DroneShield’s European Order Book Tops A$111M, Is the Stock a Buy Ahead of the EU $800B Defence Spending Boom?

Europe Reloads as €150B Defence Spend Sparks Fresh Growth Momentum

DroneShield (ASX:DRO) has staged a sharp recovery, rising more than 100% over the past month. For those who have been following our coverage, we have written extensively on the company’s growth trajectory and long term opportunity.

In our recent analysis, we focused on the underlying fundamentals and believed that a share price around A$1.80 offered an attractive entry point for a business leveraged to a structural uplift in global defence spending. Since then, the stock has continued to move higher.

The earlier sell off created a genuine opportunity for investors willing to take on risk, although we acknowledge that doing so was psychologically challenging at the time. Uncertainty around management changes and internal execution weighed heavily on sentiment. That pressure has now begun to ease.

Over the past month, improved investor confidence and renewed contract momentum have driven a rebound of approximately 108%.

Looking ahead, we see a clear pathway for DroneShield to further diversify and strengthen its earnings base. Management expects the civilian market to contribute up to 50% of revenue over the next five years, while subscription-based software and services are set to become a core driver of the company’s high-margin profile.

These recurring revenues should meaningfully support cash flow generation and profitability over time.

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DroneShield Taps into Europe’s Defence Rebuild

Europe remains a critical customer region for DroneShield. European customers have committed approximately A$111m over the past 12 months, based on company disclosures and our compilation

Looking ahead to 2026, there is an additional and often underappreciated catalyst that investors should be aware of. The European Union has signalled a shift toward more flexible fiscal policy to enable higher national defence spending. A key initiative under this framework is the creation of the SAFE instrument, which allows the European Commission to raise up to €150 billion to support joint defence procurement through loans.

This policy direction is already translating into tangible outcomes, with a growing number of defence contracts announced across the region.

Europe’s threat assessment changed materially following Russia’s full scale invasion of Ukraine. The conflict exposed clear capability gaps and highlighted the fragility of existing ammunition and equipment stockpiles.

As a result, European governments are moving with greater urgency to rebuild defence capacity and reduce their reliance on the US for critical and time sensitive defence needs.

It is also important to clarify that the widely cited €800 billion figure is not a single pool of capital. Rather, it represents the European Commission’s estimate of the total defence investment that could be mobilised across member states over the coming years. Policy intent is to increase joint procurement and favour Europe’s defence industrial base, though non-EU components can still be included within limits.

The Ukraine war opened wounds in EU defences

The war in Ukraine exposed a critical reality for Europe. Defence stockpiles were built for short, contained conflicts, not prolonged high intensity warfare. Shortages have emerged across key categories including 155mm artillery shells, rockets and missiles, as well as the propellants, explosives, and energetics that underpin modern munitions production. This has forced a rapid reassessment of priorities across European defence planning.

While ammunition remains a focus, one of the fastest-growing and most urgent needs is counter-unmanned aerial systems. The proliferation of low-cost drones has fundamentally changed the battlefield, creating an estimated total addressable market of around A$60 billion, including the commercial counter UAV market. In this segment, DroneShield stands apart. It is the only pure play, publicly listed counter drone company globally.

Europe already contributes approximately 42% of DroneShield’s total revenue, and we see the region as a core growth engine for the business. With defence budgets rising and procurement processes accelerating, DroneShield is well positioned to capitalise on this shift through to 2026.

Importantly, visibility on future demand continues to build. As of October 2025, the company reported a pipeline of approximately A$2.5 billion, supported by more than 307 active projects.

Is the Stock A Buy

Looking at DroneShield’s valuation outlook, improved revenue visibility has started to flow through analyst models. On a 12 month view, consensus price targets are clustered around A$5, reflecting stronger contract momentum and better forecast confidence.

Taking a longer term perspective, we see a credible pathway for DroneShield to trade in a A$9 to A$12 range over the next five years. That outcome is not linear and volatility should be expected. It assumes sustained compound revenue growth, continued expansion of the contract base, and a gradual shift toward higher quality, more recurring revenues.

Importantly, this view does not rely on aggressive assumptions. It embeds only moderate multiple expansion relative to global defence technology peers. The upside case is driven by execution. Specifically, delivery on a growing pipeline of large contracts, deeper penetration of US and European defence markets, and continued improvement in governance and investor confidence.

In our view, if management executes against these priorities, the valuation gap between current levels and long term potential remains meaningful.

This is not financial advice and reflects our personal opinion only, shared to help retail investors think more clearly about the opportunity and make better informed investment judgments.