DRO 0.00% 17.0¢ droneshield limited

Institutional Shareholders are leaving DRO - what do they know?

  1. 48 Posts.
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    My post in the other thread (Regal's change in substantial holding) was a popular one in terms of useful votes. I think it deserves it's own thread now that we have lost the last remaining large pre-IPO shareholder. Hopefully we can get some answers at the meeting next week. I have a few other concerns which I will try to address on here with the hopes of getting a sounding board before the meeting.

    I feel similarly so I talked to people close to the situation, but not Phil King himself. From what I could gather Regal is calm about their decision and know exactly what they are doing.

    The below is to the best of my understanding and opinion and nothing more.

    DRO has hard a hard time holding down insto/large shareholders. Insto/large shareholders are usually where good companies form their base. Especially small ones. That dense and loyal ownership also allows for share price to really skyrocket on good news. For good small companies 1-3 funds are usually happy to jump in and sometimes take up to half of the equity base. To me, it is a red flag that all of the institutions are leaving DRO. As institutions have lost faith, so have I, and I have trimmed my position accordingly. I remain hopeful that my remaining position will be fruitful, but I must admit, it is looking dubious at best right now.

    Brian Hearing is the cofounder of DRO who while CEO inspired a lot faith in the business. While he was CEO the share price went from an IPO of 20c to around 45c before he left. The new CEO has taken it from c.45c to c.10c. He sold his shares for much less than where he left the company and is no longer a significant shareholder.
    John Franklin, the other founder and board member (I believe) for 3.5 years has also just sold out at a very low price. John, Bergen, and Regal should know more about this company than any other shareholder so this is alarming.
    --update over--
    Eagle's View was a cornerstone investor and they also seem to have sold out a signficant loss.
    Bergen was able to generate a considerable profit. They sold a lot of their shares to Regal (a decision Regal seems to regret) and many of their shares on the market at around the peak price.
    Bergen also recently sold many of their remaining shares at 14-16c
    There aren't large shareholders/institutions who have stuck this out

    However, I'd have to check the numbers, but I think a "new" pseudo insto base is forming. Oleg (CEO) and Peter (Chairman) have been given something like 40m Zero Strike Options (options that dilute without any cost) plus many many more options. I think the ZEPOs are not tied to increasing share price at all, which has fallen from around 45c to 10c during Oleg's tenure.

    Most hedge funds would like to see the CEO win only when they win. That is the mgt needs to increase share price, for example Elon Musk's package where options vest in tranche's based on him earning profits for shareholders. And this arrangement, if I understand it properly, appears to be a fundamental misalignment of interests where the executives gain ownership of the company by selling it, even at a far lower price than when they became stewards of the company, that is they can take over the company at 45c and sell it at 10c and still make multiple millions.

    From my conversation, Regal appears to feel that DRO leadership made certain promises, especially around sales, and fell very very short of those promises. Based on the sales action it at least looks like they no longer want to be associated with DRO and there is probably nothing DRO can do about it (outside of make a sale - but that inability until now is precisely why I suspect Regal is leaving).

    I am not sure if Regal is right or wrong but I imagine they have put significant time and effort into this. Let us not forget that despite their recent struggles they still have industry leading returns over a long period of time and must feel this money can be better used elsewhere. I think the pain will continue until Regal sells out and maybe even longer if DRO can not do something to make shareholder's believe. As shareholder's there are a few things we should get to the bottom of:

    Sales are absolutely abysmal relative to expectations. Why is the sales pipeline not converting? We were down-selected to 1:2 so many times just to fail.
    The last big capital raise was meant to act as a bond to the $50-70m sale. It seems that money has now been squandered without any real sales. Is that bond money set aside somewhere?
    Why are none of the partnerships generating sales? It has now been years without sales.
    Why have the middle eastern govt not paid for their order from over 2 years ago. Are we going to take a loss on this since we already shipped them the product? This is a very big issue as they should have paid by now.
    When is the next capital raise. Do we really trust management not to do it this year and when share price is low? What you don't want to see is Bergen selling the last of their shares at 16c then re-entering at 9c on a capital raise (diluting regular shareholders) to do it all over again.

    All IMO, and DYOR.

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