DALLAS, TX -- February 26th, 2025-- Electro Optics Systems Holdings Ltd (ASX: EOS): Stonegate Capital Partners updates their coverage on Electro Optics Systems Holdings Ltd (ASX: EOS). In November of 2024 EOS announced the signing of a binding agreement to divest the Company’s EM Solutions segment for an enterprise value of $144.0M to Cohort, a UK based company. We note that this transaction triggers the repayment of its current debt facility. Following the closing of this transaction, which was completed on January 31, 2025, the Company had ~$128.0M in cash on the balance sheet and zero debt outstanding. We view this transaction as accretive to the Company’s gross margin and expect that it will provide EOS with sufficient liquidity to pursue growth objectives closer to the Company’s core operations.
COMPANY UPDATES:
Continued Diversification: EOS continues to diversify its product offerings as well as the geographies that it services. We note the strong demand for counter drone products is driven by the current market conditions discussed in further detail below. As the Company continues to grow its RWS offerings we expect the same market conditions to drive demand. EOS recently launched its R500 remote weapon system which is planned to come with AI-based target identification and tracking as well as mesh network capabilities. The Company is currently in the evaluation stage with an existing customer for a launch order of the R500. Additionally, EOS has noted that it is also in advanced discussions for the launch of its High Energy Laser Weapons (HELW). This diversification in product offerings gives us confidence that the growth will continue.
Growth Outlook: Following the divestiture mentioned above, EOS has substantial cash on hand for further growth. The Company has laid out a three pronged approach for accelerated growth over the medium term that is two parts internal and one part external. EOS expects to focus resources on counter drone RWS technology over the next 1 to 3 years and HELW technology over the next 2 to 5 years. The Company continues to see growing market opportunities with or without a resolution to the war in Ukraine. For external growth EOS is expected to add bolt-on acquisitions that will help fill capability gaps and/or de-risk the Company’s supply chain.
Strong Backlog: As of FY24, the Company has a strong order backlog totaling AUD$317.0m which includes the conditional AUD$181m contract to supply Ukraine. The backlog makes up customer contracts primarily in the Defense Systems segment, with the majority of this backlog expected in 2025. This backlog has reduced year over year as the company monetizes opportunities, while timing issues have reduced backlog growth. We expect EOS to grow its backlog through FY25.
Top Line Growth: The Company saw year-over-year revenue growth of 9% up from AUD$14.6m in FY23 to AUD$176.6m in FY24 for its continuing operations. We believe that, given the strong backlog and continued expansion of product offerings with new products like the R500 and HELW line, the Company will continue to grow revenue at a strong rate in the short term, predicated on a growing backlog.
Valuation: We use both a DCF Analysis and Comparable Analysis to inform our valuation of EOS. Our DCF analysis arrives at a valuation range of AUD$2.09 to AUD$2.21 with a midpoint of AUD$2.15. For the Comparable Analysis we arrive at a valuation range of AUD$1.89 to AUD$2.25 with a midpoint of AUD$2.07.
Stonegate Capital Partners is a leading capital markets advisory firm providing investor relations, equity research, and institutional investor outreach services for public companies. Our affiliate, Stonegate Capital Markets (member FINRA) provides a full spectrum of investment banking services for public and private companies.
