Theon International — Delivering the acquisition strategy

Theon International (AMS: THEON)

Last close As at 08/08/2025

EUR24.90

−1.20 (−4.60%)

Market capitalisation

EUR1,827m

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Research: Industrials

Theon International — Delivering the acquisition strategy

Theon has acquired German-based Kappa Group, a specialist optoelectronics business offering rugged and high-tech application for defence and niche applications. This will broaden Theon’s technology and application suite and is in line with the acquisition strategy, offering additional capabilities, whereas Harder Digital, acquired in 2024, brought key image intensifier tube components.

David Larkam

Written by

David Larkam

Analyst, Industrials

Aerospace and defence

Acquisition of Kappa Group

11 August 2025

Price €24.90
Market cap €1,827m

Net cash at 30 June

€38.1m

Shares in issue

70.0m
Code THEON
Primary exchange AEX
Secondary exchange N/A
Price Performance
% 1m 3m 12m
Abs (16.1) (5.7) 130.3
52-week high/low €35.0 €8.5

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

H1 results

2 September 2025

Q3 update

3 November 2025

Capital markets event

Q425

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 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 25.4 1.4
12/25e 430.0 105.2 114.00 39.90 21.8 1.6
12/26e 523.4 130.4 141.00 49.35 17.7 2.0

Acquisition to expand optronics capabilities

Theon is buying Kappa Optronics GmbH (KAPPA), a German-based specialist in aviation and land optronics. KAPPA claims it ‘leads in compliance, certification, and validation, delivering the safest, most robust, and highly efficient vision systems for defense mobility and autonomous machines on the ground and in the air’. KAPPA provides design and low capital intensity assembly for specialist vision systems. Its product portfolio includes aerospace cameras and vision systems for a range of applications from inspection to unmanned aircraft navigation, while on land for military vehicle driver vision enhancement and situational awareness solutions as well as inspection systems for high-calibre gun barrels. Other applications include digital cameras for automotive. KAPPA is forecast to generate revenues of at least €37m and EBITDA of approximately €8m (EBITDA margin c 22%) for FY25. Management commented that it expects to improve operating margins to Theon levels, c 25%, in the short term. Theon is paying an Enterprise Value of €75m, to be financed from cash resources and debt (net cash at the end of H1 was €38m). On FY25 forecasts, this translates to EV/sales of 2.0x or EV/EBITDA of 9.1x before any synergy benefits. We expect more details with the capital markets event in Q4.

Forecasts

We have increased our FY25 sales expectation in line with the earlier management guidance of ‘top end of range’, but have not changed any profit numbers, reflecting the change in accounting announced with the H1 update and the seasonal importance of Q4. We have not included KAPPA for FY25 as the timing of completion is uncertain. However, we have included a full year contribution for FY26 pre synergy benefits. We estimate FY25 sales of €430m (+2.4%), with PBT and EPS unchanged. For FY26, we estimate sales of €523m (+8.4%), PBT of €130.4m (+5.4%) and EPS of 141c (+6.0%). Note that management has stated it will provide FY26 guidance by end October.

Valuation: Increased by 20%

We have updated our peer-based valuation (using specialist optronics companies and broader defence groups) to €32.5 a share, up from €28.8 (last updated 29 April), reflecting the re-rating seen in the defence sector and the KAPPA deal. Our DCF valuation comes to €32.1 a share (WACC 8%, long-term growth rate 3%).

Forecasts

We have increased our FY25 sales expectation in line with the earlier management guidance of top end of the range of €410–430m. We have not changed any profit numbers despite H1 being ahead of the mid 20s margin guidance. This reflects the change in accounting for equity investments and the seasonal importance of Q4, and we expect to revisit our forecasts either with the full H1 results or after the Q3 update. We have not included KAPPA for FY25 as the timing of clearances and hence completion is uncertain. However, we have included a full year contribution for FY26 before synergy benefits. This should prove conservative given management’s comments on being able to achieve similar margins to Theon’s core activities (we estimate c 500bp upside) in the short term.

Valuation

We have updated our key peer group valuation. This reflects the positive revaluation of defence related stocks seen in recent months as well as the upgrade to forecasts for Theon post the KAPPA deal. Our valuation comes to €32.5 per share (€34.0 using specialist optronics peers and €31.0 using a broader defence-exposed peer group).

We have also revised our discounted cash flow valuation. Exhibit 3 provides a valuation per share relative to the cost of capital (WACC) and long-term or terminal growth rate assumptions. Our expectation is for 3% terminal growth and a WACC of 8%, giving a valuation of €32.1 per share.

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