Through reviewing the quarterlies again, I wanted to share a more refined view:
Contract Asset Position:
• There is circa ~$79.1M locked up in asset contract position – this will supposedly be converted into liquid cash over the course of the next 2 quarters
• On top of the above, there is also a net contract asset (payments in advance) to the tune of ~$43M
• Combined, should all necessary works be finalised and fully invoiced over existing work – there is a grand total pool of $122M to unlock
• Of course, it’s very unlikely the complete amount will be converted into cash; however, even if the business manages to convert 50%; that’s sufficient to meet final debt payment next year
Middle East Customer base:
• It’s worth calling out that EOS has had a customer concentration risk – a high profile M.E customer had made a significant order to the tune of $440M years ago
• This obviously was a huge win for the company and has since been largely delivered
• Since new management has come in, there was contention on diversification of client base. However, it may also be a positive that new Middle East customers are trialling EOS products
• Though it’s wishful thinking to see a repeat of an order as large as the $440M, it’s not too farfetched to imagine sizeable orders – l say this with complete ignorance of the customer profile of course
Land 400 Phase 3 – Advanced negotiations
• Without knowing exactly what “advanced negotiations” entail, taking this statement at face value – one would expect there has been meaningful movement on this front. $100M over a 2-3 year delivery period is a very respectable amount in a comparatively shorter lead time
Overall position:
I have growing confidence in the following:
1) Subject to continued focus of asset contract buydown, sufficient liquidity should be unlocked to cover $52M debt next year whilst still maintaining operations
2) Failure to extract $52M from contract asset, whatever variance is left, EOS could pursue lending from EFA (longstanding relationship) to bridge the full amount OR renegotiate terms with WHSP (this is not an outlandish suggestion as it only benefits WHSP so long as they’re profiting from EOS with a significantly reduced risk exposure)
3) Failure to the above, and in the event a capital raise is invoked, ideally the funds they will need to raise would not be significant enough to materially reduce share price based on the following:a. EOS will be debt free following the cap raise, so eliminates risk of insolvency moving forwardb. EOS will likely be better capitalised to pursue growth aspirations
Final commentary:
• Only 1 more quarter left of FY, and EOS typically performs better in the latter half of the year (Q3 was definitely no exception)
• Support line ~$1.25 has been continually tested and respected
• Federal election early next year; a liberal win may foster stronger military agenda – which would only benefit EOS further
Not financial advice. DYOR.
(20min delay)