European defence spending

Hi Josh,

The defence space has been extremely volatile through 2025 and while DroneShield (DRO) has grabbed the headlines Electro Optic Systems (EOS) hasn’t been far behind while even shipbuilder Austal Ltd (ASB) has corrected 27% from its early October high. The sector simply got too hot with valuations thrown out of the window as Europe hiked their defence spending: expenditure hit a record €343 billion in 2024, and it’s projected to reach ~€381 billion in 2025.

With valuations now more realistic investors with a higher risk appetite might reconsider the ASX names today:

• We prefer EOS over DRO due to governance issues at the latter – EOS’ already has contracts with the Australian Defence Force (via Hanwha for LAND 400-3), at least one European NATO country for its high-power laser counter-drone weapon, and several other international customers for remote-weapon and counter-drone systems.
• EOS also holds ADF space-capability contracts and has delivered systems to various Western European clients through smaller export deals, an ideal playbook for more wins across the Euro region.

We like EOS for exposure to defence in the $4.50 area.

Alternatively, we can look to an ETF to avoid the stock specific risk in this still “hot sector” with a few good offerings now available on the ASX as interest grows in the space. Our current preference is the top performer in the space on the ASX this year, the DTEC (Global X Defence Tech ETF) which is +57% year-to-date.

• The DTEC ETF is focused more on “defence tech”: cybersecurity, drones, electronic warfare, advanced weapon-tech and dual-use technologies.

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Electro Optic Systems Ltd (EOS)

LAST UPDATED 04/12/2025 15:12

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Electro Optic Systems Ltd (EOS)

LAST UPDATED 04/12/2025 15:12