled and up 122% year-over-year, which Kirk attributed to “a period of planned investment in production capacity, product development,” alongside organizational systems and management capability to support larger global operations. Headcount rose to 535 as of June 30, 2026, an increase of 172 year-over-year, lifting employee benefits expense 165% to AU$56.1m. Statutory NPAT was a loss of AU$32.2m, versus a AU$2.1m profit in the prior corresponding period, and included AU$11.3m of one-off cash costs. Diluted EPS was -1.8 cents against 0.5 cents a year earlier.
One bright spot was the software mix: recurring software and subscription revenue jumped 229% year-over-year to AU$11.5m, lifting its share of total revenue to 9.2% from 4.9%, supported by a global active software-enabled device base of more than 4,100 units.
Cash Flow and Balance Sheet
DroneShield closed the half with a net cash position of AU$180.0m, down from AU$210.6m at the end of FY25. Free cash flow was negative AU$31.6m, driven in part by a strategic AU$12.9m investment in raw materials that took total inventory to AU$85.0m, plus AU$7.5m of capital expenditure on the new facility and AU$13.8m of capitalized research and development.
Outlook and Product Roadmap
Management reaffirmed FY26 revenue guidance of AU$250m to AU$270m. Committed revenue stood at AU$240m as at August 21, 2026 — covering 89% to 96% of the guidance range and up from AU$206m a month earlier — which Kirk reads as making the top end of guidance more likely given the order run-rate. Committed revenue for FY27 and beyond expanded to AU$43m.
The next-generation product cycle is now underway, with the RfAI-3 software engine launched in July 2026 and the flagship RfRecon portable hardware released in August 2026. Bell Potter notes strong early Tier 1 military interest, with scaled production commencing in 2H26 and first deliveries scheduled for late CY26. Further hardware refreshes are planned through 2027. On costs, management struck a more measured tone for 2H26, guiding to “Flat to no net growth in staff”, lower recruitment costs, and more focused marketing.
Estimate Changes and Valuation
Kirk now models a CY26 EBITDA loss of AU$3m, down from a previously forecast AU$3m profit, on higher opex, while CY27 and CY28 estimates were revised -6% and +0% respectively to reflect tempered opex growth. Bell Potter forecasts sales of AU$262.1m in 2026, AU$343.1m in 2027, and AU$454.0m in 2028, with EBITDA of -AU$2.9m, AU$31.5m, and AU$92.1m across those years. No dividend is forecast through the outlook period.
The price target is derived from two discounted cash flow valuations, a base case weighted 90% at AU$1.89 per share and a bull case weighted 10% at AU$0.56, producing a blended equity valuation of AU$2.45. DroneShield carries a market capitalization of AU$1,603m and an enterprise value of AU$1,441m, with 924m shares issued and 94% free float.
Risks
Bell Potter flags failure to retain existing clients or attract new customers, research and development risk should the company lag peers on product development, and competition from large multinational defense contractors with greater resources and scale.
Obsolescence risk is elevated by rapid technological change, requiring continuous R&D investment. The company also depends on a limited set of contract manufacturers, creating supply chain and delivery risk, and faces intellectual property, cybersecurity, and foreign exchange exposures given operations across multiple jurisdictions and mixed-currency revenue and expenditure.
Government legislation and export approvals remain a key gating factor, as DroneShield’s products are subject to defense export licensing regimes in Australia and the United States, with revenue delayed or lost if licenses are not granted on time.
Share Price Performance
DroneShield shares have fallen 15.0% over one month, 45.6% over three months, and 51.4% over 12 months, underperforming the market by 19.1%, 51.0%, and 53.5%, respectively, over those periods. The stock has traded between AU$1.63 and AU$6.71 over the past 12 months, with an average daily traded value of AU$65.9m.
Kirk expects RfRecon and other high-moat next-generation products to drive continued contract wins, particularly in Europe, where DroneShield holds a leading position in the counter-UAS electronic warfare vertical. He concludes that the “Top end of CY26 revenue guidance looks achievable” and retains the Buy rating. Shares closed at AU$1.735, representing 38.3% capital growth to the AU$2.40 target.
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Important Disclosures:
Disclosures for Bell Potter, DroneShield Ltd., August 26, 2026
RESEARCH COVERAGE & POLICIES For Bell Potter Securities’ Research Coverage Decision Making Process and Research Independence Policy please refer to our company website: https://bellpotter.com.au/research-independence-policy/.
AUTHORING RESEARCH ANALYST’S CERTIFICATION The Authoring Research Analyst is responsible for the content of this Research Report, and, certifies that with respect to each security that the Analyst covered in this Report (1) all the views expressed accurately reflect the Analyst’s personal views about those securities and were prepared in an independent manner and (2) no part of the Analyst’s compensation was, is or will be, directly or indirectly, related to specific recommendations or views expressed by that Research Analyst in the Research Report.
RESEARCH ANALYST’S COMPENSATION Research Analyst’s compensation is determined by Bell Potter Securities Research Management and Bell Potter Securities’ Senior Management and is based upon activities and services intended to benefit the investor clients of Bell Potter Securities Ltd. Compensation is not linked to specific transactions or recommendations. Like all Company employees Research Analysts receive compensation that is impacted by overall Company profitability.
PRICES The Price appearing in the Recommendation panel on page 1 of the Research Report is the Closing Price on the Date of the Research Report (appearing in the top right hand corner of page 1 of the Research Report), unless a before midday (am) time appears below the Date of the Research Report in which case the Price appearing in the Recommendation panel will be the Closing Price on the business day prior to the Date of the Research Report.
AVAILABILITY The completion and first dissemination of a Recommendation made within a Research Report are shortly after the close of the Market on the Date of the Research Report, unless a before midday (am) time appears below the Date of the Research Report in which case the Research Report will be completed and first disseminated shortly after that am time.
DISSEMINATION Bell Potter generally disseminates its Research to the Company’s Institutional and Private Clients via both proprietary and non-proprietary electronic distribution platforms. Certain Research may be disseminated only via the Company’s proprietary distribution platforms; however such Research will not contain changes to earnings forecasts, target price, investment or risk rating or investment thesis or be otherwise inconsistent with the Author’s previously published Research. Certain Research is made available only to institutional investors to satisfy regulatory requirements. Individual Bell Potter Research Analysts may also opt to circulate published Research to one or more Clients by email; such email distribution is discretionary and is done only after the Research has been disseminated. The level and types of service provided by Bell Potter Research Analysts to Clients may vary depending on various factors such as the Client’s individual preferences as to frequency and manner of receiving communications from Analysts, the Client’s risk profile and investment focus and perspective (e.g. market-wide, sector specific long term and short term etc.) the size and scope of the overall Client relationship with the Company and legal and regulatory constraints.
This Research Report is a private communication to Clients and is not intended for public circulation or for the use of any third party, without the prior written approval of Bell Potter Securities Limited. The Research Report is for informational purposes only and is not intended as an offer or solicitation for the purpose of sale of a security. Any decision to purchase securities mentioned in the Report must take into account existing public information on such security or any registered prospectus. This is general investment advice only and does not constitute personal advice to any person. Because this Research Report has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives (‘relevant personal circumstances’), a Bell Potter Securities Limited Broker (or the financial services licensee, or the representative of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be made aware of your relevant personal circumstances and consulted before any investment decision is made on the basis of this Research Report. While this Research Report is based on information from sources which are considered reliable, Bell Potter Securities Limited has not verified independently the information contained in this document and Bell Potter Securities Limited and its directors, employees and consultants do not represent, warrant or guarantee expressly or impliedly, that the information contained in this Research Report is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility for updating any advice, views, opinions or recommendations contained in this Research Report or for correcting any error or omission which may have become apparent after the Research Report has been issued. Bell Potter Securities Research Department has received assistance from the Company referred to in this Research Report including but not limited to discussions with management of the Company. Bell Potter Securities Policy prohibits Research Analysts sending draft Recommendations, Valuations and Price Targets to subject companies. However, it should be presumed that the Author of the Research Report has had discussions with the subject Company to ensure factual accuracy prior to publication. All opinions, projections and estimates constitute the judgement of the Author as of the Date of the Research Report and these, plus any other information contained in the Research Report, are subject to change without notice. Prices and availability of financial instruments also are subject to change without notice. Notwithstanding other departments within Bell Potter Securities Limited advising the subject Company, information obtained in such role is not used in the preparation of the Research Report. Although Bell Potter Research does not set a predetermined frequency for publication, if the Research Report is a fundamental equity research report it is the intention of Bell Potter Research to provide research coverage of the covered issuers, including in response to news affecting the issuer. For non-fundamental Research Reports, Bell Potter Research may not provide regular updates to the views, recommendations and facts included in the reports. Notwithstanding that Bell Potter maintains coverage on, makes recommendations concerning or discusses issuers, Bell Potter Research may be periodically restricted from referencing certain Issuers due to legal or policy reasons. Where the component of a published trade idea is subject to a restriction, the trade idea will be removed from any list of open trade ideas included in the Research Report. Upon lifting of the restriction, the trade idea will either be re-instated in the open trade ideas list if the Analyst continues to support it or it will be officially closed. Bell Potter Research may provide different research products and services to different classes of clients (for example based upon long-term or short term investment horizons) that may lead to differing conclusions or recommendations that could impact the price of a security contrary to the recommendations in the alternative Research Report, provided each is consistent with the rating system for each respective Research Report. Except in so far as liability under any statute cannot be excluded, Bell Potter Securities Limited and its directors, employees and consultants do not accept any liability (whether arising in contract, in tort or negligence or otherwise) for any error or omission in the document or for any resulting loss or damage (whether direct, indirect, consequential or otherwise) suffered by the recipient of the document or any other person. In the USA and the UK this Research Report is only for institutional investors. It is not for release, publication or distribution in whole or in part in the two specified countries. In Hong Kong this Research Report is being distributed by Bell Potter Securities (HK) Limited which is licensed and regulated by the Securities and Futures Commission, Hong Kong. In the United States this Research Report is being distributed by Bell Potter Securities (US) LLC which is a registered broker-dealer and member of FINRA. Any person receiving this Research Report from Bell Potter Securities (US) LLC and wishing to transact in any security described herein should do so with Bell Potter Securities (US) LLC. Disclosure: Bell Potter Securities acted as Joint Lead Manager and Underwriter of DRO’s $100m capital raising in April 2024 and $120m capital raising in August 2024 and received fees for that service.
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