July 31, 2024 – Trading Halt – Droneshield ASX:DRO – Another Capital Raising!
This morning, I was surprised to see that Droneshield ASX:DRO shares were suspended pending another capital raise. This is particularly interesting since they only completed a raising of $115M in April, just 3 months ago. This comprised of a $100M placement and $15M SPP at 80c. At last report, they had $145M cash in the bank with no debt.
This is not the first time this company has surprised me. As a previous shareholder and someone who knows people that own or have owned shares in the company, I have continued to keep a close eye on them. I thought I’d take a few minutes to share some observations.
January 16, 2024 – December Quarterly Cash Flows Report
This was where it all began for me with Droneshield ASX:DRO. I bought shares in them on this day, on the back of this announcement. What a quarter! I was confident this would bring a lot more attention to this company even if it was possible that this was just a one-off. If it wasn’t just a one-off, then this company had incredible potential, possibly for many years to come.
The shares had been listed for some time prior and had been an inconsistent performer. Leading into that result though, the shares had already been on the move again. Clearly, the situation in Ukraine had started to gain them some attention.
For context, this is their history of operating cash flows prior to this result:
March 6, 2024 – Directors Sell Shares
Two of the three directors sold all of their shares, retaining only performance options. Over $15M worth of shares were sold between Feb 29 and March 5th. Pretty easy to see when they did it. It wasn’t subtle!
They announced their sale after the market closed on the 6th when the shares had closed at 69.5c. The market saw this announcement as negative (as did I) and the shares closed at 59.5c the following day. I’m sure some would have interpreted this as a sign that the March quarterly report would not be anywhere near as strong as the December one. I nervously continued to hold.
April 15, 2024 – March Quarter Cash Flow Report
Yuck! I sell my shares on this day. As I had suspected, December was likely just a perfect storm and the directors selling was certainly a signal that something like this was to come.
However, history shows that I got this wrong. The directors claimed that timing was the main factor for the poor result and that a better outcome could be expected in the next quarter. The market so wanted to believe the story and so it wasn’t over yet.
April 18, 2024 – Capital Raise And SPP Is Announced
On the back of continued share price strength, it is announced that the company would be conducting a large capital raise at 80c. Interestingly, only the single director who retained some of his shares participated in the SPP acquiring around $12,000 worth of shares.
The capital raise slowed the progress of the share price through the month of May. However, the shares really got going again, right through until July 17.
July 17, 2024 – Price Query / Negative Press Article
To me the board did nothing to refute the claims in the article because their prior actions suggest that they agreed with it.
- Selling their personal shareholdings.
- Conducting a large capital raise.
- Increasing the size of that capital raise.
- Not participating in the capital raise themselves in any meaningful way.
All of these are things you do when you believe the shares are overvalued. Don’t take any of that as a criticism. I much prefer boards that raise funds on their terms (when the shares are up) than boards that do it out of desperation (when the shares are down).
The article certainly spooked the market.
July 22, 2024 – June Quarter Cash Flow Report
I won’t reproduce the report here but will just show you the operating cash flow outcome. That great December quarter has been followed up with the two biggest outflow quarters since I’ve been following them.
In 2 weeks the stock has lost half of its value. A $2B company is now worth $1B. With the stock in free-fall the board has decided to try and grab some more cash while they can. It will be interesting to see if they participate this time.
I remain intrigued about where this story goes next for Droneshield ASX:DRO. Stay tuned!
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Droneshield ASX:DRO – Another Capital Raising!