Treasure Chest: Elsight & Electro Optic Systems

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This story features ELECTRO OPTIC SYSTEMS HOLDINGS LIMITED, and other companies.
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FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today’s ideas are Electro Optic Systems and Elsight.

By Mark Woodruff

Whose Idea Is It?

Cannacord Genuity

The subject:

Electro Optic Systems ((EOS)) and Elsight ((ELS)).

Following Australian defence manufacturer Electro Optic Systems’ successful $230m capital raising in May to take advantage of a step change in defence spend globally, Canaccord Genuity raised its earnings forecasts due to strong recent contract momentum.

Management at the advanced weapon systems and satellite tracking technology provider this week upgraded FY26 revenue guidance for its core business.

The broker also initiates coverage on Elsight, provider of connectivity solutions for drones, autonomous systems and other mission-critical applications.

Significant growth is emerging in Europe as NATO countries ramp up defence expenditure following the Russia-Ukraine war, boosting demand for products supplied by European drone manufacturers, Canaccord highlights.

More info:

Only back in May, Electro Optic completed the acquisition of Marss Group, following a $150m placement to institutional investors and $40m strategic investment from Calidus LLC and another unnamed investor.

At the time, Bell Potter highlighted stronger-than-expected traction from the AI-enabled Command and Control (C2) platform NiDAR.

Marss had just secured EUR102m in follow-on contracts from an existing Middle Eastern customer for a nationwide counter-drone detection and mitigation network.

Marss prevailed against two competing prime contractors, a result the broker viewed as validation of NiDAR’s capabilities and competitive positioning.

Now, following the June 15 business update, management expects FY26 revenue of between $240m-$270m, which, when combined with Canaccord’s forecast $34m contribution from Marss, implies group revenue of approximately $274m-$304m.

This revenue range compares with the broker’s prior forecast of $262m and consensus expectations of $243m, implying potential upgrades of 5% and 16%, respectively.

Management’s guidance assumes no contribution from future contract wins, leaving scope for further upgrades should Electro Optic maintain its recent order momentum through the second half of FY26.

The company reaffirmed a combined Electro Optic and Marss order backlog of $726m, comprising $509m for Electro and $217m for Marss, with 60%-80% expected to convert into revenue across FY26 and FY27.

Cannacord explains management’s growth strategy centres on four key divisions:

• NiDAR, where the opportunity pipeline is expanding rapidly;
• Remote Weapon Systems, supported by major opportunities in the US and Germany;
• High Energy Laser Weapons, with growing prospects across Europe, the Middle East and the US; and
• Space Control, where the Atlas mobile surveillance platform could enter commercialisation in FY27.

Management sees strong growth potential across all four businesses.

Turning to Elsight, here Canaccord describes the provision of a communications “backbone” that keeps drones and autonomous systems connected when reliable connectivity is critical.

Elsight provides advanced communications technology for unmanned aerial, ground and maritime systems through its flagship Halo platform.

Halo aggregates all available connectivity channels into a single secure and resilient network for beyond visual line of sight (BVLOS) command and control, video streaming and telemetry.

Drones are now estimated to account for 70%-80% of battlefield casualties in the Russia-Ukraine war.

Canaccord also points to Iran’s deployment of more than 2,000 Shahed drones against US forces and allied assets during Operation Epic Fury in early 2026, an event that exposed significant gaps in Western counter-drone capabilities and accelerated procurement programs across NATO.

The company typically generates initial hardware sales, which act as a gateway to higher-margin recurring subscription revenue.

The analysts’ investment case is supported not only by attractive gross margins of around 75%, but also a capital-light operating structure and robust free cash flow (FCF) generation. The broker is forecasting US$17m FCF for FY26.

At the time of Elsight’s March quarter result in April, Bell Potter compared valuation multiples across ASX-listed and global companies exposed to the drone and counter-uncrewed aerial systems (C-UAS) thematic.

While trading on above-average EV/sales multiples at the time, the broker highlighted the company is one of few profitable emerging UAS companies listed globally.

Bell Potter identified US-listed Unusual Machines (ticker: UMAC) as a close comparable, given both companies provide “pick-and-shovel” technologies to the sector.

Elsight’s edge is in gross margins, well above the 30%-40% margins generated by Unusual Machines’ drone motor business, supporting a superior return on invested capital ROIC) metric.

Among daily covered brokers, Ord Minnett and Bell Potter have Buy ratings with respective targets of $11.00 and $10.60, with the former broker describing any investment as Speculative.

Outside daily coverage, Canaccord Genuity is Buy-rated with a $14.00 target, which compares to the $8.62 share price in afternoon trade on July 17.

Cannacord initiates coverage on Elsight with a Buy rating and $10.90 target.

Daily covered Bell Potter also has a Buy on Elsight with an $8.10 target versus the current $7.74 share price.

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