Electro Optics Systems Expands Counter-Drone Capabilities with Strategic Acquisition and Major HELW Contract

Stonegate Capital Partners has updated coverage on Electro Optics Systems Holdings Ltd following significant developments in the company's counter-drone warfare capabilities. The company announced the acquisition of the UK-based interceptor business from MARSS Group for A$10.0 million, adding complementary counter-drone technology that is expected to require 12-24 months of further development. This strategic move establishes EOS as a leading counter-drone capability company in an emerging advanced technology sector considered critical for future defense applications.

The interceptor drone system represents cutting-edge technology that pursues targets using onboard imaging, infrared seeker technology, and market-leading AI-based guidance systems. The compact and mobile design makes it suitable for both fixed sites and vehicle deployment, with the ability to integrate with common sensors and command and control systems as part of a layered counter-drone solution. Notably, a version of this system can be side-loaded to EOS's Remote Weapon Stations, enhancing the company's existing product offerings. The acquisition is expected to require an additional A$10.0 million investment over the next three years, with portions potentially funded by customers.

In August 2025, EOS secured a landmark A$125.0 million contract for a 100kW high-power laser weapon system designed for counter-drone warfare. This system, destined for a European NATO member, represents a significant technological advancement with the capability to take down 20 drones per minute, approximately 5 to 10 times more efficient than current kinetic kill options. The HELW system operates without cool-down time constraints and is expected to be accretive to margins and cash flow positive in the back half of the delivery period. Revenues from this contract will be recognized over the next three years, with expectations for additional HELW contracts in 2026.

The company's growth strategy focuses on a three-pronged approach combining internal development and external opportunities. EOS plans to concentrate resources on counter-drone RWS technology over the next 1-3 years and HELW technology over the next 2-5 years. The company benefits from significant macro tailwinds, including the EU's ReArm Europe Program, which aims to mobilize €800.0 million across the European Union, culminating in the "drone wall" initiative. EOS believes it is positioned to capture 50% of the HELW total addressable market due to proprietary technology and first-mover advantages.

EOS currently maintains a strong order backlog exceeding A$400.0 million, nearly triple the amount from year-end, supported by recent contracts including a A$20.0 million Slinger counter-drone order. Most of this backlog is expected to be monetized in 2026 and 2027, providing substantial revenue visibility. Stonegate's valuation analysis, incorporating both DCF and comparable methods, indicates a valuation range of A$7.09 to A$9.75 per share, reflecting the company's strengthened market position and growth prospects in the rapidly evolving counter-drone defense sector.