Why the Electro Optic Systems (ASX:EOS) share price is shooting higher today

The Electro Optic Systems Hldg Ltd (ASX: EOS) share price is shooting 2.1% higher today follow the release of its SpaceLink presentation.

| More on:
rise in asx tech share price represented by digitised rocket shooting out of person's hand

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Electro Optic Systems Holding Ltd (ASX: EOS) share price is shooting higher today follow the company's release of its SpaceLink presentation. At the time of writing, the Electro Optic Systems share price is up 2.59% to $6.73. In comparison, the All Ordinaries Index (ASX: XAO) is edging 0.9% higher to 6,829 points.

Let's take a look at what's driving the Electro Optic Systems share price today.

What's moving the EOS share price?

The Electro Optic Systems share price is on the move after the company advised it will build and operate a medium earth orbit (MEO) satellite constellation. It projects to have the system launched and operational in 2024, producing a positive operating cash flow.

The new era of satellite communications will be optimised for defence and government customers. The company said that a vast majority of current commercial systems are unsuitable for the special needs of its target market.

Most satellite constellations are either geosynchronous equatorial orbit (GEO) or low earth orbit (LEO) satellites. Both are considered expensive and limited by the availability of radio frequencies. This hinders continuous connectivity in downloading data in real-time, especially in ocean regions or insecure land networks.

MEO satellites provide high bandwidth and low latency satellite communications. In addition, security levels are much more heightened when compared to the current constellations used.

SpaceLink target market

Electro Optic Systems will seek to target defence and government customers from the Five Eyes alliance for its SpaceLink market. Five Eyes is a signals alliance between the United States, Canada, Australia, the United Kingdom, and New Zealand.

According to estimates, it's projected that the total Five Eyes defence budget will exceed US$6.3 billion by 2024. This is a lift from US$4.6 billion today, representing an annual compound growth rate of 7.8%.

Most pleasingly for the company, is that it already has long-standing relationships with key Five Eyes customers.

Project cost

Looking at the project from an economics prospective, capital expenditure is forecast to be around US$800 million to US$1 billion. This will equate to roughly four tranches of $200 million to $250 million over a four-year period.

Electro Optic Systems revealed there will be a mix of debt and equity funding. The project will be 70% financed from vendors and export credit agencies. The other 30% will come from external sources into a special purpose vehicle.

The company will look to secure firm customer commitments for US$150 million to underwrite project funding. Based on Electro Optic Systems' business plan, the internal rate of return is predicted to be above 20%.

More about the Electro Optic Systems share price

The Electro Optic Systems share price went on a mini-rollercoaster ride when COVID-19 hit the global economy. Although defence orders for its products remained, supply chain logistics became disrupted. In turn, this sent its share price south, hitting a low of $2.95 in March.

The Electro Optic Systems share price is still nearly 38% off its all-time high of $10.80 reached in February.

Aaron Teboneras owns shares of Electro Optic Systems Holdings Limited. 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. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Woman in celebratory fist move looking at phone
Broker Notes

Top brokers name 3 ASX shares to buy next week

Brokers gave buy ratings to these ASX shares last week. Why are they bullish?

Read more »

A young man pointing up looking amazed, indicating a surging share price movement for an ASX company
Broker Notes

These ASX 200 shares could rise 20% to almost 30%

Analysts are tipping these shares to deliver big returns over the next 12 months.

Read more »

A young woman carefully adds a rock to the top of a pile of balanced river rocks.
Share Market News

Here's how the ASX 200 market sectors stacked up last week

Energy and utilities stocks led the way last week with 4%-plus gains.

Read more »

Animation of a man measuring a percentage sign, symbolising rising interest rates.
Share Market News

Here's when Westpac says the RBA will now cut interest rates

Will borrowers need to wait until the middle of next year for relief? Let's find out.

Read more »

Boys making faces and flexing.
Opinions

3 ASX 300 shares to buy and hold for the long run

I believe these stocks have loads of growth potential.

Read more »

Young girl drinking milk showing off muscles.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a great end to the trading week for ASX investors today.

Read more »

Hands reaching high for a trophy with a sunset in the background.
Record Highs

The ASX 200 Index is on its way to another all-time high today. Here's why

These blue chip stocks are driving the index towards a new record today...

Read more »

Group of friends trading stocks on their phones. symbolising the 3 most traded ASX 200 shares today
Share Market News

3 ASX mining stocks topping the most-traded list in October

Chinese stimulus news and company announcements likely contributed to the higher trading activity.

Read more »