Droneshield (ASX: DRO) has been shooting the lights out over the past 12 months. The Company’s share price was A$0.38 on 1 January 2024 and has climbed rapidly to close at A$1.48 on 24 July 2024 with a market cap at around A$ 1.1 billion. The stock briefly hit a record high of A$2.60 on 15 July. The Company released its H1 2024 results this week showing revenues of A$24.1 million, up 110% on 1H23 ($11.5 million). This was the highest ever first half year revenues in the Company’s history. H1 2024 customer cash receipts of $21.4 million, up 40% vs 1H23 ($15.3 million). However, there was disappointment from investors on sales growth and net cash outflows (A$ 29 million for the 6 months). Droneshield is also listed on all the major German exchanges of Frankfurt, Stuttgart and Tradegate. What is truly remarkable is the passion with which German retail investors have embraced the company. In July 2024, the company has seen around 20% of its ASX volumes on German trading exchanges and considerable German language discussion of the company on European equity forums and reddit. Why is this? There are several reasons. Great Narrative. Companies should never forget the power of narrative and images to engage with retail investors. Droneshield has done this very successfully. A clear strategy of use of multi-layered Artificial Intelligence to fight drones – simple and arresting. Plus, a skilful use of video and media to develop that narrative. German Media engagement. Droneshield has successfully developed relationships with German stock media such as Der Aktionär and these assists develop German retail engagement.
Strong sales growth. The main reason for retail buying according to studies is the expectation of future cash flows – either in form of dividends or capital growth from sale of shares. Both require sales growth. Droneshield reported sales of A$24 million in H1 2024 – up from $A 11 million in H1 2023. Ukraine war and reliance on drone technology. The war in Ukraine has been characterised by massive drone deployment, with thousands of unmanned aerial vehicles (UAVs) used to track and attack enemy forces, guide artillery and bomb targets. In Ukraine over 2,000 SMEs are working on drone technology. This is also feeding significant media interest in Germany and Europe. Understanding the German equity markets. Due to the nature of German Stock Exchange regulations, there are very few small and mid-cap companies with a primary listing on Frankfurt. There were only a dozen primary German listings on Frankfurt Stock Exchange in last 2 years including Porshe. Most small and mid-cap companies in German are private or owned by venture capital. Therefore, retail investors wanting to invest in publicly traded small-mid cap companies (particularly in biotech, CRM, and tech sectors) are drawn to companies with a primary listing on ASX or TSX. In these markets with low liquidity in the small and mid-cap market, companies should think about maximising their primary exchange listing and looking a dual listings such as Germany and Frankfurt Stock Exchange.
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The EU market is a huge market and opportunity for Australian companies.
There are 27 EU member states, containing a population of around 450 million people and a GDP of around € 16 trillion. Each country has very specific, cultural and bureaucratic norms which can be complex and confusing. Here in Germany, different regional ecosystems tend to specialise in different technical industries. There are 12 industry hubs in cities across Germany. Munich and Stuttgart metropolitan areas are known for high tech and automotive manufacturing. The Rhine-Neckar region is a centre of the chemicals and IT industry, and Frankfurt is the financial centre. High performance high-tech centres are developing rapidly in former East Germany, particularly the “lighthouse regions” of Dresden, Jena, Leipzig. GTAI (Germany Trade and Invest) is an ideal contact for Australian companies looking to establish business operations in Germany. Collaborations and partnerships are highly valued in Europe. The Fraunhofer-Gessellscaft is one of the world's leading applied research organisations and plays a crucial role in working with Industry in areas such as Artifical Intelligence, Quantum technologies, Resource efficiency and climate technologies. Partnering with a German or EU research organisation such as Fraunhofer is a great way to build relationships, develop EU IP and be eligible for grants and subsidies in Europe. There are 5 models for successfully scaling in Europe for Australian companies: 1. Global commodity strategic advantage such as resources like BHP and Fortescue but also smaller Australian resource companies that can assist Europe with goals of the EU Critical Raw Materials Act (CRMA). 2. Product Innovators - Australian companies with world-leading product or innovation capability such as CSL and ResMed. This also applies to small and mid cap companies such as those in the Hydrogen and clean energy sectors. 3. Business Model Pioneers - Australian companies developing innovative approaches to doing business that produces a competitive advantage. An example is Macquarie Infrastructure Fund. 4. Software Innovators - Australian software or tech companies that can expand rapidly by leveraging a scalable technology in a market segment that is specific and not over serviced by European companies. An example is EventsAir an events management software company. 5. Leveraging IP developed in Australia and collaborating with a German or EU company to develop and commercialise in EU. An example is Neometals (ASX: NMT) which developed Hydrometallurgical battery recycling capability in Australia and partnered with SMS Group in Germany to form a JV (Primobius) to develop and commercialise - resulting in agreements with Mercedes Benz. We assist Australian and global companies refine, implement, adapt, and analyse their European strategy and make vital introductions with EU stakeholders and investors. Well done to Western Australian company, Uluu for receiving AU $200,000 from the State Government’s Innovation Booster Grant (IBG) and the new Commercialisation Bridge Grant (CBG) programs.
The company recently raised AU $8.6 million to build a pilot plant, progress with first-to-market agreements, and develop a global brand around the Uluu story. As well as existing investors Main Sequence, Possible Ventures, Alberts and Misletoe Inc, some headline names such as Neil Perry from Rockpool and Karlie Kloss also invested. Uluu is committed to reduce global use of plastics which are produced from fossil fuels and release microplastics causes the accumulation of harmful waste after disposal and endangering flora, fauna, and human wellbeing. Uluu uses farmed seaweed to produce PHAs - materials that are biocompatible, yet still provide the plastic-like properties. PHAs are reusable, recyclable, and compostable. They biodegrade, even if lost at sea! Uluu’s products are produced inside fermenters – not unlike brewing beer. The process involves 4 major steps.
This is exactly the type of company EU impact investors are looking at! Uluu co-founders Michael Kingsbury and Julia Reisser Liquidity and volumes are down on most global exchanges from the highs of many years. In times of relatively high inflation and interest rates, retail investors tend to rush for cash. Larger institutional investors also increase cash and other no equity investments.
We consider in the global age, companies need to engage with as many investors as possible - not just investors on home exchange. There are multiple avenues for doing this such as OTC listing on NASDAQ. In Europe the most effective way for listed global corporates to engage and connect with German and EU investors is through a dual-listing on Frankfurt Stock Exhange. This is a simple and in-expensive process which provides access to a vast retail investor network. The customers on Trade Republic - the major EU neo-broker total more than 2 million for example. The great benefit of the Frankfurt Stock Exchange quotation board listing is it is quick, efficient and has once completed there are no ongoing regulatory or compliance obligations. Australian companies such as Droneshield Ltd (ASX: DRO) see huge engagement and trading on German exchanges with volumes often over 10 million shares alone. The great benefit of this for companies is there is broadening of the investor base with shareholders actively engaged from countries such as Germany, Austria, France and Switzerland. List local and connect globally today. On the 23rd May the EU Critical Raw Materials Act (CRMA) entered into force. The main objective of the CRMA is to establish and maintain a secure and sustainable supply of Critical Raw Materials to the EU.
The CRMA lists 34 materials which are considered strategic. Of these 17 are considered critical such as copper, cobalt and battery grade graphite. The CRMA calls for specific goals in relation to mining, recycling and processing of critical raw materials.
The CRMA is designed to strengthen all stages of the European critical raw materials value chain, diversify the EU’s imports to reduce strategic dependencies, improve the EU’s capacity to monitor and mitigate risks of disruptions to the supply of critical raw materials, and improve circularity and sustainability. The first call for projects to be deemed “strategic projects” opened on 23 May and will close on 23 August 2024. Those projects that receive 'Strategic Project' designation will benefit from more streamlined and efficient permitting procedures, as well as facilitated access to finance avenues. Projects from third party countries such as Australia may qualify if they meet the objectives of the CRMA and the wider EU Green Deal. Strategic Projects should be flagship projects with respect to technological innovation and sustainability. Applications to be lodged on the EU portal must include supporting documentation including detailed technical studies, timetable for development, permitting information, and sustainability practices. Also, a business plan should be attached for assessment of the viability of the project. For projects in “third countries” such as Australia and Canada (outside the EU but considered strategic partners) the EU has pledged to work with those partner countries to assist with permitting and sustainability practices where possible. In this respect, the signing of the MOU on a CRM partnership between Australia and the EU which was signed on 28 May 2024 was an important and integral step in the EU CRM Act for Australia. The partnership seeks to enable the EU to diversify its supplies of materials necessary for the green and digital transitions, whilst contributing to the development of Australia's domestic critical minerals sector. The partnership covers the entire critical and strategic minerals value chain: exploration, extraction, processing, refining, recycling, and processing of extractive waste. In addition to jointly developing projects along the entire value chain in the EU and in Australia, the partnership will also explore cooperation in countries where the EU and Australia have mutual interests, focusing on reducing environmental impacts and benefiting local communities. Additionally, it promotes innovative and digital technologies and services for mining, and other projects along the critical minerals value chain. The agreement seeks to enhance cooperation between Australia and the EU in 3 main areas:
Equity markets in Europe have picked up from a very dismal 2023.
There is always robust interest in quality ASX /TSX /CSE listed companies with a dual-listing in Frankfurt. Especially where those companies have a sustainable purpose and vision, clear strategic direction with strong competitive advantage, capable board and management and unique value proposition. Stocks that see the greatest level of support are in the areas of critical raw materials, uranium, green metals and minerals, biotech and medtech, gold, clean energy and technology. ASX listed companies such as Droneshield (ASX: DRO) and Brainchip (ASX: BRN) see very solid support om German exchanges. We also see Australian companies with quality global projects in the areas of critical raw materials engage very strongly such as Winsome Resources (ASX: WIN) with a very strong lithium project in Canada. Uranium stocks in particular are trading very well this year in Germany such as Deep Yellow (ASX: DYL). 2024 has seen Novo Nordisk become the largest European company by market capitalisation and this has reignited interest in quality biotech and medtech stocks. The outlook continues to be bright for quality ASX / global companies to increase EU investor interest and engagement. The European Union and Australia signed a memorandum of understanding (MoU) on 28 May 2024 to cooperate on critical and strategic minerals.
This MOU comes at a time as the EU tries to diversify its suppliers away from China and Russia and transform its economy to reduce CO2 emissions. The agreement covers exploration, extraction, processing, refining, recycling, and processing of extractive waste "Australia is ... a global leader when it comes to critical raw materials," EU Commission Vic President Valdis Dombrovskis said in a statement. It calls for co-operation on environmental, social and governance issues, includingaligning international mineral pricing with high ESG standards, strengtheningsupply chain transparency and promoting market recognition for high ESGstandards. This arrives at an important time, on the same week as the EU CRM Act went live designating EU strategic projects with a capacity to extract, process and recycle strategic raw materials and diversify EU supplies from third countries. Projects in Australia may qualify as strategic if they assist the EU with the regulation that no more than 65% of the EU’s annual consumption of a strategic raw material can be imported from a third country outside the EU. The EU signed similar agreements with Canada and Ukraine in 2021, Kazakhstan and Namibia in 2022, with Argentina, Chile, Zambia, the Democratic Republic of Congo and Greenland in 2023 and with Rwanda, Norway and Uzbekistan earlier this year. DroneShield (ASX: DRO) is a worldwide leader in counter-UAS security and technology. DroneShield develops pre-eminent UAS security solutions that protect people, organisations, and critical infrastructure from intrusion from UAS threats. Its leadership brings world-class expertise in engineering and physics, combined with deep experience in defence, intelligence, and aerospace. DoneShield is very well supported by German and European investors with its dual-listed shares often seeing volume of over 8 million shares a month on German trading exchanges such as Frankfurt, Tradegate, and Hamburg. We expect interest to continue to increase for ASX listed companies with a German dual-listing that have significant or interesting European operations or contracts. In October 2023, it was announced that DroneShield had been awarded AU$10 million from the Australian government to supply C-UAS equipment to Ukraine as part of an effort combat Russian attacks. Earlier this week the Company announced announce it has received a repeat order of A$5.7 million from a US Government customer for a number of its C-UxS (Counter-UxS) systems. C-UxS refers to counter-drone systems targeting multi-domain aerial, ground and maritime surface drones. Euronews reported in November 2023 that IFM Investors, owned by a collection of 17 Australian pension funds such as Hesta, Vision Super and CareSuper among others, have pledged $12.6 billion (€11.51 billion) for UK energy and infrastructure projects in a deal that is likely to cover projects until 2027.
Australian Superannuation fund Aware Super has also that it will be allocating $6.6 billion to its London office, primarily towards infrastructure, real estate and private equity projects. This is in addition to the $17 billion the company has already put into the UK and EU. Green Investments, which Macquarie acquired in 2017 and which started out as the UK's Green Investment Bank in 2012, has committed or arranged more than £26 billion ($32.4 billion; €30.4 billion) in green energy projects, primarily in OECD countries. We expect this surge of investment into Green infrastructure projects incorporating clean energy, hydrogen, energy and technology to continue. Europe works very differently to Australia in many respects.
Relationships and business etiquette are vital when building relationships, networks and collaboration opportunities in Europe. This sometimes takes time and patience which can be difficult to understand for executives used to a faster pace from Australia and North America. It is worth engaging with Europe - European GDP is around $26 billion and represents about one sixth of the global economy. The lesson for Australian companies wanting to engage in Europe is take time, discuss opportunities, create networks and relationships, explore working with an EU partner, understand the cultures and way of doing business and respect the EU way of doing things. It is a shame more Australian companies are not active in Europe - we hope this will change and we are here to help. |
AuthorMatthew Reynolds is an accountant, management consultant and business development expert living in Germany. Archives
July 2024
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