Is Elsight (ASX:ELS) the Next DroneShield After a 700% Rally?

Elsight Extends 700% Rally with A$32M European Defence Contract

Elsight (ASX:ELS) has delivered an exceptional share price performance on the ASX, rising more than 700% over the past year, supported by strong momentum from the global defence sector. The company operates in a critical niche, developing mission-critical communications hardware that enables continuous and secure connectivity for drones and unmanned systems operating in complex environments.

In December, Elsight announced a significant A$32 million contract with a European defence OEM, providing further validation of its technology and growing relevance within modern military systems.

Having covered the defence sector extensively, we continue to see structural growth in areas such as drones and unmanned platforms. Elsight’s focus on the communications backbone that underpins these systems highlights how smaller, specialised verticals are beginning to gain real traction, supported by rising defence budgets and increasing demand for resilient, secure connectivity.

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What FY26 has in store for this defence small-cap

This year, Elsight has already delivered contract revenue growth of approximately 1,000%, a pace that is not uncommon for a small-cap company as it secures larger and more meaningful contracts. The recently announced A$32 million contract is around 13.5x larger than contracted revenue recorded a year earlier, highlighting a step change in deal size and customer commitment.

This inflection point helps explain the sharp market rerating, as larger contracts improve revenue visibility and signal growing commercial momentum. Importantly, this shift supports more reliable forecasting and reinforces the view that Elsight is transitioning from early-stage traction toward a more established revenue base.

Today, Elsight announced the first delivery of its Aura platform, a next-generation communications device designed to support uncrewed systems as well as soldier-level and tactical communications.

This development meaningfully expands the company’s addressable market beyond UAVs and into broader defence and security applications. Importantly, the delivery marks a clear transition for Aura from research and development into real-world deployment and testing.

This represents a tangible execution milestone and an early signal that the platform is moving toward commercial adoption, reinforcing Elsight’s longer-term growth narrative.

What does ELS actually do?

For investors reading about the company for the first time, Elsight’s business model is built around integrating its Halo OEM hardware directly onto drone chips and into cellular and satellite communications systems.

This integration enables drones to maintain continuous connectivity while ensuring the secure transmission of data in mission-critical environments. Revenue is initially generated through hardware sales, but the model becomes more attractive once the technology is embedded within an OEM’s manufacturing process.

As deployments scale, repeat orders typically follow, and the embedded nature of the hardware makes it more difficult for customers to switch providers. This dynamic increases switching costs and supports longer-term customer retention, which is a key driver of revenue durability as the business matures.

The Investors Takeaway for ELS

From a balance sheet perspective, we believe Elsight is well positioned to continue strengthening its financial footing as cash inflows begin to build through FY26. With approximately A$7 million in cash and around A$400k in debt, the company appears to have sufficient runway to fund ongoing operations without the immediate need for additional capital. This financial flexibility reduces near-term funding risk and allows management to remain focused on execution.

That said, after such a significant share price run, we remain cautious about chasing momentum at current levels. While the long-term growth outlook remains attractive and the overall health of the business continues to improve, valuation discipline is important. From our perspective, this is a hold, with patience likely to be rewarded through a pullback or a more attractive entry point for new investors.