CEOTRONICS has already delivered what investors pay a premium for elsewhere in defence: 23% historical sales CAGR and a 21% EBITDA margin, close to INVISIO's 22%. SmG-related orders of c. € 103m have turned a longstanding Bundeswehr relationship into business at scale. CT-ComLink helps protect that position: software updates let users retain their control units as radios and headsets evolve. Backlog of € 77.6m covers 1.4x annual sales, the strongest coverage among its direct peers. The next stage of growth comes at a substantial valuation discount.
The next SmG order alone could exceed last year's sales. Our base case is a single call-off of the remaining 81k systems within the next six months. At € 58-76m (eNuW), this would exceed FY 25/26 sales of € 56.3m and support deliveries into FY 30/31, before any programme expansion. Phased call-offs remain possible and would leave total order potential and delivery timing unchanged, in our view.
The current SmG framework falls short of the Bundeswehr's longer-term equipment needs. Its 191k systems broadly match today's active force. Equipment reserves, reservists and planned personnel expansion all create additional requirements. Germany is already ordering for a larger force: >700k helmets and 351k protective vests demonstrate the scale of procurement across other categories of personal equipment. We expect an expanded SmG framework covering at least 261k systems in total (an additional 70,000 systems), supported by equipment reserves alone, before allowing for additional soldiers or reservists (total order potential: c. 644,000 systems, eNuW).
The Bundeswehr is also a reference that travels. International sales grew at a 41% CAGR from FY 23/24 to FY 25/26 to € 12.3m, nearly doubling in two years. Broad Bundeswehr deployment should strengthen CEOTRONICS' credentials in further European tenders. Its growing presence in air defence highlights the potential to expand into communication systems for vehicles, ships and aircraft. The opportunity is expanding across both customers and applications, in our view.
The valuation has room to catch up. At c. 7x EV/EBIT, CEOTRONICS trades against 17x for INVISIO and 12x for Savox (2027e; eNuW calculated). Our forecasts imply 13.5% annual EBIT growth to € 12m by FY 28/29. Strong order coverage and competitive profitability make this discount look excessive, in our view, while further SmG expansion and vehicle programmes offer additional potential.
A soft H1 could provide a misleading first impression. While H1 results are likely to look weak against a demanding prior-year comparison, third-batch SmG deliveries should drive a stronger H2. In fact, the FY 26/27 net profit guidance looks conservative: our € 6.8m estimate is c. 10% above guidance of € 6.2m, despite allowances for relocation and ramp-up costs. The non-recurrence of last year's impairment charges provides further support. The next major order and a potential guidance upgrade are catalysts for the valuation to catch up.
INITIATE with BUY, with a PT of € 17, based on DCF.
ISIN: DE0005407407
