Electro Optic Systems Holdings Limited

ASX:EOS

Electro Optic Systems Holdings Limited

ASX:EOS
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$1.810 (+6.2%)
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#160
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Forum Topics EOS EOS News From Ukraine

Pinned straw:
neke86_
Added 2 months ago

Some confused Redditors on r/asx_bets have accidentally found some potentially meaningful news from Euromaidan press that quoted the Ukrainian deputy Minister of Defense as saying that EOS would be establishing domestic production in Ukraine. This possibly signifies that two contracts worth approximately A$180m that were conditional on several factors, including field trials, is going to get the green light for purchasing. Further to this, we know the Germans have been using EOS' Slinger to protect their donated anti-air assets, which means that trust them to some extent, as well as R150's to protect the smaller anti-air vehicles.

These are not the highest quality news sources, with UA MINDEF incentivized to over-inflate their military capability in news, and EOS incentivized to be part of that, however there are ground facts here that are reproducible in open source that I like, namely that the Germans are using this technology.

For my purposes I grade the quality of this information as C3: from a fairly reliable source and while I cannot confirm it all, it is logical in itself and agrees with other information sources available.

Discl. I hold EOS, but am not adding on this news.

  • https://euromaidanpress.com/2024/06/28/australian-arms-manufacturer-eos-plans-to-establish-production-in-ukraine/
  • https://biz.liga.net/en/all/all/novosti/no-one-kills-drones-like-eos-australian-weapons-maker-eos-eyes-production-in-ukraine
jcmleng
2 months ago

@neke86_ , thanks for flagging the links. I thought it did not quite make sense from a few angles:

(1) setting up shop in a warzone feels terribly counter-intuitive - the immediate risk is the West stops backing Ukraine, Putin steamrolls and takes over Ukraine, putting the facilities completely at risk. More so if Trump is talking about not backing Ukraine etc etc.

(3) I would imagine that Ukraine's technical workforce would be an issue - a lot of them would be russian-technology based, have been conscripted to go to war etc, both of which does not invite more investment.

(4) not sure Ukraine has much leverage to force that as a condition to the contract - it feels like they have taken whatever they can get in recent times anyway

(5) Andreas, the CEO is ex-Airbus, and there are lots of far safer places, and deep manufacturing technology skills in western Europe to set up shop, more so as the EU economy slows down further/plateaus and capacity becomes available.

(5) I would have expected an announcement given the risks to both the facility and the contract if it were really happening - EOS have really improved their stakeholder communication in the last 12-18M in my view,

So, didnt read much into the news nor act on it as it doesnt make logical sense, acknowledging that there could be many other factors at play.

I do not own DRO and do not follow it to be able to comment on the differences. But I do like that EOS has (what I think anyway), is a broader range of products beyond anti-drones.

I do think strongly, however, that EOS is in a very much more different and positive place today than the market gives it credit for. The turnaround under Andreas has well advanced. The management crew has completely changed. There is much more market and operational focus. Cash flow issues have mostly been resolved, debt has been repaid on time. And it is well placed with the offerings that it has amidst wartime demand.

In analysing this, I have not focused on the longer-term history (which I painfully went through buying in years ago at about ~$5-ish and holding through the troubles), as I think the company has made a step change away from the "troubles" such that making comparisons that far back are not helpful to working out the opportunity from here.

I have progressively topped up to average down my holdings in the past year as a result but am under no illusion that this is a medium-term wait at best. I suspect I am probably a wee bit early to what I am hoping is a part of some sort of party but the war thematic is too in my face to ignore right now. I am happy to be invested as I think the trajectory following the turnaround and Andreas' leadership makes EOS a very different beast from before. All will be revealed in the fullness of time!

Discl: Held IRL


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edgescape
2 months ago

Not that it appeals to me but it does seem war can be a very profitable investing thematic right now.

Still remember Raytheon stock rocketing whenever there was news of their cruise missiles being fired

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neke86_
2 months ago

Yeah it is not ideal, but it's the world we live in unfortunately. At least on the ASX I will only be investing in stocks with a relatively clear defensive/protective role. I just wish it had a better balance sheet and track record - but if it did I guess it wouldn't be priced where it is. I think for genuine exposure to defense spending this is a really good pick on the ASX with proper contracts for sales into battlefield environments and a range of products already proven on land and at sea.

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neke86_
2 months ago

The AFR is even today again stroking DroneShield as Australia's provider to Ukraine (a contract less than $5m for plastic beer paddles) while failing to mention EOS' ~$180m contract poised to provide Slinger and R150 CUAS systems. One of those has attracted a $1bn valuation while the other struggles to get past a third of that. The disparity is shocking. If you know what I'm missing, please save me from my bias and help me make sense of it all because not even Oleg believes in Droneshield enough to hold his stock.

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Rocket6
2 months ago

You have a knack of criticising/comparing to poor old Droneshield. I will try and keep you honest though (noting I am not too familiar with EOS)

Droneshield

  • Made a profit in FY24 – 9m. The year prior (FY23) they reported a small loss of 900k.
  • Market leaders in their industry.
  • Their balance sheet is a fortress, more than 50m in their pocket. There are no concerns about their short-medium term survival.
  • There is no debt.
  • In that time, their revenue has done this – significant yoy growth that exploded in 2023.

Electro Optic Systems Holdings

  • Loss After Abs: -33m. The year prior? -114m. Gulp.
  • I would suggest a good portion of the market wouldn't have the first clue what EOS do. Who will ever forget their attempt to make a space division? Double gulp!
  • Their balance sheet is an absolute binfire and has been mismanaged for years.
  • You mention their market cap, but fail to mention the percentage of debt relevant to their total market cap. Debt in this current environment scares the shit out of people and rightly so.
  • Historic revenues lumpy.

FWIW, I am not suggesting Droneshield's valuation makes sense. Are you a recent investor to EOS and is your thesis based on a turnaround?

9
neke86_
2 months ago

Yes I've disclosed my EOS holding from recently. I don't and have not at any point advocated purchasing EOS. The shortest way I can address this is that I think DRO is a well-run story stock and EOS is a poorly run real defense industrial. The only people who think DRO is a "market leader in their industry" are DRO's shareholders and marketing team, Bell Potter, and Henslow :) Not the CEO, he bailed out of there as soon as he caught a whiff of momentum.

EOS is a dangerous turnaround indeed, but they've addressed their debt and conflict with WHSP (for now) and consolidated their business verticals from four to two - ultimately they were irresponsibly run during ZIRP and far too slow to adjust. The same management team is in place, so I'm not expecting any wonders.

DRO's "balance sheet is a fortress" yes, from funds raised at a huge premium from shareholders?? That the CEO sold into? For which the brokers got paid a fortune?

Revenue has "significantly exploded" from a tiny base to a small base, whereas the mc/rev multiple has expanded far more.

Honestly I thought I had done a good job to avoid all direct comparisons because I wasn't interested in the companies themselves and was trying to stick to the products. You do not bring field research to a momentum fight, and I don't have the available time or clout to counteract Bell Potter and a Macquarie-trained CEO. I was only posting anything to address the fairly deceptive and clever story by DroneShield (we are going to sell wideband RF jammers to airports? Including images of Shahad drones in marketing material, a drone for which DRO has zero solution, the list goes on).

My mistake once again, was in identifying a pump but not getting on board. I've got to stop doing that.

Anyway, I maintain a very small RL% in EOS because they are selling the things you think you're buying with DRO if you're buying DRO because of what you think is happening on a battlefield.

But as you say, management is bullshit and so I can't put much more into it while adhering to my investing rules which is a damn shame. Eventually I think someone will come along to plug this - probably WHSP if they had any brains and want their money back - especially once Slinger and R150 contracts that have already been signed start to be delivered into Ukraine directly.

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