Electro Optics Systems Holdings Ltd (ASX: EOS) has made a strategic decision to divest its EM Solutions segment to Cohort, a UK-based company, for an enterprise value of $144.0 million. This move is expected to significantly alter EOS's financial and operational trajectory, providing the company with a stronger balance sheet and the ability to focus more intently on its core operations. The transaction, anticipated to close within the next six months, will facilitate the repayment of EOS's existing debt, leaving the company with approximately $135.0 million in cash and no outstanding debt.
The divestment is seen as a pivotal step for EOS, enabling it to streamline its operations and concentrate on areas with higher growth potential, such as its counter-drone products and Remote Weapon Station (RWS) offerings. The company has also highlighted a cannon supply agreement worth AUD$104.0 million over three years, underscoring its commitment to expanding its defense sector business. Additionally, EOS's Space Technologies segment has secured a AUD$9.0 million contract with the Australian Defense Force Joint Capabilities Division, further demonstrating its capabilities in advanced space technologies.
EOS's financial health appears robust, with a reported year-over-year revenue growth of 92.0%, from AUD$74.3 million in the second half of 2023 to AUD$142.6 million in the same period of 2024. The company's order backlog stands at an impressive AUD$567.0 million as of the first half of 2024, including a conditional AUD$181 million contract to supply Ukraine. This backlog, nearly double the AUD$312 million reported in the second half of 2022, is a testament to the company's growing demand and operational efficiency.
Stonegate Capital Partners' valuation analysis of EOS, utilizing both Discounted Cash Flow (DCF) and Comparable Analysis methodologies, suggests a promising outlook for the company. The DCF analysis indicates a valuation range of AUD$2.26 to AUD$2.40 per share, while the Comparable Analysis suggests a range of AUD$2.06 to AUD$2.11 per share. These figures reflect the potential for increased shareholder value as EOS continues to execute its strategic divestment and diversification efforts.
This strategic divestment not only positions EOS to better capitalize on the burgeoning defense and space technology markets but also enhances its competitive edge on a global scale. With a solidified financial foundation and a clear focus on growth areas, EOS is poised for sustained success in the evolving defense and technology sectors.
