The Electro Optic (ASX: EOS) share price slumps on net loss as revenues are deferred into 2021 and 2022. Here are the details.
The post The Electro Optic (ASX:EOS) share price slumps 5% as net profits plummet appeared first on The Motley Fool Australia. –
Why the Electro Optic share price is struggling
COVID-19 has deferred revenues for the aerospace and defence business into 2021 and 2022 as delivery schedules are pushed out.
While the company will realise these revenues in the future, indirect costs will be expensed in the present, creating a short term negative impact on profitability.
FY20 performance highlights
Electro Optic delivered a 9% increase in revenue to $180 million, citing constraints driven by COVID-19 interruptions to deliveries.
Deferred revenues and profits resulted in a net loss after tax of $25.6 million. At the same time, investment into inventory saw a negative operating cash flow of $109 million.
Defence is Electro Optic’s largest revenue segment, responsible for more than 80% of its revenues in FY20. This segment produces products such as remotely operated weapon stations, sensors and fire control software.
Delivery issues throughout the year and in December prevented delivery to the contract schedule resulting in $40 million of revenue being pushed into 2021. As a result, the defence segment experienced a 1% decline in revenues but expects 2021 to see a return to profitability.
The company’s communications and space systems segments are small revenue contributors that have experienced strong growth throughout the challenging period.
The communications systems segment develops and provides global satellite communication, products and services. This segment saw revenues surge from $1.9 million in FY19 to $19.6 million in FY20, driven by the full-year effect of its EM Solutions acquisition.
Its space systems segment is growing strongly and profitability, with a 27% increase in revenues to $6.4 million. This segment focuses on the detection of objects in space and currently completing a new type of laser tracker using radiation pressure to move space debris.
The Electro Optic share price has sunk 5.35% to a 9-month low of $4.60 at the time of writing. The company expects a return to profitability in the short term as revenues are realised, and defence inventory is converted back into cash.
Management believes the company’s growth story is still intact with global tailwinds to drive pipeline and conversion to its order backlog in 2021 and beyond.
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Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Electro Optic Systems Holdings Limited. The Motley Fool Australia has recommended Electro Optic Systems Holdings Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.