2 ASX Defence Stocks Positioned for Long-Term Contracts

Global defence spending has been trending higher as governments prioritise national security, sovereign capability, and technological advancement. In Australia and internationally, multi-year procurement programs are being rolled out across communications, weapons systems, surveillance, and space technologies. For investors, this creates opportunities within select ASX defence stocks that are aligned with long-duration contracts and specialised technology offerings.

Defence projects are rarely short-term in nature. They often involve extended development cycles, multi-phase production, and long-term maintenance agreements. Companies embedded within these programs can benefit from recurring revenue visibility and strategic partnerships.

Two notable names within the Australian market positioned within this theme are:

• Codan Ltd (ASX: CDA)
• Electro Optic Systems Holdings Ltd (ASX: EOS)

Each operates in specialised segments of the defence ecosystem and offers exposure to contracts that can extend across many years.

The Appeal of ASX Defence Stocks

Before examining the individual companies, it is important to understand why ASX defence stocks are drawing increased attention.

Defence procurement typically involves:

• Long budget cycles backed by government allocation
• High barriers to entry due to certification requirements
• Strategic importance that limits competition
• Multi-year sustainment and servicing agreements

Unlike purely commercial technology firms, defence contractors often secure agreements spanning five, ten, or even twenty years. This level of visibility can support earnings stability, provided contracts are executed successfully.

Additionally, geopolitical uncertainty and regional security initiatives continue to reinforce defence budget commitments. This structural backdrop strengthens the long-term outlook for well-positioned ASX defence stocks.

Codan Ltd (ASX: CDA)

Codan Ltd designs and manufactures specialised electronic equipment for communications and defence applications. Its products are used across military, law enforcement, and government agencies globally.

Defence Communications and Long-Term Contracts:

A significant portion of Codan’s growth is tied to secure communications technology. Modern defence forces require reliable, encrypted communication systems in remote and high-risk environments. Codan’s high-frequency (HF) and tactical communication solutions serve this niche.

These systems are typically deployed under:

• Long procurement cycles
• Multi-year equipment supply agreements
• Ongoing maintenance and upgrade contracts

Once integrated into defence infrastructure, replacing such systems becomes complex and costly. This supports recurring demand and contract extensions.

Diversified Revenue Stream:

Although recognised among ASX defence stocks, Codan also generates revenue from metal detection technology, particularly in the mining sector. This diversification provides some earnings stability while defence contracts scale.

The company’s competitive advantages include:

• Established global distribution channels
• Technical expertise in rugged communication devices
• High reliability standards aligned with military needs

Defence communication systems are mission-critical, meaning performance and durability are paramount. This creates meaningful barriers for new entrants.

Long-Term Growth Drivers:

Codan’s defence-related momentum is supported by:

• Rising regional security spending
• Government investment in tactical communications upgrades
• Increased demand for secure field operations technology

As defence forces modernise communication networks and digital warfare capabilities expand, suppliers like Codan remain strategically positioned within the ecosystem of ASX defence stocks.

Electro Optic Systems Holdings Ltd (ASX: EOS)

Electro Optic Systems (EOS) operates at the intersection of defence technology and advanced engineering. The company specialises in remote weapon systems, electro-optical sensors, and space-related defence capabilities.

Remote Weapon Systems:

EOS develops remotely operated weapon stations designed for armoured vehicles and military platforms. These systems enable enhanced operator safety by allowing weapons to be controlled from protected environments.

Procurement for such systems often includes:

• Development contracts
• Production agreements
• Ongoing service and maintenance support

Given the complexity of integrating weapon platforms into military vehicles, contracts frequently extend over extended periods.

Space and Advanced Defence Technologies:

Beyond land systems, EOS also participates in space-related defence programs, including tracking and space domain awareness capabilities. As space becomes an increasingly strategic domain, governments are allocating funds toward monitoring and defence infrastructure.

This expansion broadens EOS’s exposure within the defence landscape, positioning it among specialised ASX defence stocks operating in advanced, technology-driven segments.

Contract Visibility and Risk Profile:

Defence technology programs typically involve milestone-based payments and phased rollout. While this structure can create revenue variability, it also provides high-value, long-term growth opportunities when contracts are successfully executed.

EOS’s positioning within defence modernisation initiatives reflects several structural drivers:

• Growth in unmanned and remotely operated systems
• Increased focus on soldier safety
• Investment in advanced surveillance technologies
• Expansion of sovereign defence manufacturing

These themes underpin multi-year procurement pipelines and long-term collaboration with defence agencies.

Comparing the Two ASX Defence Stocks

While both companies fall under the umbrella of ASX defence stocks, their specialisations differ:

Codan focuses primarily on communications systems and electronics, offering critical tactical capabilities and diversified revenue exposure.

EOS concentrates on weapon systems and advanced defence technologies, including space-related solutions, placing it within higher-technology segments of military modernisation.

Both benefit from:

• High entry barriers
• Government-backed spending
• Long procurement timelines
• Strategic relevance in modern defence frameworks

However, investors should be aware that defence stocks can experience revenue fluctuations tied to contract timing, tender outcomes, and budget approvals.

Key Considerations

Despite the long-term nature of defence contracts, certain risks remain:

• Dependence on government budgets
• Contract delays or cancellations
• Technological development challenges
• Competitive bidding processes

Nevertheless, the broader environment of heightened geopolitical awareness and increasing regional defence commitments supports sustained demand for specialised contractors.

As governments prioritise capability expansion and technological sophistication, companies embedded within procurement frameworks remain positioned for participation in long-duration programs.

Within the universe of ASX defence stocks, Codan Ltd and Electro Optic Systems Holdings Ltd offer differentiated exposure to communications, weapon systems, and advanced defence technology — areas aligned with evolving national security priorities and multi-year government commitments.

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