Forum Topics EOS - General Forum
a month ago

New forum to kick off answer (or opinion) to @AUROPAL's question.

I held EOS some some years ago (2019-21) - fortunately only a 0.5% position, as I lost c. 30% of my capital.

My original thesis was:

  • Sovereign Australian defence capability with local and global defence spend increasing
  • Good IP moat in advanced weapons systems focus on optics
  • Potential for high margin defence contracts, including international sales - good order book

The thesis was progressively broken over the two years I held due to:

  • Management repeatedly not delivering on promises
  • Horrible cash conversion cycle metrics
  • Management seemed to make a lot of money for themselves despite shareholder value destruction (CEO made a total of $1.5m in 2021 on a base of c.$0.8m)
  • A very lumpy business dependent on the fortunes of individual contracts
  • Loss-making and cash burning

To be fair, a major contract to the Middle East got caught up with pandemic border closures, which delayed cash flows.

My ingoing thesis was weak and lacked any evidence of a track record. I am glad I baled out when I did. If I'd stayed invested, I'd have lost over 90% of my original capital.

There is a new CEO, but I wont be going back.

I consider that this kind of defence manufacturer is for companies with big balance sheets and a large portfolio of contracts (Lockheen, Raytheon, BAe etc.) Contracts can be much bigger than $100m, and unless there is a steady flow of cash inflows from contracts being delivered, the margins are not sufficient to compensate for the long cash conversion cycle and what is akin to a capital project delivery risk.

A contrary view is that it is so beaten down, a few contracts with some positive newsflow on sound execution could see a strong SP recovery over the coming years. But that is not for me, as I have zero conviction in the firm's ability to deliver reliably.

$EOS is no longer on my watch list.


a month ago

I can't help but wonder if Austal (ASB) isn't the biggest winner out of today's announcement @AUROPAL

With the focus is on force projection it seems like the army will be a net loser on aggregate, with more funding for Navy and Air Force. The fact that Austal is already doing work on Virginia-class submarines in the US (the same class of submarine the current plan has us buying), the fact the US government has co-invested with Austal to build steel shipbuilding facilities and today's announcements around building littoral defence capability (Austal's aluminum ship building capability is its bread and butter and well suited to that role) seems to point toward them having a running start.

Quickstep (QHL) is another potential winner as a supplier of Northrop Grumman for components for the F35 fighter. Probably a bit of a long bow to draw that one.

Another one I've been thinking about that is not nearly as sexy but could be the biggest winner of all is Duratec (DUR), who do a lot of maintenance and concrete rehabilitation for various industries, including Defence. For obvious reasons naval bases need constant rehab and TLC. I think the plan calls for at least one new naval base and the expansion of another. A continuous naval shipbuilding programme could result in an even bigger requirement than that. The benefit of an investment in Duratec is it's not a binary outcome. They do have diversification, they will continue to get work and they do seem to have a reasonably competent management.

[Currently just ideas, I don't own any yet]


a month ago

Austal is in some serious hot water with some Republican senators, otherwise you'd think they were perfectly positioned for AUKUS.


a month ago

ArchTIS should be positioned to benefit from a current collaboration with KPMG consulting with the architectural design of data centric security and the use of ABAC for OneDefence