XTclave And US Expansion Will Create Future Market Opportunities

Key Takeaways

• Launch of advanced products and expanded manufacturing targets rising demand, defense spending, and new markets, driving revenue growth, market share, and improved margin profile.
  
• Streamlined costs, enhanced contract wins, and sales mix shift to proprietary items underpin expected, sustained improvements in profitability and recurring earnings stability.
  
• Heavy reliance on cost cutting, limited diversification, and uncertain demand from government spending pose risks to sustained profitability and long-term revenue growth.

Catalysts

Provides specialist products and tailored solutions to military, law enforcement, government agencies, space, and commercial sectors.

• The commercial launch of ten new, state-of-the-art armor products enabled by the XTclave technology, with full rollout expected by early Q3 FY '26, positions HighCom at the forefront of technological innovation in personal protective equipment; this aligns with heightened demand for advanced solutions amid next-generation threats and is expected to materially improve revenue growth and gross margins going forward.
  
• Expansion of U.S. manufacturing capacity and dedicated sales force across key geographic markets-combined with international business development-directly leverages sustained or increasing Western defense spending and a growing focus on homeland security, supporting higher sales volumes, greater market share, and enhanced revenue diversification.
  
• The company has undergone a comprehensive cost base reset, including reduced operating expenses and restructured supply chain operations (shift to sea freight, inventory optimization); this positions HighCom for sustainable EBITDA and net margin improvement as revenues grow without a commensurate rise in overhead.
  
• Positive momentum in securing and fulfilling recurring government contracts-including the expansion of counter-drone solutions and the U.S. Department of Defense's involvement in funded R&D collaborations-increases revenue visibility and positions HighCom to capture a greater share of growing defense budgets, supporting recurring earnings and stability.
  
• Backlog clearance of impaired inventory in FY '25 depressed margins temporarily, but with this legacy stock nearly exhausted and future sales shifting to proprietary, higher-margin products, gross profit and EBITDA margins are poised for a significant structural uplift from FY '26 onward.

HighCom Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming HighCom's revenue will grow by 14.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.5% today to 12.3% in 3 years time.
• Analysts expect earnings to reach A$8.8 million (and earnings per share of A$0.09) by about September 2028, up from A$-1.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 5.7x on those 2028 earnings, up from -27.7x today. This future PE is lower than the current PE for the AU Aerospace & Defense industry at 260.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.27%, as per the Simply Wall St company report.

HighCom Future Earnings Per Share Growth

Risks

• The company's recent return to breakeven EBITDA was driven by aggressive cost reductions, clearing impaired inventory at heavy discounts, and reduced R&D spend in FY '25; future growth may be at risk if cost cuts cannot be maintained or if R&D does not sufficiently ramp up, potentially impacting revenue and net margins.
  
• Gross margins fell sharply from 30% to 23%, primarily due to discounted sales and impaired inventory clearance; if new product launches or margin recovery efforts underperform, sustained margin pressure could weigh on overall profitability and earnings.
  
• The U.S. armor market has experienced an "industry-wide slowdown" due to reduced government funding, and HighCom's anticipated market improvement appears to hinge on future shifts in U.S. government defense budgets, creating significant revenue volatility if funding does not rebound as expected.
  
• The company is reliant on successful commercialization of the XTclave technology and rapid scaling of new products; delays in independent testing, regulatory hurdles, or lack of customer adoption could slow new product revenue growth and impair long-term earnings.
  
• HighCom's relatively limited product diversification (focused on armor and a technology reseller business) leaves it exposed to technological displacement, regulatory tightening, or shifts in defense spending priorities (e.g., toward cyber defense), which may reduce demand for traditional protection solutions and pressure both revenue and margins over the long term.

Valuation

• The analysts have a consensus price target of A$0.4 for HighCom based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$71.6 million, earnings will come to A$8.8 million, and it would be trading on a PE ratio of 5.7x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of A$0.32, the analyst price target of A$0.4 is 18.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.