Shares in Electro Optic Systems Holdings Ltd (ASX: EOS) are charging 10% higher in afternoon trade on Friday following the release of a company announcement.
At the time of writing, Electro Optic shares are fetching $2.04 apiece, after rallying as much as 18% and as low as 5% from yesterday’s close, before settling at its current levels.
Why’s the Electro Optic share price charging higher today?
Electro Optic operates in two divisions, namely defence systems and space systems. Within space systems, the defence and communications player operates as 3 entities.
Today the company advised that its wholly-owned subsidiary, SpaceLink, has achieved an upgraded communication satellite design with the aim of boosting profitability with significantly improved margins on cost.
According to Electro, the subsidiary is developing a constellation of Medium Earth Orbit satellites to create the ‘communications superhighway for the space economy’.
SpaceLink has made several purported breakthroughs in its satellites, like bettering the design by “integrating higher bandwidth communication terminals on both small and large satellites”, and reducing the cost of initial capability deployment from US$750million to US$240 million.
Electro Optic notes this cost decrease includes satellites, launch, ground-based infrastructure and operating expenses to achieve profitability.
Not only that, but Electro says it has also brought the date for initial operational capability (IOC) at SpaceLink forward from mid-2024 to early-2024.
What’s this mean for Electro Optic Systems?
Part of this decision hinged on the company’s allocated communication spectrum, which comprises 21 Ghz of radio frequency spectrum, per the release.
“SpaceLink is required under its [Federal Communication Commission] FCC licence to initiate use of the spectrum for space communications before mid-2024. Achieving this milestone secures SpaceLink’s rights to the spectrum”, the company said.
Consequently, this move will allow the company to meet customer requirements and lock in SpaceLink’s spectrum licenses by meeting the FCC regulatory milestone date in mid-2024.
The release also states that SpaceLink expects “planned 2024 capability will meet an increasingly urgent need for secure and resilient space communication services”.
As a result, the company reckons that customer revenue estimates for SpaceLink are hovering around US$240 million over the first 30 months of service.
However, the scale of these project changes means that the initial tranche of funding for SpaceLink’s ventures has been wound back and replaced by alternative funding sources.
From here, Electro Optic says it has received proposals for the new satellites and has vetted two vendors “with compliant solutions”.
“Final selection and contract award is expected in April 2022 with initial operational capability scheduled for Q2 2024”, the company remarked.
Electro Optic Systems share price snapshot
In the last 12 months, the Electro Optic share price has collapsed more than 58% and is down 13% this year to date. Over the previous month however, investors have shown support and shares have climbed 2% into the green.
The post Electro Optic (ASX:EOS) share price rockets 18% on ‘breakthrough’ satellite news appeared first on The Motley Fool Australia.
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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Electro Optic Systems Holdings Limited. The Motley Fool Australia owns and has recommended Electro Optic Systems Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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