DroneShield shares freeze on $75 million for AI and inventory

A man sits in a chair hunched over a laptop and covered head to toe in frozen icicles to represent Envirosuite’s trading halt

DroneShield Ltd (ASX: DRO) shares have been immobilised today after charging higher yesterday.

The counter-drone company entered a trading halt this morning before the morning bell. Soon after, the $75 million reason for its freeze was unveiled to shareholders.

Shares are standing still at $1.12 apiece.

Why are DroneShield shares in a trading halt?

Yesterday, DroneShield announced it had signed the first procurement agreement for counter-small UAS (C-UAS) in NATO history. The historic news sent the DroneShield share price to an all-time high of $1.145 before settling back to $1.12 — up 18.5% from the prior day.

In the release, DroneShield states, “[…] the total order of magnitude of sales under the NSPA framework over the initial 3 years is expected to be significant.” In other words, the company expects to make many more DroneGuns and other counter-drone products.

The DroneShield share price has skyrocketed 195% this year, as shown below.

Today, a $70 million fully underwritten placement has been revealed. In addition to a share purchase plan of up to $5 million for retail shareholders, DroneShield is seeking the capital to build up its inventory in light of its pipeline of customer opportunities.

Furthermore, the funding will also be used to expand its in-house artificial intelligence (AI) and machine learning capability.

Management noted the ‘favourable geopolitical environment’. Less than a week ago, Iran launched an attack on Israel. Iran used an estimated 185 drones during its bombardment amid growing conflict across the Middle East.

Likewise, a projected $50 billion in additional Australian defence spending over the next decade was announced yesterday. Defence Minister Richard Marles told the National Press Club of the government’s plans, although the focus was on a ‘more amphibious’ defence force.

What are the terms?

DroneShield plans to issue approximately 87.8 million shares via the placement at 80 cents per share. The offer is at a significant 18.9% discount to the last traded price. Settlement is expected to occur on 26 April for the institutional portion of the capital raising.

Meanwhile, eligible shareholders can buy up to $30,000 of DroneShield shares as part of the share purchase plan (SPP). While the aim is for $5 million from the SPP, the board may scale up or down the size depending on the amount of applications.

Eligible shareholders will have until 5:00 pm 10 May 2024 to submit their purchases.

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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended DroneShield. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.