Droning On, to an Ever-Growing Market

By James Dunn | More Articles by James Dunn

There’s no doubting that drones are one of the technologies of the 2010s so far. As advances in technology have made drones smaller and more accessible, their use, and potential applications is swelling all the time – for purposes both good and not-so-good.

For every drone that delivers provisions or medical supplies to remote communities, or helps in search-and-rescue operations or disaster relief; or helps monitor endangered wildlife without intruding; there is potentially another drone that could be used for sinister purposes – ranging from terrorist activity to illegal monitoring and photography.

This year alone, an ISIS drone rigged with explosives killed two Peshmerga (Kurdish militia) fighters and wounded two French soldiers, and ISIS drones have released hand grenades against US-backed forces. In August 2015 the Department of Homeland Security issued a terror alert after three drones were spotted in three days above New York’s JFK Airport, and an unidentified object was filmed hovering near a Virgin Atlantic plane taking off from JFK.

In April 2015 a small drone containing radioactive sand was found on the roof of the Japanese prime minister’s office. In January 2015 a wayward drone flown by an off-duty intelligence employee crashed in the White House grounds. In 2013 a drone made a surprise landing in front of German Chancellor Angela Merkel. Also, Lebanese radical group Hamas has sent drones into Israeli airspace.

To terrorist groups, drones are an obvious simple, affordable and effective means of deploying improvised explosive devices. In October 2014, the New York Police Department (NYPD) said that drones carrying explosives was the number one terror threat it faced. A White House policy workshop in October concluded that a domestic terrorism act using a drone in the US was “a matter of time.”

The burgeoning use of drones – and the obvious risks that this could entail – has spurred the development of a drone security market, and this is where the Australian Securities Exchange (ASX)-listed DroneShield Limited (DRO) is making its mark.

DroneShield is a drone security company whose lead product is a drone detection system that protects people, organisations and critical infrastructure from intrusion from drones. DroneShield’s detection systems use highly specialised technology to achieve levels of precision and sensitivity that are not possible with other methods.

The company’s unique technology uses proprietary software and hardware to detect drones up to one kilometre away – that would usually be invisible to radar, camera and radio frequency-based systems – and instantly alert users in real-time through multiple channels, ensuring any potential threats can be addressed.

DroneShield uses audio/acoustic signatures (obtained through a US Department of Defense-approved anechoic chamber) to detect drones, which is much more accurate than traditional radar, radio frequency, camera, LIDAR (Light Detection and Ranging) and laser methods, which can frequently fail through an inability to distinguish between other airborne devices.

The company’s unique software is based on a proprietary database of audio signatures that ‘listens’ for and detects the sound of approaching drones. This enables threat reaction and potential interception, and accelerates the apprehension and prosecution of violators through real-time alerts and digital evidence collection.

The DroneShield system identifies single and counter-rotating helicopters, quadcopters, hexacopters, octocopters etc. of varying sizes, and excludes false positives (for example, insects, lawn mowers or industrial noises.)

The system is sold under a Software-as-a-Service (SaaS) pricing model, which includes hardware and cloud-based monitoring, processing and alert instigation. The SaaS model secures recurring revenue stream for the life of the installation. It is easily integrated with a customer’s existing security systems.

DroneShield can detect drones not in its “line of sight” – that is, behind objects – and also at night, and in low flight. Its detection range, at one kilometre, is about ten times that of a camera. Remote access to DroneShield sensors allows customers to check statuses, listen to sensor audio, respond to real-time alerts, and configure their system from anywhere.

DroneShield made its first global sales in early 2014. More than 200 units of its drone detection system have been shipped worldwide: the system was recently used at the Boston Marathon, for the second year in a row. DroneShield has more than 40 distributors, in more than 30 countries.

Affordable commercial and consumer-grade drones have become popular around the world, with more than one million commercial drones sold last year, and 12 million expected to be in operation by 2020. DroneShield estimates the counter-market – which is its addressable market – at more than US$12 billion ($16 billion), with more than 300,000 potential customer facilities worldwide, comprising:

• 65,000 power plants
• 42,000 airports
• 41,000 hotels
• 20,000 prisons
• 11,000 outdoor stadiums

Other infrastructure that the company’s system could protect includes defence installations, national borders, secured sites, manufacturing plants, real estate assets, and public events (such as the Boston Marathon). DroneShield says the vast majority of real asset perimeters are currently unprotected: the land perimeter of these assets is a fraction of the overall three-dimensional exposure to threats, and threats are increasingly coming from the air.

Additionally, DroneShield says there are about 211,000 ultra-high-net-worth individual customers, who may be interested in deterring unwanted intrusion, ranging from senior executives to celebrities wanting to ward off paparazzi photographers using drones.

DroneShield wants to progress from being purely an acoustic drone detection company to offering an integrated technology platform. Today (Monday 28 November) the company announced the launch of the DroneGun drone counter-measure product, a breakthrough product that augments the drone detection system by jamming the communications between a drone and its remote pilot.

The product is a rifle-style handheld jammer device, highly effective at 2.4Ghz and 5.8Ghz frequencies (the standard frequencies of consumer and commercial drones globally). An optional GPS-jamming capability is also available to customers, where lawful.

As well as jamming the drone’s pilot’s communications with the drone, for many models of drones, DroneGun also triggers the “return to home” function, which then helps the DroneGun’s user to track the pilot. This makes DroneShield the only company in the world offering both drone detection and handheld rifle-style tactical drone countermeasures.

DroneShield will market the DroneGun globally to customers who are legally able to purchase it. The initial customers are most likely to be from the military and law enforcement sectors, which have previously expressed significant interest in tactical jamming countermeasures.

DroneShield listed on the ASX in June after raising $7 million in its over-subscribed initial public offering (IPO). Issued at 20 cents a share, DroneShield surged to a first-day close of 30 cents, but has struggled subsequently – before a 7.7 per cent surge on the back of today’s DroneGun launch, which has taken the stock to 21 cents, capitalising DroneShield at $28 million.

The company is not expected to break through into profitability until FY18: broker Patersons expects $7.9 million in net profit (4.8 cents a share) then, rising to $14.2 million (6.1 cents a share) in FY19. But dividends are not expected over that period. As at 30 September 2016, DRO had $4.5 million in cash.

All it would take for the drone security market to take off would be a high-profile drone incident, which sadly, is widely considered to be a case of “when,” not “if.” But the growth of the drone security industry seems to be inevitable, and DroneShield will be a major beneficiary of this. Broker Patersons, for example, has a price target of 77 cents on the stock. At 21 cents, DroneShield is a highly promising situation, but still a speculative buy.

About James Dunn

James Dunn was founding editor of Shares magazine and has also written for Business Review Weekly, Personal Investor, The Age and Management Today. He was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au.

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