Over the last few years, every investor, myself included, has been hunting defence exposure on the ASX and we're all looking at the same names. DroneShield, EOS, and so forth. Counter drone systems, radar technology, autonomous weapons platforms, the language is compelling and the share price action more so. DroneShield has added over 400% since the start of 2025, and is now valued at a market cap above $3.5 billion against trailing twelve month revenue of approximately $216.8 million. The trailing price to earnings ratio sits at approximately 999 times, with return on equity of just 1.09%. The story is real, drone tech and counter-drone tech is a new layer of modern warfare that can't be ignored. However, there's more to investing than just stories, and the valuation has already priced in years of flawless execution.
Personally, I think the valuations for most of the companies operating in the defence industry leave much to be desired. That's not to say they're not great companies with a great future, I just think the price of their shares versus what they're earning right now, and projected to earn, is disproportionate. So keeping that in mind, my attention turned to the defence industry supply chains. As an example, Bisalloy Steel Group is making armour grade steel plates, and almost nobody is writing about it. Only one analyst has covered it, and it has a relatively low percentage of institutional investors.
Interestingly, Bisalloy is Australia's only domestic manufacturer of high strength, abrasion resistant, quenched and tempered steel plates, the material used in armour, structural, and wear resistant applications across mining, construction, and defence. That monopoly position is structural, not accidental. You can't build armoured vehicles and defence infrastructure without raw material supply chains, and Bisalloy sits at that intersection quietly.
The financials reflect a business running well beneath the surface. Return on equity is 27%, return on capital is 30%, and total debt stands at $2.52 million, a balance sheet that most mid cap investors would find difficult to fault. Earnings grew 24.4% in FY2025 despite revenue remaining essentially flat at $152.8 million, which signals genuine margin improvement rather than volume-driven growth. The dividend yield is in the upper echelons of all Australian dividend payers.
However, like all companies, they're not perfect. Revenue slipped 7.2% year on year in Q2 2026. Their dividend is not fully supported by free cash flows. Liquidity is thin. But if the defence trade is your thesis, ask yourself whether you would rather pay 999 times earnings for a story, or 11 times for the supply chain underneath it. The only right answer to that question is your appetite for risk.
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