Electro Optic share price drops after half-year results

The Electro Optic Systems Hldg Ltd (ASX: EOS) share price has dropped 7% as trade opened this morning following the release of its half-year results.

After Friday’s market close, the Electro Optic share price finished the day at $6.20, a gain of 5.6%. It’s now trading at $5.75. No doubt it will be an interesting day for the defence contractor as investors digest the company’s results.

How did Electro Optic perform in FY 2020?

For the first half of the financial year ending 30 June, Electro Optics Systems achieved a weak result for its full-year earnings.

Here’s a snapshot of what the global defence contractor reported.

• Revenue of $75 million, up 31% on prior corresponding period, despite COVID-19 supply chain disruptions to customers.
• Statutory net loss after tax was down 291% to -$14.3 million as revenue and profit is deferred into H2 2020 and 2021.
• Earnings before interest and tax (EBIT) excluding foreign currency (FX) gains came in at loss of $18.2 million, a fall of 288% recorded in 1H19.
• Statutory net loss after tax was down 291% to -$14.3 million.
• Statutory diluted earnings per share also fell 253% to -12.42 cents.
• Operating cash flow dropped to -$62.6 million.

Electro Optics Systems continued to strengthen its balance sheet with cash on hand of $128.1 million and minimal debt obligations. The company anticipates strong cash flow from major contracts over the next 12 months, beginning Q4 2020.

The board has continued to not declare a dividend for shareholders, instead opting to use its capital to reinvest in the company’s growth plans.

What did management say?

CEO Dr Ben Greene said the major impact of COVID-19 on the company has been to delay revenue, profit and conversion of pipeline to backlog. He said: 

As this impact unwinds, EOS is expected to grow strongly in 2021 and beyond, with growth expectations even higher than expected 9 months ago due to strong business tailwinds not previously expected.

Outlook

Electro Optics Systems reaffirmed its prior guidance for the full-year of an EBIT between $20–$30 million, and an underlying EBIT margin of ~10%.

The $570 million backlog consisting largely of defence products awaits to be fulfilled, however Electro Optic advised the contracts remained committed from their retrospective buyers.

The company expects its communications backlog to grow strongly as its subsidiary, EM solutions sells to NATO allies in Europe and North America.

In addition, the $3.1 billion pipeline is expected to be drive top-line growth within the next 36 months. Four programs of upwards to >$1 billion with awards are due in 2021 and 2022, with a further 18 opportunities valued in excess of $200 million.

How has the Electro Optic share price performed in 2020?

Electro Optic shares have risen 210% since falling to a 52-week low of $2.95 in March. However, the Electro Optic share price is down almost 21% since the start of the calendar year and 57% from its all-time high achieved in February.

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Aaron Teboneras owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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