Electro Optic Systems Holdings (EOS) – Grizzly counterattack

Electro Optic Systems Holdings engages in the development, manufacture, and sale of telescopes and dome enclosures, laser satellite tracking systems, and remote weapon systems. The company operates through Defense Systems and Space Systems segments. It develops, manufactures, and markets fire control, surveillance,and weapon systems to military customers. It was founded in 1983 and is headquartered in Symonston, Australia.

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EOS has responded to the short-selling attack by US group Grizzly Research with acounter attack of their own, describing the Grizzly report as “misleading, manipulatory and pejorative”. Ord Minnett notes that while EOS produced enough data and credible explanation to counter the Grizzly report, their response still leaves questions around the $120 million conditional Korean High Energy Laser Weapon (HELW) contract. The response did provide greater clarity around existing contracts, including confirmation that the $33 million General Dynamics Land Systems (GDLS) contract signed late last year was for the new US M1E3 Abrams tank. Fortuitously, during the trading halt period, the White House tweeted a picture of the new Abrams tank sporting an EOS Remote Weapons System (RWS). Despite the recent upheaval, our investment thesis of increasing geopolitical tensions and defence expenditure on C-UAS, RWS, HELW and Space remains unchanged. As such, we maintain our Speculative Buy recommendation on EOS and our target price is unchanged at $12.72.

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