Theon International — Q1 positive results support full year guidance

Theon International (AMS: THEON)

Last close As at 28/04/2025

EUR25.20

−0.20 (−0.79%)

Market capitalisation

EUR1,764m

More on this equity

Research: Industrials

Theon International — Q1 positive results support full year guidance

Q125 results are in line with our expectations and, with the positive order book, provide confidence for the full year. Equally important is management confidence on further significant contracts included in new higher technology products, along with the potential from acquisitions supported by Theon’s strong net cash positive balance sheet.

David Larkam

Written by

David Larkam

Analyst, Industrials

Aerospace and defence

Q125 results

29 April 2025

Price €25.20
Market cap €1,778m

Net cash at 31 March 2025

€61.2m

Shares in issue

70.0m
Code THEON
Primary exchange AEX
Secondary exchange N/A
Price Performance
% 1m 3m 12m
Abs 10.4 88.4 124.7
52-week high/low €27.7 €8.6

Business description

Theon International develops and manufactures customisable night vision and thermal imaging systems, primarily for military and security applications. These optoelectronic devices are developed for both man-portable and platform applications.

Next events

Q2 trading update

28 July

H1 results

2 September

Analyst

David Larkam
+44 (0)20 3077 5700

Theon International is a research client of Edison Investment Research Limited

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments

Year end Revenue (€m) PBT (€m) EPS (EUc) DPS (EUc) P/E (x) Yield (%)
12/23 218.7 49.9 - 0.00 N/A
12/24 352.4 86.7 98.00 34.00 25.7 1.3
12/25e 420.0 105.2 114.00 39.90 22.1 1.6
12/26e 483.0 123.8 133.00 46.55 18.9 1.8

Q1 financial results highlights

Q1 sales of €90.8m increased 19.8% y-o-y and translate to 21.6% of our full year revenue forecast, similar to the previous year (Q124 €75.8m vs €352m for the full year). Adjusted EBIT of €23.0m increased 34.2%, with an adjusted EBIT margin of 25.3% (vs 22.6% in Q124), which is encouraging, being in line with full year guidance for mid-20s margins. EPS of €0.25 increased 39%. Net cash was €61.2m, up from €41.7m at the year-end, with working capital of €160.0m down €5.5m or 3.3% from the year-end, suggesting the trade receivables, which were inflated, are starting to unwind as planned.

Order book continues to grow

Order intake was positive at €117.9m, up 202% y-o-y, albeit the contract nature and reliance on government customers inevitably lead to a degree of volatility. More important is that the book-to-bill ratio was 1.3x, with the total order book, including soft backlog, at €668.6m, up 2.2% from €654.2m at the year-end. This is before taking into account c €100m of new options, with a reported very high probability of conversion to the backlog.

Outlook unchanged

Management’s outlook and guidance are unchanged. Management is confident of further significant contract awards, including within A.R.M.E.D products, while the new platform products, which are a key element of development spend at present (€20m currently being invested, primarily in platform-based products), have already received some smaller contracts. The key uncertainty comes from tariffs, but management states that any impact is only likely to cover 2–3% of sales.

Valuation increased to €28.8 per share

We have increased our valuation from €21.2/share to €28.8/share, rolling forward both our DCF- and peer-based valuation. We also note that this does not include the potential from acquisitions, a clear part of the strategy and which the net cash position of the group can support.

Q1 results details

Q1 sales of €90.8m increased 19.8%. Of note is the growth in Asia revenue from €4.1m to €25.5m and the growth in Thermal product range, an area of new product development, from €2.8m to €11.0m, albeit these should be viewed within the short time period of a quarter when delivering significant defence contracts. The gross margin increased from 29.1% to 30.7%, adjusted EBIT of €23.0m increased 34.2%, with an adjusted EBIT margin of 25.3%. This is encouraging, being in line with full year guidance for mid-20s margins. EPS of €0.25 increased 39%.

Order intake was positive at €117.9m, up 202% y-o-y. More important is that the book-to-bill ratio was 1.3x, with the total order book, including soft backlog, at €668.6m, up 2.2% from €654.2m at the year-end. This is before taking into account c €100m of new options. A key contract win forthe quarter was the German Future Soldier Program (IdZ), where Theon provides its newly launched Heads-Up Display system. This forms part of Theon’s Augmented Reality Modular Ecosystem of Devices (A.R.M.E.D) range of products, bringing together multiple vision systems technology and communications capabilities increasingly required for modern warfare. There is no change to management guidance or, therefore, to Edison’s forecasts. We note that Q1 underlying PBT equates to 21.3% of our full year forecast, supportive of our full year expectations given Theon’s normal weighting to Q4.

Valuation

We have reviewed our valuation for Theon using two methodologies, DCF based and peer based, and rolled forward our assumptions for FY25.

For our DCF we use a 3% long-term growth rate and 9% cost of capital, providing a valuation of €25.3 per share. This uses the Greek bond yield and equity risk premium reflecting the company’s operating base but Theon’s markets are international with less than 1% of sales to Greece, suggesting a lower cost of capital could be applied.

Our peer-based valuation considers two groups of companies: those operating in enhanced vision systems and defence peers. The first group provides a valuation of €27.3 per share, the latter €30.3 per share, suggesting a mean valuation of €28.8 per share.

Overall we see the peer-based valuation of €28.8 per share as most appropriate, up from €21.2 per share. We also note that this does not include any upside for acquisitions, which management is keen to deliver.

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