Exercise of Warrants and Update on ATM Facility

Defence Holdings PLC has received notice to exercise warrants for 45,000,000 new ordinary shares, which are expected to be admitted to trading around 6 January 2026, taking the total issued share capital to 2,426,792,946 ordinary shares (no treasury shares). Separately, Fortified Securities sold into the company’s ATM, raising gross proceeds of £183,170 for the period to 16 December 2025 and reducing its holding from 125,500,000 (5.27%) to 116,000,000 shares (4.78%); total ATM-related gross proceeds to date amount to £620,317.49. The moves modestly dilute existing holders but provide incremental liquidity and capital to the company.

Analysis

Market structure: The 45.0m share issuance (~1.86% dilution: 45,000,000 / 2,426,792,946) is small but non-trivial for a microcap and increases freely tradable float; continued ATM sales by Fortified (from 5.27% to 4.78%) signal ongoing seller supply versus limited buy-side depth. Pricing power remains weak — without material cash inflow (only £620k raised to date) the company likely needs more capital, maintaining persistent downward pressure on the share price until a sizeable contract or funding (>£5–10m) is secured.

Risk assessment: Immediate risk (days) is a modest sell-off around Admission (~6 Jan 2026) as warrants hit the market; short-term (weeks–months) risk is repeat ATMs/secondary raises causing cumulative dilution >5% and liquidity squeezes. Tail risks include hostile stake-building, unexpected regulatory scrutiny of sovereign contracts, or a failed funding plan forcing deep equity raises; key hidden dependency is the undisclosed warrant strike and identity of exerciser which determines whether the company actually received material cash.

Trade implications: Favor tactical positions — avoid large unconditional longs. For directional exposure use small-sized long (2–3% NAV) only if price drops ≥10% on admission and company confirms cash received and intended use within 14 days; otherwise favor short or hedged exposure via puts or CFDs. Pair trade: long BAE Systems (BA.L) or QinetiQ (QQ) vs short ALRT to rotate into higher-quality defense exposure until ALRT proves funding/execution (target: committed contracts or >£5m cash in bank within 6 months).

Contrarian angles: Consensus may overestimate immediate damage — a 1.86% dilution is modest and if warrants were exercised at attractive strike the company could be under-capitalised but resilient; conversely market could underprice further ATM cadence. Historical microcap pattern: repeated small raises often precede larger dilutive events; if ALRT secures a material MoU/contract within 3–6 months, a sharp rerating is possible given low float and defense thematic demand.

Key Decisions for Investors

• Establish a tactical long in ALRT (2–3% NAV) only if price trades down ≥10% on or within 5 trading days after Admission (target 6 Jan 2026); set stop-loss at 10% and take-profit at 30% within 6–12 months contingent on company confirming >£1m cash received and disclosed use.
• If company fails to disclose warrant strike/cash received within 14 calendar days, initiate a short position or synthetic short (sell CFD or buy 3-month put spread) sized 1–2% NAV to hedge against further dilution; increase short to 3–4% NAV if cumulative ATM proceeds exceed £1m in 60 days.
• Implement a pair trade: go long BAE Systems (BA.L) 2% NAV and short ALRT 2% NAV to rotate into higher-quality defence exposure; unwind if ALRT reports >£5m committed funding or a material contract within 6 months.
• If liquid options exist on ALRT, buy 3-month puts ~30% OTM (or put spread: buy 30% OTM, sell 45% OTM) sized to 0.5–1% NAV as event insurance around Admission and potential ATM sales; otherwise use CFDs to replicate downside exposure.
• Require disclosure trigger: reduce/avoid new long exposure until ALRT publicly discloses (within 30 days) the warrant exercise price, identity of exerciser, and exact cash proceeds; treat absence of disclosure as a negative signal and increase defensive positioning.