Electro Optic Systems Holdings Ltd (ASX: EOS) shares have been among the strongest performers on the Australian share market over the past year.
During this time, the defence and space company's shares have risen an incredible 293%.
Despite this incredible rise, the team at Bell Potter believes it isn't too late to invest.
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What is the broker saying about Electro Optic Systems (EOS) shares?
Bell Potter was pleased to see the company announce a major order from the UAE this month for one of its Slinger products. It said:
EOS has secured a US$124m (A$175m) Slinger counter-drone (C-UAS) order and entered a binding, conditional joint venture (JV) with Gen5, a 100% UAE-owned defence company, covering its High Energy Laser Weapon (HELW) and Remote Weapon System (RWS) franchises.
The A$175m order comprises the remote weapon system, cannon, spares, training and associated supplies. EOS understands the systems are intended to strengthen defence capability in light of ongoing regional tensions in the Middle East. Manufacturing is expected to be split between Australia and the UAE, with deliveries across 2027 and 2028; the order is subject to Gen5's customary terms and to export approval requirements.
Another positive from the announcement was news that EOS is looking to form a joint venture with this customer. It adds:
EOS and Gen5 have entered a binding, conditional agreement to establish an incorporated JV covering the development, manufacture and distribution of EOS's 100-150kW and 200-300kW HELW products and RWS products. The JV is expected to be based in Abu Dhabi on a 50/50 equity and profit-sharing basis, subject to relevant UAE laws and government approvals, and EOS believes it could begin contributing to results from 2027 or 2028 onwards. Under the agreement, Gen5 is obligated to contribute US$40m of equity to the JV while EOS contributes its existing IP.
Both parties will use reasonable endeavours to secure a minimum US$250m order for the 200-300kW HELW within 12 months and a minimum US$290m order for the 100-150kW HELW within nine months, and to progress a solution with UAE government agency Tawazun to grant EOS offset credit benefits. The JV will own the IP for the 200-300kW system, and its scope may be extended to include Command & Control (C2) and Space Control.
More strong returns to come
According to the note, Bell Potter has retained its buy rating on EOS shares with an improved price target of $12.50 (from $10.60).
Based on the current EOS share price of $10.26, this implies potential upside of 22% for investors over the next 12 months.
Commenting on its recommendation, Bell Potter concludes:
We retain our Buy rating and raise our TP to $12.50/sh. EOS is positioned as a market leader across many C-UAS verticals and is leveraged to increasing defence budget allocations to C-UAS technologies. The conditional JV announcement presents a clear path towards producing HELW systems at scale and is therefore a significant development. We expect further JVs to be signed over the coming years. The agreement suggests there is a strong likelihood of major HELW order intake over the next 12 months from the UAE.
