Theon International - Qualitative Analysis

On February 28th, the notorious encounter between Volodomir Zelensky, President of Ukraine, and Donald Trump and JD Vance, the President and Vice President of the United States, respectively. The encounter reportedly led to a dramatic shift in U.S. policy, with the United States withdrawing its support for Ukraine in its ongoing conflict with Russia. This withdrawal included the cessation of financial aid, arms sales and the sharing of intelligence information. As a result, European military and defense stock prices surged, reflecting heightened investor interest in the region's defense sector.

While scrolling through my X timeline, I came across a tweet from @simongerman600 that highlighted the top 33 European defense companies, categorized by their countries of origin. The tweet piqued my interest by illustrating that approximately 33% of the world's largest military and defense companies are European, sparking my curiosity to explore the sector further. This led me to investigate potential high-quality players available at attractive valuations, one of which is today’s highlighted stock, Theon International.

DISCLAIMER: This article is not a recommendation to buy or sell any financial instrument, the content is educational and my personal opinion. Each person has to make his own analysis. Any action or decision you take as a result of viewing this article is your sole responsibility.

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Table of Contents

1. Developments in Modern Warfare

2. The European Defense Industry

3. Brief Company History

4. Business Model

5. The Product

6. People

7. Competitive Advantages

8. Competitors & Risks

Developments in Modern Warfare

Conflicts like the Ukraine-Russia war and the Israeli siege of the Gaza strip have shaped and propelled warfare evolution in the past few years as modest forces had to fight and resist against some of the most powerful armies in the world. In this context, night operations have gained remarkable importance.

One of the most widely known factors for the observed shift is the proliferation of drone warfare, which has made daytime movements more hazardous. The extensive use of drones in Ukraine and Gaza has forced ground forces to reconsider their movement patterns, as unmanned aerial systems equipped with thermal or infrared sensors pose a constant surveillance threat. Although drones can operate at night, their effectiveness is significantly reduced against well-trained units that know how to minimize their infrared signatures and exploit terrain for concealment. Same applies to any other surveillance system such as satellites and advanced imaging systems. Additionally, drones batteries’ duration shrink during night due to the cold night air, reducing flight time by 10-15%. Finally, the human element: night ops stretch drone pilots thin. Staring at a grainy thermal feed for hours, tanks focus—studies from military journals point that fatigue-driven errors spiking 30% past midnight. Troops know this and exploit it, moving when the guy behind the screen’s half-asleep.

The rise of urban warfare has also contributed to the shift toward night combat. Fighting in densely populated environments, as seen in Gaza, benefits from limited visibility, allowing forces to infiltrate, reposition, and strike with reduced exposure. Israeli forces have frequently conducted nighttime operations to maximize the element of surprise when targeting Hamas tunnel networks. Similarly, in Ukraine, where trench warfare has created static battle lines reminiscent of World War I, the ability to conduct nighttime flanking maneuvers and infiltration tactics has proven crucial for disrupting Russian positions as the Russian forces have struggled with nighttime engagements due to inconsistent access to modern night vision equipment.

Furthermore, night operations provide an asymmetric advantage to non-state actors and under-resourced militaries. Groups such as Hamas and certain factions within Yemen have relied on nighttime engagements to compensate for their lack of air superiority and heavy armor, which are more difficult to operate effectively in low-light conditions without advanced night-fighting technology.

The European Defense Industry

The current geopolitical situation is full of drivers that I expect to result in effective tailwinds for the European military and defense sector.

1. Geopolitical Tensions

   Russia’s 2022 invasion of Ukraine triggered a seismic shift in European security perceptions, prompting NATO and EU countries to boost defense spending.

   Middle Eastern instability (e.g., Gaza), tensions in the Arctic circle routes and China’s growing presence in the Indo-Pacific, which indirectly pressure European defense priorities are other geopolitical tensions that remain as primary catalysts.

2. NATO Spending Increase Commitment to 2%

   NATO’s 2014 Defence Investment Pledge, reaffirmed post-Ukraine, commits members to spend at least 2% of GDP on defense, shifting from an aspiration to a baseline expectation.The Vilnius Summit (2023) and Mark Rutte’s 2025 push for 2.5% by 2030 signal rising expectations.

   According to NATO figures, defense spending by European allies and Canada surged by 20% in 2024, with 23 of the 32 member nations achieving the 2% GDP target by mid-2024. The EU's combined defense expenditure hit €326 billion (1.9% of GDP) in 2024, on track to reach or exceed 2% by 2025. Eastern European countries, such as Poland (projected at 4.7% in 2025), are at the forefront, while slower adopters like Spain and Belgium face mounting pressure to increase contributions. Germany’s €100 billion special fund epitomizes the “Zeitenwende” shift, underscoring the pressing need for heightened military investment across the region.

    

3. USA Not Financing NATO By Themselves Alone Anymore

   This driver is speculative but plausible. The U.S. still funds 66% of NATO’s military spending (€850 billion in 2024), dwarfing Europe’s contribution. Trump’s 2025 return and calls for 5% GDP spending from allies amplify uncertainty. While the U.S. hasn’t withdrawn funding, its push for Europe to “pay up” (e.g., no direct NATO budget cuts but reduced Ukraine aid) pressures Europe to self-finance. The EU’s €50 billion Ukraine package 2024 and talks of a European peacekeeping force reflect this shift.

4. European Defense Market Integration and Procurement Trends

   EU initiatives like the EDF and PESCO are driving collaborative procurement and investment in European suppliers, reducing U.S. dependence. The EDF (€8 billion) and PESCO have spurred some integration. However, fragmentation persists—national governments often prioritize domestic firms, and 68% of EU defense procurement still occurs outside cooperative frameworks, especially when it comes to high-end purchases, in which the U.S. systems (e.g., F-35s) continue to dominate, undermining full “strategic autonomy.”

5. Substitution of Russian Arms Suppliers

   The Ukraine war laid bare the deficiencies of Russian military equipment—such as T-90 tanks succumbing to Javelin missiles, artillery with up to 30% dud rates, and logistical breakdowns — undermining confidence in Russian systems among even long-standing customers. Coupled with stringent economic sanctions on Russia, this has driven a lasting shift away from its arms.

   Nations like Slovakia, which donated its S-300 to Ukraine in 2022 and Hungary, phasing out Mi-17 helicopters, exemplify this pivot. Poland has similarly fast-tracked acquisitions of Western gear like HIMARS and Abrams tanks. The EU’s €500 million European Peace Facility (EPF) further encourages this transition by funding replacements for Soviet-era equipment with NATO-compatible alternatives.

   This gap has spurred demand for European manufacturers and reinforced NATO’s push for standardization (e.g., STANAG compliance), sidelining Russian designs and deepening alliance integration. Unlike short-term setbacks, this shift appears permanent, with sanctions and eroded trust ensuring Russian arms won’t regain their foothold, even if restrictions are lifted.

6. Supply Chain Resilience and Regional Manufacturing

   Post-COVID and geopolitical risks have pushed Europe to prioritize local supply chains and manufacturing. The Ukraine war exposed vulnerabilities in global supply chains (e.g., semiconductors, rare earths), prompting a shift toward regional production. The EU’s €1.5 billion ASAP (Act in Support of Ammunition Production) initiative supports local capacity. However, Europe still relies on non-EU inputs for 40% of defense goods (EDA, 2024), limiting full resilience.

The Night Vision Market

If we combine the current geopolitical situation and shift to night operations in warfare this explains why the night vision market is an attractive niche.

The night vision market is projected to grow at a 10.2% CAGR through 2030 in the US alone, driven by military demand and civilian applications (e.g., law enforcement, wildlife monitoring). It is expected that the European market will outpace the US due to many of the drivers discussed above.

If we double click on the military night vision device segment, similar growth rates are expected during the next 5 year period, when the market will grow from $5.26 billion in 2024 to $7.6 billion in 2029 at a compound annual growth rate (CAGR) of 10.3%. The company acknowledges this projection on its IPO prospectus.

Brief Company History

THEON International was founded in 1997 in Athens, Greece, by Christianos (Chris) Hadjiminas, an ambitious entrepreneur with a vision to revolutionize military optics through innovative night vision systems. Hadjiminas aimed to address the unmet needs of armed forces for lightweight, high-performance optical solutions.

Launching THEON as a small-scale operation, it was in the early 2000s that THEON began to distinguish itself by focusing on customizable night vision devices. Recognizing that military clients required tailored solutions for diverse operational environments, Hadjimas drove the development of systems adaptable in weight, optics, and ergonomics. By 2002-2003, his strategic foresight paid off when THEON secured its first major contracts with NATO member states—a milestone that validated his vision and marked a personal achievement as he transitioned from a startup founder to a recognized industry leader. These contracts expanded THEON’s reach beyond Greece.

During the mid-2000s, Hadjiminas steered THEON toward technical excellence, overseeing the refinement of products like night vision goggles and monoculars. His emphasis on in-house engineering—supported by a team skilled in optics, mechanics, and electronics—resulted in systems with superior resolution and sensitivity, earning THEON a reputation for reliability. By 2005, Hadjiminas had grown the company’s client base significantly, supplying European armed forces and security agencies.

The late 2000s also saw THEON solidify its vertically integrated business model, controlling every stage from design to final assembly. This approach reduced dependency on external suppliers—a common practice among larger competitors—and enabled faster innovation cycles. By the end of the decade, THEON had sold tens of thousands of systems and positioned itself as a trusted supplier in the defense sector, with a growing presence beyond Europe.

Entering the 2010s, THEON continued to scale its operations, refining its offerings and expanding into thermal imaging systems. Its focus on portable, customizable solutions persisted, and by the 2020s, it had delivered nearly 150,000 systems across 69 countries, including 24 NATO members. Key developments in this later period included a 2021 joint venture with Hensoldt in Germany to enhance its technological capabilities and the 2022 acquisition of EOTECH’s U.S. operations to strengthen its North American foothold.

The company went public on Euronext Amsterdam in February 2024, marking its transition to a publicly traded entity with ambitious growth targets.

The Product

According to THEON’s IPO prospectus, the company has three product lines: Night Vision Devices (NVD), Thermal Imaging (TI) products and products under development, which not only consists of the Augmented Reality Modular Ecosystem of Devices (ARMED) but also includes thermal sights, advanced fire control systems, etc.