The Electro Optic Systems Holdings Ltd (ASX: EOS) share price has fallen 7.6% this morning after providing the market with updated FY21 guidance.
EOS, unfortunately, hasn’t seen the rapid V-shaped recovery that many companies did after the market crash in March last year. Shares have languished and are down 36% since the start of the year.
Electro Optic Systems is a leading technology company that’s involved in products such as software, lasers, electronics, optronics, telescopes and precision mechanisms. It operates in 17 countries and has over 500 employees around the world.
EOS share price
2020 highlights
Despite the challenging circumstances last year, EOS still managed to achieve a revenue compound annual growth rate (CAGR) of 98% for the third consecutive year, which means it’s on track to achieve its revenue target of $250 million.
During the year, SpaceLink was also created – a space relay service that provides secure, continuous, high-capacity service between spacecraft and the ground.
The Australian government announced it would spend $1 trillion on defence over 20 years to 2040. EOS is one of just a few other prime contractors, so it could stand to benefit significantly from this spending.
In export markets, EOS has deployed over five years’ worth of investments into counter-drone and automation capabilities used to protect civil and military assets. These are now said to be the fastest-growing segments globally.
2021 guidance
Management noted COVID-19 impacts will delay the company’s revenue target by a further year. In 2017, it was expecting to achieve $240 million in revenue by 2020 at 115% CAGR. However, now expects to achieve $240 million by 2021 at an 80% CAGR over four years.
Underlying earnings before interest and tax (EBIT) before SpaceLink costs is expected to be between $20-$25 million, but around $3-$8 million after the $17 million in expenses from SpaceLink.
EOS currently has an order backlog of $428 million in revenue terms and around $535 million in cash flow.
Management also noted dividends aren’t being considered at this point as the company will continue to re-invest profits for other growth initiatives.
Time to buy EOS shares?
It seems like EOS is in a competitive position partly due to the esoteric nature of its industry. The pipeline of new projects seems promising, which could likely provide additional upside.
I often try to find companies that are within my circle of competence that I understand well. Due to the complex nature of aerospace products, I find it hard to gain any sort of informational edge, which could support an investment thesis.
For more share ideas, I’d highly recommend getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
