Electro Optic Systems share price rockets 53% on Ukraine deal

A major contract win is giving this defence share a massive boost on Monday.

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The Electro Optic Systems Holdings Ltd (ASX: EOS) share price has been a big mover on Monday.

At one stage this morning, the defence and communications company's shares were up 53% to 70 cents.

The EOS share price has now pulled back but remains up 28% to 58 cents.

Why is the EOS share price racing higher?

Investors have been buying the company's shares today after it announced a major contract win.

According to the release, EOS' Defence Systems business has secured a contract with SpetsTechnoExport (STE), a Ukrainian state-owned foreign trade enterprise.

EOS will supply STE with up to one hundred EOS heavy remote weapon systems (RWS), including spares and related services, for use in Ukraine. The contract is valued at up to US$80 million (approximately A$120 million) and is expected to be supplied during 2023 and 2024.

EOS' RWS is a long-established product and is designed to deliver greater accuracy and reliability than any competitor system. Over 2,500 units have been sold and it is currently in use with several military services in Australia, North America, Europe and South-East Asia.

What's next?

It is worth noting that the contract is not yet binding. It remains conditional on demonstration testing and is subject to other customary terms for military contracts. In addition, consistent with typical wartime contract arrangements, the contract is also subject to conditional early termination rights in favour of STE.

Pleasingly, management revealed that this may not be the final contract. It advised that it continues to work on other opportunities relating to Ukraine, including opportunities for direct supply to the country, and to other countries providing support to Ukraine.

However, it has warned that there is no certainty that any particular outcome or transaction will result from these discussions. EOS will keep the market updated as appropriate.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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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