[THEON] Theon International: Seeing What Others Can't

How a Greek startup captured 53% of Europe's military optics market while defence giants slept

Origins

In 1997, when European militaries were still flush with post-Cold War "peace dividend" budget cuts but increasingly dependent on American night vision technology, a Greek engineer-entrepreneur named Christian Hadjiminas made a contrarian bet. Operating from a modest workshop in Athens—far from the defence-industrial heartlands of France, Germany or Britain—he founded Theon International with a thesis so improbable it bordered on hubris: that a Greek startup could break America's monopoly on the electro-optical technology revolutionising modern warfare. The Cold War had ended, but NATO's dependency on foreign suppliers for battlefield essentials had not, creating what Hadjiminas identified as both a strategic vulnerability and a market opportunity.

His timing was impeccable, if accidental. The 1999 Kosovo War had just demonstrated to European militaries how outclassed they were by American night-fighting capabilities—a technological gap that would later be painfully highlighted again in Afghanistan.

Theon's breakthrough NYX night vision binocular, achieving resolution better than American counterparts, arrived precisely when European defence ministries were digesting these lessons. Where established players relied on economies of scale, Hadjiminas embraced vertical integration—designing optical pathways in-house, engineering power supplies that extended battery life to 50 hours compared to competitors' 35, and using magnesium alloy housings that cut weight by nearly a third. Let’s just say he was zigging, while the industry zagged, with all the confidence of someone who actually knows where they're going in pitch darkness. The Hellenic Army's modest 500-unit order in 2001 hardly seemed momentous, but it validated what would become Theon's signature approach: technological sovereignty through meticulous engineering.

By 2003, Hadjiminas confronted the mathematical impossibility of building a substantial defence business within Greece's limited €5.3 billion military budget. Rather than scaling back ambitions, he leveraged Greece's NATO membership to pursue alliance tenders, culminating in the company's watershed moment: a €14 million Swedish Army contract for 14,500 Nyx-1 monoculars.

This 2004 deal—requiring a new 3,500-square-meter production facility with semi-automated assembly lines—transformed Theon overnight from provincial curiosity to legitimate defence contractor. Revenue quadrupled to €6.2 million, establishing what Europe had previously lacked: an indigenous night vision manufacturer capable of challenging American dominance.

This origin story established patterns that would define Theon's next two decades: a relentless focus on technological sovereignty when it wasn't fashionable, aggressive vertical integration in a market where specialisation was the norm, and a willingness to reinvest heavily in R&D (20% of early profits, double the industry standard).

While most European defence contractors emerged from government arsenals or aerospace conglomerates, Theon maintained the innovation agility of a tech startup despite operating in the conservative defence sector. This entrepreneur-driven model, rare in European defence circles, allowed Hadjiminas to make decisions impossible in committee-led corporations—like the 2010 partnership with Harris Corporation that gave Theon access to American markets, or the 2023 Harder Digital acquisition that vertically integrated critical component manufacturing.

Hadjiminas's founding thesis proved remarkably prescient two decades later, when Russia's invasion of Ukraine dramatically increased European defence spending and exposed critical supply chain vulnerabilities. When Theon went public on Euronext Amsterdam in February 2024, raising €100 million at a €700 million valuation, it was validation of a founder’s insight that had guided the company since its first days in that small Athens workshop: Europe's security ultimately depended on technological self-sufficiency.

The Greek startup had become a €352 million revenue enterprise with 53% European market share in night vision systems, supplying more than 70 countries—proving that defence sovereignty, once dismissed as impractical nationalistic sentiment, had powerful business logic when backed by engineering excellence and strategic patience.

How do they make money

Theon International sells night vision to the people who wage war in the dark.

Their main business is turning tiny amounts of light—from stars, the moon, or distant city lights—into useful battlefield information. Their night vision devices make up 93% of their sales and work by making existing light thousands of times brighter than what human eyes can see, turning darkness into green-tinted views. Their thermal systems, which account for another 6% of sales, detect body heat instead of light, showing warm objects against cold backgrounds even in complete darkness.

Needless to say, this technology—making what can't be seen visible—is extremely valuable in modern warfare, which doesn’t pause after sunset.

Their revenue structure is more complex than simple percentages show. Their top products—the MIKRON series (sold to German and Belgian forces through a European defence cooperation program) and the NYX family (developed from their first successful one-eye device)—sell at high prices not just because they're slightly better than competitors, but because they've become the industry standard. Their other products, named after Greek myths (ARGUS, ARTEMIS, DAMΩN, THERMIS), continue this naming pattern while meeting specific military needs. This strong market position helps Theon earn gross profits above 30% and operating profits around 25%—unusually high for a manufacturing company.

Military purchasing works very differently from regular consumer markets—there's significantly less 'add to cart' and considerably more 'pending approval from seventeen different government committees.'

First contracts usually require tough technical testing, followed by small initial orders with large "options"—agreements to buy more units later without new competitive bidding. Theon's €291 million in confirmed orders (their "hard backlog") is just the visible part of their potential revenue, with another €590 million in contract options that could become real orders. These options can quickly turn into actual purchases when global conflicts escalate—which explains Theon's unusual approach to cash management.

The company purposely keeps more cash going out than coming in from operations, despite being highly profitable. We’ll assume that this is intentional: building up inventory stockpiles (€84 million, up 32.6%) prepares them for "emergency opportunities"—rush orders that happen when conflicts worsen and militaries suddenly need more night vision equipment right away. These urgent orders command higher prices, especially when competitors can't get parts to fill orders. Given today's global conflicts, they seem perfectly positioned to benefit.

Controlling the supply chain is the secret key to Theon's high profits.

The night vision industry depends on one critical component: image intensifier tubes. These complex sealed units contain materials that convert light particles into electrons, which are then amplified and shown on phosphor screens. Only four companies worldwide make these specialised parts. Two are American companies that face export restrictions. The other two are European: EXOSENS and Harder Digital (which Theon bought in 2024).

By purchasing Harder while also securing long-term supply deals with EXOSENS, Theon has essentially taken control of the European market for these essential components. This supply chain advantage lets them maintain unusually high profit margins—30% gross profit and 25% operating profit—even while manufacturing in more expensive European facilities.

Their financial approach focuses on operational efficiency rather than heavy investment in facilities and equipment. The company spends only 3.3% of its revenue on new equipment and facilities, keeps few fixed assets, and has very low depreciation costs (just 0.7% of revenue). This "asset-light" strategy makes it easy for them to grow: they can double production without needing to double their infrastructure investment. This makes them operate more like a technology assembly company than a traditional defence manufacturer.

What makes this business model especially strong is how it connects with current global conflicts. Russia's invasion of Ukraine showed the huge advantage that night vision gives when enemies don't have it—creating what military experts call an "unfair advantage." Unlike fighter jets or warships that cost billions and eat up huge chunks of military budgets, night vision systems are relatively affordable while providing major battlefield benefits.

For European militaries dealing with tight defence budgets, Theon offers a powerful deal: battlefield advantage through better awareness of surroundings, at prices that even limited budgets can afford.

The company's €10 million investment in next-generation "A.R.M.E.D." systems (Augmented Reality Modular Ecosystem of Devices) puts them in position to benefit from the increasing digitisation of infantry combat. While traditional defence companies struggle with expensive platforms vulnerable to budget cuts, Theon focuses on equipment for individual soldiers that costs much less but provides outsized tactical benefits.

Numbers

Revenue surged by 160.7% in the first half of 2024 compared with the same period last year, settling to a still-remarkable 92.3% by September. This isn't just impressive by defence-industry standards—where 5-10% growth qualifies as exceptional—but would stand out even among high-growth technology companies. Behind these headline figures there’s a critical insight: warfare's digitisation is creating growth opportunities which we usually associate with Silicon Valley, not with the staid world of defence procurement.

What makes this growth particularly striking is the profitability accompanying it. Theon achieves a 22.7% operating margin—meaning for every €100 of night-vision equipment sold, nearly €23 becomes operating profit. This extraordinary performance stems from the firm's position at what military strategists call "the tip of the spear"—specialised technologies that create battlefield advantage disproportionate to their cost. Most defence contractors struggle to break 15% margins; Theon's significantly higher profitability reflects both technical leadership and supply-chain mastery.

The company's financial structure contains an apparent contradiction. Despite generating €38.61m in profit through September 2024, it burned through €38.10m in operating cash flow—a €76.71m divergence between paper profits and actual cash generation. In conventional industries, this would signal distress. In defence contracting, it reflects deliberate strategy: building inventory (€84.38m, up 32.6% since December) in anticipation of sudden surge orders when conflicts intensify and procurement accelerates.

This strategy becomes clearer when examining Theon's backlog metrics. Their "soft backlog" of €400m represents 1.3 times their entire 2024 revenue projection—essentially, they've already sold more than a year's worth of production. More remarkably, they hold an additional €590m in contract "options"—pre-negotiated rights for customers to purchase more units without competitive rebidding, essentially holding a royal flush while everyone else is still checking their cards. These convert to firm orders when defence ministries perceive threat increases or receive emergency funding, creating exceptional visibility into future revenue.

The geographic distribution of Theon's revenue—82% European, 13% Americas, and 5% scattered across Asia and Oceania—reflects both opportunity and vulnerability. Their dominant European position (with over 50% market share in night vision) provides stable revenue from NATO defence budgets growing towards the alliance's 2% GDP commitment. However, customer concentration—three European clients represent 61% of revenue—creates potential instability should procurement priorities shift. This concentration represents Theon's greatest financial vulnerability. Given the demand at the moment, and how “affordable” those products can be, there is potential for diversification.

Theon generates €845,614 in annual revenue per employee—exceptional productivity for a specialised manufacturer. Traditional defence contractors might generate €300,000-€400,000 per employee; Theon's figure, more than double this benchmark, reflects both technical leadership and operational discipline. By maintaining a lean structure of 351 employees, they've created operational leverage that allows profits to grow faster than headcount—a pattern more common in software companies than defence manufacturers.

Perhaps most revealing about Theon's prospects is their PEG ratio—price-to-earnings growth—of 0.3x for 2024. This metric, dividing their price-to-earnings ratio (19.8x) by their earnings growth rate, suggests significant undervaluation relative to growth. Any PEG below 1.0 typically signals potential upside; Theon's 0.3x reflects market scepticism about sustaining their extraordinary growth. This scepticism creates the valuation gap that sophisticated investors seek—where market perception hasn't yet caught up to operational reality.

The company's conservative financial policy creates additional resilience. With total debt of €76.42m against annualised EBITDA of €69.67m, their leverage ratio sits at a modest 0.2x when including their €50m in term deposits. This near-debt-free position contrasts sharply with typical defence primes carrying 2-3x leverage ratios. Theon's balance-sheet strength provides both acquisition flexibility and insulation against interest-rate pressures—a significant advantage when competitors face rising debt-service costs.

Theon invests just 1.46% of revenue in R&D, significantly below the 3-5% industry standard. This creates tension in their financial story: are they harvesting current technology at the expense of future innovation, or have they discovered unusual R&D efficiency? Their €10m investment in next-generation A.R.M.E.D. systems suggests the latter, but this relatively low R&D intensity represents a potential long-term vulnerability.

Theon's working capital dynamics says a lot about business realities. Their cash-conversion cycle of 185.9 days—meaning cash spent on materials remains tied up for over six months before returning as customer payments—reflects the harsh realities of defence contracting: slow-paying government customers (97.2 days receivables) paired with inventory built for future opportunities (121.8 days). While conventional manufacturers might target 60-90 day conversion cycles, defence contractors accept longer cash commitments as the price of admission to an industry where contract stability offsets payment delays.

Theon transformed from a €142.9m revenue company in 2022 to €352m anticipated this year—growing 53% in 2023 and projecting another 51-60% in 2024. This trajectory, virtually unprecedented in defence manufacturing, reflects an uncomfortable geopolitical reality: the world is becoming more dangerous, and militaries are racing to equip their forces with technologies offering greatest advantage per euro spent.

People

The corridors of Theon International echo with footsteps in uniform. Officers from German paratroopers, Belgian special forces, and two dozen other NATO armies move through their Athens headquarters so frequently that security badges printed in multiple languages became standard practice. I assume.

Defence contractors live or die by relationships with people who control procurement budgets, and Theon cultivates these connections with obsessive intensity.

Christian Hadjiminas, dominating the company with 78.74% ownership valued at €798 million, built Theon on a foundation of military connections rather than venture capital. His dual role as CEO and Vice-Chairman creates what governance textbooks might call a "control concentration risk" – though in defence contracting, where consistency of leadership outweighs formal checks and balances, many customers view this arrangement as a feature rather than flaw.

When Hadjiminas speaks about negotiations, the personal dimension of these military relationships becomes apparent:

After lengthy discussion and negotiation with Harder Digital, we achieved a very good financial deal for the company and its shareholders.

The founder's direct involvement in acquisition minutiae reveals a management style where delegation remains selective – extending to operational details but rarely to strategic direction.

His executive team forms a cohesive unit weighted toward technical expertise rather than finance backgrounds. Business Development Director Philippe Mennicken, holding 0.47% equity worth €5 million, epitomises this technical orientation with degrees in mechanical engineering and aerospace dynamics. When Mennicken discusses customer dynamics, he emphasises relationship continuity:

We benefit from having strong relationships with long-standing customers, which deliver a high volume of repeat purchasing to our business.

This simple statement carries deeper meaning in defence procurement – where program managers prefer known vendors with established security clearances over price advantages from newcomers.

The boardroom underwent deliberate militarisation in January 2024, installing Kolinda Grabar-Kitarović, former Croatian President, as Chairperson. Her appointment alongside Hans-Peter Bartels (age 63, former Defence Commissioner of the German Bundestag) reveals Theon's governance strategy: embedding defence policy expertise where other companies might prioritise corporate finance experience or audit committee credentials.

Staff compensation patterns suggest prioritisation of technical talent over administrative functions. While overall headcount grew from 303 to 618 during 2024 – doubling within twelve months – the R&D department expanded even faster, from 57 specialists to "7 new technicians with high levels of training in different specialties." The technical orientation runs throughout Theon's organisational DNA, with 62% of employees in technical roles compared to industry averages around 40%.

Employee retention reaches 98% monthly, translating to annual turnover below 25% in an industry where 40% technical staff turnover represents the norm. Hadjiminas attributes this stability to talent development:

We value personal improvement, that's why we implement initiatives and encourage constant learning through training programs that develop further their capabilities, expand their knowledge, and upgrade their skills.

The 200-hour annual training mandate for engineers significantly exceeds defence industry standards, where 40-60 hours represents typical commitments.

Investor dynamics create what might be called Schrödinger's public company—simultaneously meeting Euronext disclosure requirements while maintaining founder control so complete that activist investors wouldn't know which door to knock on first. Despite the Euronext Amsterdam listing, institutional investors hold only 2.36% of shares – minimal presence from entities typically expected to enforce governance discipline. CFO Dimitris Parthenis acknowledged this unconventional structure during their October earnings call:

We have a capital structure that preserves strong founder leadership while meeting public market disclosure requirements.

The customer base reflects Byzantine complexity of European defence procurement. While 26 NATO nations comprise the customer list, three European entities generate 49% of revenue (29%, 17%, and 15%, from the H1 report), creating extreme concentration around Germany's procurement authority. Contract frameworks further complicate these relationships – with €291 million "hard backlog" (signed contracts awaiting delivery) supplemented by €590 million in "options" – pre-negotiated rights to purchase additional units when budgets permit.

Defence procurement officials engage with Theon through multiple, sometimes overlapping channels. The Organisation for Joint Armament Cooperation (OCCAR) provides bureaucratic infrastructure for pooled European purchasing, while bilateral engagements facilitate country-specific customisation. German Parliament approval for "exercising the 3rd consecutive option" for the OCCAR contract demonstrates trust built through consistent delivery against specifications – a relationship achievement worth substantially more than the contract value alone.

Rivalry-partnership dynamics define Theon's relationships with supposedly competitive defence contractors. Their 49.99% stake in joint venture Hensoldt Theon NightVision GmbH transforms the German defence giant from potential competitor into strategic ally. Similarly, serving as exclusive subcontractor to Elbit Systems America for a $500 million US Marine Corps contract navigates complex market entry constraints while building reputation equity with American procurement authorities.

Supplier relationships created Theon's most strategically consequential move: the 2024 acquisition of Harder Digital, securing in-house production capability for image intensifier tubes while maintaining parallel supply agreements with French manufacturer EXOSENS. This dual-sourcing strategy addressed the defence sector's primary night vision vulnerability – with Hadjiminas noting during earnings calls that

Exosens will continue to be by far the largest tube supplier to THEON for the years to come.

By preserving relationships with their now-competitor supplier while bringing manufacturing in-house, Theon executed a delicate balancing act few defence contractors manage successfully.

Throughout Theon's organisation runs a pattern of personal connection with military decision-makers. Fifty-seven percent of contracts emerge from reorders or options rather than new competitive bids – suggesting customer relationships substantial enough to overcome procurement authorities' pressure toward formal competition. These continuity patterns reflect what military customers value beyond technical specifications: program consistency, security clearance depth, and leadership stability.

The irony underlying Theon's explosive growth lies in how thoroughly they've replicated American defence contractor practices while marketing European sovereignty. Their successful penetration of NATO procurement systems required simultaneously embracing European political positioning while adopting American approaches to vertical integration and customer relationship management.

The result: 53% European market share in night vision systems, demonstrating that military customers ultimately prioritise battlefield performance over corporate structure – so long as someone answers the phone when night vision systems require urgent servicing before deployment.

Competition & the Moat(?)

Night vision isn't just about seeing in the dark. Ok, it’s mostly that, but it's also about who controls the technology that lets soldiers operate when their adversaries are blind. In this shadowy market, competition takes uncommon forms. Traditional market dynamics bend around security clearances, export controls, and the strange symbiosis where yesterday's competitor becomes today's joint venture partner. Let’s unfold it.

Theon International competes in multiple dimensions simultaneously. At the most visible level, they face established electro-optical defence giants: L3Harris Technologies dominating the American market with Pentagon backing; Elbit Systems leveraging Israeli military innovation; Hensoldt carrying German engineering prestige; and EXOSENS (formerly Photonis) representing French optical expertise. Each brings national security relationships that transcend ordinary business advantages, with procurement decisions often shaped as much by strategic alignment as technical specifications.

What makes this competitive dynamic particularly interesting is how frequently these "competitors" collaborate through formal partnerships, consortia, or joint ventures. Notice how Theon simultaneously maintains a joint venture with Hensoldt while competing in other market segments. Similarly, they serve as exclusive subcontractor to Elbit Systems while battling the same company for European tenders. This "coopetition" if you will, transforms supposed rivals into symbiotic partners, creating business relationships as complex as the geopolitics they serve.

The true competitive battleground, however, exists below the product level—in the critical components that enable night vision functionality. Only four manufacturers worldwide produce defence-grade image intensifier tubes, a club so exclusive even light itself needs security clearance to get in:

• L3Harris in the US

• Elbit Systems in the US as well

• EXOSENS in France

• Theon's recently acquired Harder Digital in Germany

And at the component level, Theon's acquisition of Harder Digital basically resembles a geopolitical Archimedes lever—with merely one-fourth of global tube manufacturing capacity, they've gained the power to move the entire competitive landscape. They now play multiple roles - supplier, customer, and competitor - to companies throughout the value chain.

So does this unusual market position create strong moats that protect Theon's impressive profit margins? Yes - through several connected advantages that work together to create their competitive stronghold.

Their primary moat—almost medieval in its simplicity and effectiveness—is what business strategist Hamilton Helmer calls a "cornered resource." By acquiring Harder Digital, Theon gained control of one of only four global manufacturing capabilities for image intensifier tubes—the critical component in night vision systems. This represents a genuine cornered resource because creating a fifth manufacturer would require not just the €80-100 million investment Hadjiminas referenced, but overcoming formidable knowledge barriers, security clearances, and export control regimes. The physics involved in fabricating photocathodes that convert photons to electrons at specific wavelengths isn't documented in textbooks or youtube videos; it's institutional knowledge protected by both commercial secrecy and national security classifications.

Military customers face substantial switching costs once they've standardised on Theon's systems, creating a second powerful moat. When a military force adopts specific night vision equipment, they're not just buying hardware but committing to maintenance protocols, spare parts inventories, training programs, and doctrine development. The German armed forces can't simply swap suppliers between deployments—interoperability requirements, soldier familiarity, and logistics chains create powerful institutional inertia. This dynamic explains why Theon's order book shows multiple consecutive option exercises from existing customers rather than constant competition for new contracts.

Their third moat emerges from what Helmer terms "counter-positioning"—a business model competitors cannot easily replicate without undermining their core advantages. American manufacturers like L3Harris operate under International Traffic in Arms Regulations (ITAR) that restrict exports to many markets Theon freely accesses. Meanwhile, pure assembly specialists can't match Theon's vertical integration through tube manufacturing. This unique positioning—European manufacturing freedom paired with component-level control—creates a competitive stance that neither American giants nor smaller integrators can directly challenge without fundamental business restructuring.

Process power provides Theon's fourth defensive barrier—the accumulated knowledge enabling their engineering teams to consistently achieve superior technical specifications. Their in-house lens grinding achieves 0.5% light loss versus industry-standard 1.2%, while their power supply design extends battery life to 50 hours against competitors' 35. These advantages stem not from patentable breakthroughs but from thousands of small optimisations across optical, electronic, and mechanical systems—precisely the tacit knowledge that resist both reverse engineering and talent poaching.

What Theon notably lacks is significant scale economy advantages beyond their European dominance. Their €352 million revenue, while impressive for their niche, doesn't create meaningful purchasing or distribution scale compared to defence primes measuring revenues in tens of billions. Similarly, their products don't benefit from network effects—night vision devices don't become inherently more valuable as more users adopt them. And while military procurement officers certainly value Theon's reputation, they don't command premium pricing through brand power alone in a sector where performance specifications trump marketing considerations.

The durability of Theon's moats appears robust against most threats, with one significant exception. Technological disruption through fully digital night vision—replacing analog image intensifier tubes with digital sensors and processing—represents the most credible challenge to their cornered resource advantage. However, digital alternatives currently lag tube-based systems in critical performance metrics like latency, power consumption, and dynamic range. Theon's €10 million investment in their A.R.M.E.D. ecosystem suggests they're preparing for this technological shift rather than resisting it, potentially transforming a future vulnerability into another competitive advantage.

Let’s recap.

What emerges from this analysis isn't a single impenetrable moat but a system of overlapping competitive advantages—more archipelago than castle. Their cornered resource in tube manufacturing provides supply security in a constrained market. Military switching costs deliver contract continuity despite procurement pressures toward competition. Counter-positioning against both American regulatory constraints and sub-scale integrators creates strategic space competitors struggle to contest. And process power enables consistent technical advantages that specification sheets alone don't capture.

Mr. Market

One interesting feature of Theon's market journey since its February 2024 flotation has been the striking disconnect between operational performance and share valuation.

When Theon went public in February 2024 at €9.80 per share, raising €100 million as Europe's first IPO of the year, the market initially seemed optimistic. The €700 million valuation looked ambitious for a company with €219 million in 2023 revenue, but investors pushed the stock up to €14 by June—a healthy 43% return in just four months.

What happened next defied conventional wisdom. Despite announcing spectacular half-year results in July—revenue up 161% and adjusted operating profit up 270%—the stock plummeted. By October, Theon shares had dropped to €8.79, falling 10% below the IPO price. This wasn't the market questioning Theon's current performance but rather expressing doubt about its future. Two specific concerns emerged from the financial reports: first, the company's "soft backlog" (expected future orders) had declined 26% despite strong new business; second, there was a massive €76.7 million gap between reported profits and actual cash generation for the first nine months. In simple terms, investors were asking: "The numbers look great today, but will this continue? And where's all the cash going?"

November 2024 marked the beginning of a remarkable turnaround. Theon announced new orders worth €74 million, followed by another €47 million in December, and secured German parliamentary approval for a major contract extension. These announcements directly addressed concerns about future business, and by year-end, the stock had recovered to €12.58.

The real breakthrough came in February 2025, when Theon announced its inclusion in the German Future Soldier Program with its new heads-up display system. This represented validation of Theon's strategic expansion beyond night vision into integrated soldier systems, a much larger market opportunity. The stock immediately jumped to €17, reflecting this perceived business evolution.

Early March 2025 has seen Theon shares touch €19 €20 amid significant geopolitical developments. The Trump administration's confrontational approach toward NATO allies—highlighted by the disastrous February 28 meeting with Ukrainian President Zelensky—has triggered urgent European discussions about defence self-sufficiency. As European leaders scramble to craft a €200 billion defence investment plan, Theon stands to benefit as one of the few European manufacturers capable of producing critical night vision systems without American export restrictions.

At current prices, Theon trades at about 20 times last year's earnings and 16 times expected 2025 earnings—premium prices compared to traditional defence manufacturers but still below cutting-edge defence technology companies.

What's particularly interesting is Theon's PEG ratio of just 0.3 for 2024. In simple terms, this suggests the stock might be undervalued relative to its growth rate—either because investors remain skeptical despite recent positive developments or because they haven't fully recognised how fast Theon is growing.

The three analyst firms covering Theon have an average target price of €19.67, just slightly above below the current price, which I expect to have re-evaluated soon. It is a very fluid situation at the moment, with developments daily.

With Theon's 2025 revenue guidance of €410-430 million and approximately 80% of the lower end already covered by their backlog, investors seem confident in near-term performance while maintaining some caution about longer-term prospects.

Basically the stock price currently reflects a nuanced assessment: investors expect Theon to successfully execute its near-term business plans while applying a modest discount for risks like customer concentration and cash flow concerns. Despite these lingering issues, the market has clearly shifted focus to Theon's strategic position in an increasingly uncertain European security landscape.

As EU leaders meet this month to discuss defence industrial expansion and new procurement processes, Theon's position as a European provider of critical night vision technology free from American export restrictions could further strengthen its market appeal.

However, the gap between Theon's current valuation metrics and those of top defence technology innovators suggests the market still harbours some reservations about the company's scale, product diversification (night vision still represents 93% of revenue), and ability to navigate defence budget cycles when the current geopolitical crisis eventually stabilises.

Bear Thesis

At its core, the bear case for Theon centers on a simple question: why isn't this supposedly thriving business generating cash?

Despite reporting €38.61 million in profits for the first nine months of 2024, Theon burned through €38.10 million in operating cash flow. This isn't a minor discrepancy—it's a €76.7 million gap between what the company says it's earning and the actual cash it's producing. The numbers here are indisputable facts from Theon's own Q3 2024 report.

Equally concerning are the concentration risks: three European customers make up 61% of revenue, Europe represents 82% of sales, and night vision products constitute 93% of the business. While recent contract wins like the German Future Soldier Program announced in February 2025 show continued demand, they don't solve this fundamental cash flow problem or diversify Theon's customer base.

The company's cash conversion is worsening at an alarming rate. It now takes Theon twice as long to turn operations into cash—185.9 days in Q2 2024 compared to 91.5 days previously. Trade receivables (money owed by customers) grew 76% year-over-year by Q3 2024, while inventories increased by nearly a third in nine months, consuming €21.9 million in cash. Yes, they might be looking out for opportunities. Will they materialise? We should be skeptical given that in 2023, Theon admitted it had "erroneously recognised" revenues since 2021, requiring a €4.5 million restatement. When a company has previously mishandled revenue recognition and now shows profits without cash generation, investors should question what's really happening beneath the surface.

Theon's backlog situation presents contradictory signals that deserve investor scrutiny. The company announced impressive new orders totalling €174 million across November, December, and February. Yet curiously, their "soft backlog" actually declined by 26% from €540.2 million to €400 million during this period. How could this be? The explanation is in Theon's definition of "soft backlog," which includes both actual signed contracts and merely "expected contracts." This means management's expectations are baked into what many investors might assume represents firm orders. While we can't prove intent here, the significant backlog decrease despite announced new orders suggests either previous expectations were overly optimistic or current guidance is being managed downward.

Some of Theon's accounting practices raise eyebrows: they added €832,056 in unexplained "non-recurring items" to boost Q3 2024 adjusted profits, with no comparable adjustments in prior periods. Inventory write-downs increased 119% year-over-year in H1 2024, potentially indicating quality issues. And CEO Hadjiminas's claim that the Harder Digital acquisition will achieve a 650% EBITDA improvement by 2028 seems extraordinarily optimistic, even factoring in recent contract wins.

What makes these issues particularly concerning is the recent stock performance. Theon shares jumped 9.2% on March 3, 2025, and have climbed 14.3% in just the past week. They're now trading at nearly €20, representing a >50% year-to-date increase. This enthusiasm has driven the stock to premium multiples—20x 2024 earnings and 14.5x EV/EBITDA—that leave little room for execution missteps.

To be fair, recent European rearmament discourse and new contracts provide genuine tailwinds. However, investors appear to be ignoring the fundamental disconnect between reported profits and cash generation. The facts show Theon burning cash while reporting profits, taking longer to convert sales to cash, and maintaining extreme customer and product concentration—all while trading at increasingly premium valuations. These aren't speculative concerns but documented realities that prudent investors should weigh carefully against the market's current enthusiasm for defence stocks.

Bull Thesis

The bull case for Theon rests on a simple premise: they're selling must-have technology in a world that suddenly needs more of it. Much more. And they want it pronto.

The company sits at the intersection of three powerful trends – Europe's rush toward defence self-sufficiency, the proven tactical advantage of night vision capability, and the concentrated industry structure that limits competition. This rare convergence creates a company growing at 50%+ annually while maintaining 25% operating margins – metrics that would be exceptional in any industry, but particularly in manufacturing-intensive defence contracting. The question isn't whether these trends exist, but how long they'll continue driving Theon's extraordinary performance.

First, let's address the structural demand drivers. Defence spending is fundamentally reshaping across Europe, with NATO's Secretary General reporting European allies and Canada increased defence investment by 20% in 2024 alone to $485 billion. This represents a generational shift in security priorities after decades of underinvestment.

Critically, night vision technology delivers outsized tactical impact per euro invested compared to big-ticket platforms like fighter jets or naval vessels. We can almost hear a German procurement official saying: "We can outfit 1,000 soldiers with night fighting capability for the price of a single helicopter." This cost-effectiveness makes night vision systems resistant to budget pressures when competing for limited defence funds. The German Parliament's December 2024 approval of "the 3rd consecutive option" for Theon's night vision goggles – earlier than expected – demonstrates this procurement prioritisation in action.

Second, Theon's financial performance justifies premium valuation metrics that still undervalue their actual business momentum. Their 24.2% EBIT margin in H1 2024 isn't just impressive – it's expanding while revenue more than doubles, demonstrating operational leverage rather than temporary pricing anomalies. The company turns €19.00 of share price into €1.38 of 2026 projected earnings – a 13.8x forward P/E that looks downright conservative against projected 17% annual earnings growth.

More tellingly, their return on equity (ROE) – the efficiency with which they deploy investor capital – stands at 44.8% for 2024, nearly double the defence industry average. This efficiency stems from their asset-light business model requiring only 3.3% of revenue for capital expenditure compared to 8-10% for traditional defence manufacturers. Their ability to generate €845,614 in annual revenue per employee – more than twice the industry norm – further validates their operational excellence.

Third, their vertical integration strategy creates defence against both supply constraints and commoditisation pressures. The September 2024 acquisition of a 60% stake in Harder Digital wasn't merely about securing component supply – it fundamentally altered industry structure by controlling one of only four global manufacturers of image intensifier tubes. As CEO Hadjiminas noted in their earnings call, building equivalent tube production capability would cost competitors "€80 million to €100 million" even before addressing knowledge barriers, security clearances, and export controls.

This strategic move was brilliantly timed, as the US Army transitions to binocular night vision systems beginning in 2025, potentially absorbing global tube production capacity precisely when European militaries accelerate their own procurement. The January 2025 inclusion in Germany's Future Soldier Program with their heads-up display system further validates their technology leadership while expanding beyond their core night vision products.

The fundamentals of the bull case are compelling, if not without risks. Theon combines three qualities rarely found together: structural growth in a mission-critical product category, industry-leading margins and capital efficiency, and strategically timed vertical integration in a supply-constrained market.

Yes, the cash flow conversion needs improvement – the difference between reported profits and operating cash in 2024 requires monitoring. But projections show this gap closing dramatically, with free cash flow improving from -€34.7 million in 2024 to +€44.9 million in 2025 and +€69.3 million in 2026 as working capital normalises. At the current price of €20, representing ~16.5x 2025 earnings, investors are paying a reasonable premium for a company with a clear path to sustaining above-market growth through the ongoing defence spending cycle. The key question isn't whether Theon deserves its current valuation, but whether the market fully appreciates how long their structural advantages might persist.

So what do we make of all this?

Theon International is a European defence company that's breaking the mold.

It's growing much faster than traditional defence contractors, with 50%+ annual growth and 24% profit margins on physical products sold to notoriously slow-moving military buyers. That's a fact. What's also clear is that founder Christian Hadjiminas has built something unique by focusing on European defence independence, bringing critical manufacturing in-house, and moving faster than established competitors. Whether this is sustainable long-term is where we enter educated guess territory.

The investment case splits investors into two clear camps. Value investors will hate Theon's cash flow problems - they're making €38 million in profits but burning through €38 million in cash, which is objectively concerning. The three-customer concentration (61% of revenue) is another undeniable red flag. Growth investors see something different: a company riding a massive defence spending wave with clear technological advantages and strategic positioning. They'll look at the ~16.5x 2025 earnings multiple and think it's reasonable for Theon's growth rate. Both perspectives have merit, and I won't pretend to know which will ultimately prove correct.

Here's what we know for sure: Theon dominates European night vision with 53% market share and has secured critical component manufacturing through the Harder Digital acquisition. These are verifiable strengths. The cash flow disconnect, customer concentration, and declining backlog despite new order announcements are equally verified weaknesses. What's harder to judge is which factors will matter more in 2-3 years. My honest assessment is that the cash flow issues should improve if management is competent, but the customer concentration problem could persist for years given how defence procurement works.

Looking ahead, I see three possible paths, all speculative but grounded in patterns we've seen before. Theon could successfully expand from night vision into broader soldier systems, fix its cash issues, and see its stock double if everything goes right. Or operational problems might continue despite growing revenues, leading to gradual investor disappointment. The third possibility - and I think most likely - is an exit for the founder, an acquisition by a larger defence contractor like Hensoldt or Rheinmetall at a 30-40% premium. They'd be buying critical manufacturing capabilities and customer relationships that would take years to build organically.

Let's zoom out for a moment. What's really interesting about Theon is what it represents. In a world where countries are increasingly worried about controlling their own technology, Theon is selling something deeper than night vision goggles. It's selling technological independence. The company sits at the intersection of engineering capability and geopolitical necessity. When European militaries buy from Theon instead of American competitors, they're investing in supply chain security at a time when global tensions make that increasingly valuable. That's the essence of this business.

Whether Theon succeeds or stumbles, it reflects a fundamental shift in how nations think about defence technology in an uncertain world. And that shift isn't going away anytime soon, regardless of what happens to this particular company's stock price.

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