Shares in Electro Optic Systems Holdings Ltd (ASX: EOS) are up more than 15% after the company announced it had won a $700 million contract.
The anti-drone technology company said it had struck an agreement with a Middle Eastern gulf state for the provision of a nation-wide, counter-drone defence system valued at £370m (~A$700m).
This is the largest contract secured by the company to date.
Increase in drone warfare driving need for countermeasures
Electro Optic Systems said in a statement to the ASX that recent conflicts in the Middle East had highlighted the importance of being prepared for anti-drone warfare.
The company added:
Drone attacks have inflicted significant physical and economic damage and traditional air-defence systems based on expensive interceptor missiles have faced challenges. More effective and sustainable solutions are being sought. EOS' NiDAR counter-drone system, acquired as part of the recent MARSS acquisition, is an advanced AI-enabled command and control system (C2), designed specifically for counter drone defence, embracing both airborne and coastal seaborne drone detection. As required, systems fielded by MARSS in the Middle East are showing throughout the recent crisis to be an effective and economical counter-drone system.
Electro Optic Systems said it expected 80% of the revenue to be earned in the first 12 to 24 months after the contract becomes unconditional, with the rest of the revenue related to ongoing support over a four-year period.
The company said it also believed that the deal could lead to future sales opportunities.
Milestones yet to be overcome
Electro Optic Systems has to fulfil certain conditions before the deal becomes unconditional, including obtaining relevant export licences.
The company added:
The Contract is expected to be profitable and cashflow positive over its term, noting that, as is the nature with integration projects such as this, there will be a significant short-term working capital funding requirement in the early stages of the Contract which is expected to turn positive during mid-2027. While noting that the nature of this Contract is similar to others fulfilled by EOS and existing MARSS resources in the Gulf region, EOS believes that this Contract represents an inflection point for the Company in its strategy to become a major player in the global integrated, counter drone market as it represents a significant expansion of both the products and services previously provided.
The company also noted that the contract contained financial and operational risks, "some significant, which EOS will seek to manage''.
Electro Optic Systems shares traded as high as $12.91 on the news before settling back to be 16.3% higher at $12.30.
The company is valued at $2.55 billion.
The post Which ASX drone company is up more than 15% on big contract news? appeared first on The Motley Fool Australia.
Motley Fool contributor Cameron England has positions in Electro Optic Systems. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Electro Optic Systems. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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