Codan and EOS: Two ASX Small and Mid cap companies positioned for the drone era
A cheap drone, an expensive problem
Drones have flipped the economics of air defence. An aircraft costing a few thousand dollars can now threaten vehicles, ships, airfields and infrastructure worth millions or hundreds of millions, and the costly missile batteries that once protected those assets can no longer be relied on to do the job alone.
Two ASX-listed defence technology companies sit on opposite sides of this contest. Codan (ASX: CDA) supplies the communications that keep drones working under electronic attack. Electro Optic Systems (ASX: EOS) is on the counter-drone side, supplying the weapons and, since it acquired UK-based MARSS, the command-and-control software that directs them. Between them they cover two scarce capabilities in current defence build-ups: resilient links for drone fleets fielded in the thousands, and low-cost, high-volume defeat of the drones.
The threat has changed shape requiring defence budgets to pivot
Ukraine, and more recently the Middle East, have shown that the decisive form of attack is volume. Small one-way drones, often adapted from commercial models or built to a simple military design, are launched in tens, hundreds and sometimes thousands. They are cheap enough to expend and numerous enough to saturate a point defence. They are also slow, small and low-flying enough to fall outside what traditional air-defence radars and missiles were designed to handle. Swarms and staged waves force the defender to engage again and again, not just once.
The contest is electronic as well. GPS denial and broadband jamming cut the link between operator and machine, and a drone that cannot hold a link is of little use. The side that can keep its own drones connected while severing the other’s has the advantage.
Governments have moved well beyond treating this as a niche counter-terrorism issue. Australia’s 2026 National Defence Strategy lists counter-drone systems among its priorities, with up to $7 billion allocated to counter-drone capability under the Integrated Investment Program over the next decade. NATO’s “Drone Edge” initiative, announced in July this year envisages spending about US$40 billion on counter-drone technology over 5 years. Whilst in the US, the 2027 Defence Budget Overview totalling a massive $1.5tn is requesting funding of more than US$53b for ‘autonomy, drone platforms and contested logistics’. Included in this total is a proposed US$21 billion for counter-drone technology specifically. This is a large increase over 2026 allocation of US$13b.
The cost problem
Interceptor missiles cannot solve this alone. A Patriot interceptor costs about US$4 million, while Iran’s Shahed-136 attack drone costs roughly US$50,000 to produce, and some estimates put it nearer US$20,000. Even when every missile works, the exchange is ruinous if the attacker can replace losses faster than the defender can reload.
The war with Iran that began in February shows the problem. Bloomberg reported that Iranian missile and drone strikes had almost completely depleted the Gulf states’ stocks of air-defence interceptors, and a CSIS analysis found the US had used nearly two-thirds of its Patriot inventory in less than six months. Restocking of the US Patriot inventory could take as long as 3-5 years, and in any case it has proven to not be the right solution for counter-drone defence.
The practical answer at the low end of the threat is cheaper tools: directed-energy (laser) weapons, cannons firing proximity-fused ammunition, interceptor drones and electronic attack. These are aimed mainly at Group 1 to 3 drones in the US classification, which runs from small quadcopters up to aircraft of about 600 kg and includes Shahed-class types.
Missiles remain the answer for larger higher-cost targets such as big, unmanned aircraft, cruise missiles and crewed aircraft. They make little sense against a quadcopter or a Shahed that costs $20,000 to $50,000.
Codan: Keeping the drone link alive
Through its DTC business (Domo Tactical Communications), Codan makes compact software-defined radios, notably the BluSDR family, that carry video and data from drones where conventional links fail. The BluSDR-6 is lightweight and designed for small drones operating at ranges up to 6 km, which puts it in Group 1, the smallest class. Codan says its radios have proved themselves in conflict regions, including Ukraine, where drones operate under continuous Russian electronic warfare and GPS denial. It also says it turns field feedback into product changes within months.
Demand reflects this. In late September Codan guided first-half FY27 net profit of at least A$160 million, more than double the A$71.2 million of a year earlier.
In May, DTC kept building on its anti-jam capability by acquiring Adaptive Dynamics, a US firm specialising in anti-jamming and interference mitigation for communications.
Its technology covers interference cancellation, signal enhancement and adaptive filtering, all aimed at holding a radio link in a contested spectrum.
DTC has historically relied on a long list of small repeat orders rather than large one-off contracts. We believe that may change as US, European and Southeast Asian drone programs enter their selection phases, which would be a step-change for an already fast-growing revenue line.
EOS: Defeating drones at the right price
EOS sits on the other side of the exchange. Slinger, a derivative of the R400 remote weapon station, was designed for counter-drone work. The stabilised station weighs under 400 kg and carries a 30mm cannon firing proximity-fused rounds, aimed with a radar and an independent sighting sensor, and can track and engage moving drones beyond 800 metres. EOS puts the cost per engagement at between $155 to $1,550, a fraction of the price of a missile.
‘Apollo’, EOS’s high-energy laser weapon, which is still under final development, is the complement for drone swarms. It is scalable from 50 to 150 kW and designed to counter Group 1 to 3 drones. Globally, there is no competing product currently available or in development that matches Apollo. EOS says it can neutralise more than 20 Group 1 drones a minute within a hard-kill range of 50 metres to 3 km. EOS says it costs less than $1 per shot.
The Netherlands bought a first system in 2025 for €71 million (in final stages of development) and has since signed a letter of intent to develop Apollo into a fully operational weapon and explore European production. EOS expect the market opportunity for supplying these high energy laser weapons is in the multiple billions of dollars.
Until early this year, these were EOS’s main anti-drone products. However, a military base, airport or piece of national infrastructure cannot defend itself with guns and lasers alone. Even a well-equipped defender faces a further problem: each defence option has a different cost and minimum range, drones arrive from several directions in varying numbers,
and some are decoys. Something or someone must decide which target to engage first and with what. That job belongs to command and control (C2), the brain of a counter-drone system.
MARSS now fills that role for EOS. EOS bought MARSS’s interceptor business in November 2025 and agreed to buy the rest of the company in January 2026, completing the acquisition around mid-year. MARSS’s NiDAR platform
is deployed at more than 60 critical infrastructure sites in the Middle East and can integrate third-party sensors and effectors. NiDAR combines radar, electro-optical, infrared, radio-frequency and acoustic sensor feeds into one picture and supports the choice of effector. That includes EOS’s own Slinger and, in time, its lasers.
In early October, the company announced their largest ever contract for the nationwide counter-drone defence of a Middle Eastern Gulf state. MARSS will act a prime contractor and deploy both internal EOS and third-party effector solutions in this contract.
EOS now sells both halves of the job: NiDAR that makes the decision, and Slinger and Apollo that carries it out, a complete solution.
The company appears to be the global leader in offering the most complete suite of battle-tested counter-drone solutions and the demand outlook is very large and immediate.
Sovereign production and allied demand
Allied demand for supply that does not depend wholly on the US is a tailwind for both companies. EOS has opened a Singapore facility to scale up laser manufacturing. Its US$124 million UAE Slinger order is expected to be built in Australia and the UAE and delivered in 2027 and 2028,
and a conditional joint venture would add UAE production of lasers and remote weapon stations. A Dutch site is proposed for Apollo. On the Codan side, DTC has an integrated global production base and has commenced Australian production of its BLUSDR-6 drone radios.
Conclusion: Why the pair is well placed
The geometric growth of uncrewed warfare has fundamentally rewritten the rules of military engagement. By turning expensive air defence into a war of attrition, cheap drones have left traditional military structures dangerously exposed. In this reshaped landscape, Codan and EOS have each become key providers of critical sovereign defence infrastructure.
As allied nations shift billions in capital toward field-tested, non-US-dependent defence technologies, these two ASX-listed companies are uniquely positioned. Together, they offer a highly complementary exposure to the massive need for global defence modernisation.
Author’s:: Victor Gomes, Principal and Portfolio Manager & Sam Cox, Analyst
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