The future outlook of the ASX Defence Sector looks promising as the Australian Government is delivering historic investments in the Australian Defence Force and its capabilities to further strengthen the defence of the nation.
The 2024-25 Budget increasing Defence funding to $764.6 billion over the decade signal a trajectory of growth and innovation within the sector.
Consequently, Defence Sector Stocks are likely to get a boost over time.
Electro Optic Systems Holdings Limited (ASX: EOS)
Electro Optic Systems Holdings Limited, during the quarter ended 31 March 2024 (Q1 2024), reported a revenue of $77.3 million, indicating a significant increase of $43.3 million compared to Q1 2023 revenue of $34.0 million.
EOS' cash balance as of 31 March 2024, stood at $72.4 million, consistent with the company's expectations. This reflects a modest increase of $1.4 million from the cash balance of $71.0 million on 31 December 2023, inclusive of $33.6 million in net proceeds raised from the institutional component of the equity capital raising conducted in March 2024.
Subsequent to the end of the quarter, EOS received net proceeds of $1.9 million from the Share Purchase Plan (SPP), as announced on 22 April 2024. Additionally, EOS fulfilled its debt repayment obligations by repaying $20.5 million, as announced on 10 April 2024.
For the full year ending 31 December 2023, EOS reported robust revenue growth, reaching $219.3 million from Continuing Operations activities, up by 59% compared to the previous year's $137.9 million. Despite this growth, EOS incurred a Loss after Tax of $34.1 million, an improvement from the previous year's loss of $53.6 million. Underlying EBITDA from Continuing Operations saw a positive turnaround, recording a profit of $5.7 million compared to a loss of $42.9 million in the prior year. As of 31 December 2023, EOS held $71.0 million in cash, a significant increase from the previous year's $21.7 million, along with $67.1 million in Restricted Cash Security Deposits, up from $35.6 million in the previous year.
Looking ahead, EOS demonstrates a promising outlook as it expands its footprint and product offerings within the defense sector. The company's memorandum of understanding with Shielders Advanced Industries sets the stage for a joint venture aimed at local manufacturing and assembly of Remote Weapon Stations (RWS) in the Middle East, a move aligned with EOS's strategic objectives and offset obligations in the region.
Moreover, ongoing discussions with potential customers for various RWS models and High Energy Laser Weapons (HELW) signal EOS's commitment to diversifying its product portfolio to meet evolving defense needs. The advanced-stage discussions with two potential customers for HELW underscore a strong interest in EOS's cutting-edge technology, potentially paving the way for significant revenue generation in the future.
Austal Limited (ASX: ASB)
Austal Limited recently announced that the Australian Government had ordered two additional Guardian-class Patrol Boats from Austal Australia, valued at approximately A$39 million.
Austal Limited had received a proposal from Hanwha Ocean Co., Ltd. to acquire the company at $2.825 cash per share, pending regulatory approvals. Austal, mindful of its defense contracts and regulatory uncertainties, advised shareholders to hold off on any immediate action.
In their financial results for the six months ending December 31, 2023 (FY2024 H1), released on February 23, 2024, Austal reported a revenue decrease to $717.7 million from $775.0 million in the previous year's corresponding period. However, despite this, notable improvements were observed. The USA shipyard emerged as the primary revenue contributor, accounting for 81% of total revenue compared to 73% in the prior year, while Australasia's contribution decreased to 19%. Support revenue remained stable at $195.8 million.
Austal achieved an EBIT of $32.1 million, marking a significant turnaround from the $2.0 million loss in FY2023 H1, primarily driven by strong performance in existing mature programs and the sustainment business. Additionally, the company reported a Net Profit After Tax of $12.0 million, a significant improvement from the $7.3 million net loss in the same period last year. Despite reduced cash reserves of $155.1 million as of December 31, 2023, Austal maintained a net cash position of $28.1 million due to continued capital investment and tax payments.
Austal's ambitious revenue target of $500 million by FY27, driven by strategic collaborations like AUKUS and lucrative contracts with the U.S. Navy and Australian Commonwealth, indicates strong growth prospects.
Source: Company's Report
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