On Friday, defence contractor Electro Optic Systems Holdings Limited (ASX: EOS) announced it had entered into negotiations with the Commonwealth Government. This arose out of the government’s $270 billion investment being made in the Australian Defence Force (ADF) announced last week. During his speech, the Prime Minister specifically referred to high technology sensors, which are at the core of Electro Optic’s product range.
The EOS share price jumped by 16.1% following Mr Morrison’s speech, then went into a trading halt at the close of business on Wednesday. It begins to trade again today.
Defence spending negotiations
Electro Optic Systems is in negotiations with the government over the sale of 251 remote weapon stations over the next 12 months as part of the defence spending initiative. The systems will be added to the Army’s Bushmaster and Hawkei protected mobility vehicles and allow for operation from a protected position.
These negotiations represent welcome news for the company after the recent impacts of COVID-19 on its business. In late May, Electro Optic Systems reported delays of 6 months to $100 million of receipts due to delivery issues. In addition, the company advised it has deferred $70 million in revenue and expects margins to fall from 13.5% to 11%.
As yet, it is unclear precisely which products are included as part of the negotiations. The company makes a range of vehicle-mounted, remote weapon stations of varying size and capability. Furthermore, it supplies comprehensive drone defence technologies which are battle tested.
About the company
The privatisation of Commonwealth of Australia space activity formed Electro Optic Systems in 1983. The core of the company is its sensor technology which it has commercialised in the aerospace, defence and communications industries.
The weapons systems mentioned above include this sensor technology. In addition, it has also been applied in the Space Situational Awareness (SSA) partnership with the United States. SSA monitors and tracks orbiting space-based objects such as satellites and debris using ground-based radar and optical stations.
Electro Optic Systems presently has active contracts with several NATO naval forces and the Royal Australian Navy. It is the global market leader in lightweight remote weapons systems.
The company expects to meet its FY20 guidance announced in April, 2020 of 38% revenue growth to $230 million.
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Daryl Mather 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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