The fair value of this stock is probably at least 20$+. Although...

The fair value of this stock is probably at least 20$+. Although I have to make quite some assumptions and a clearer picture will emerge towards the AGM at the 12th of may.


We will get a confirmation of the deal with Orbital ATK of 150-170 million and I expect two more large orders of the same magnitude within months, as indicated by the company, creating an order backlog of maybe 600 million for the next 36 months. This is a base scenario.


EOS Defense Systems is in a sweet spot. Governments have been holding back investments for years in anticipation of the next generation RWS, a market which is expected to grow annually from USD 6.28 Billion in 2016 to USD 12.70 Billion by 2022. http://www.marketsandmarkets.com/PressReleases/remote-weapon-station.asp . The election of Trump, the spread of conflicts worldwide and defense budgets on the rise, while tests show RWS from EOS are superior compared to Kongsberg. Hence, they are finally winning big, big  contracts.


It will be interesting to hear at the AGM how the company will cope with production facilities and outsourcing, as they did with Hyundai-Wia, to satisfy the demand.


Looking at the technological edge and governments eager to spend, I suspect EOS will have strong pricing power. The R&D has been done and, very speculative, a profit margin of around 20% should be possible. Giving the deductible losses of the past and 200 million defense revenues annually, the base scenario, this should generate a net profit of 40 million each of the next three years.


Then we have the space business. The reason I actually re-started investing in the company early 2015.  From the annual report: “EOS is confident that its Space Systems sector will independently contribute significant revenue and profit to the company from Q4 2018, commensurate with the substantial investments EOS has made in this sector”. EOS invested around 80 million and the profit margin will be extremely high as costs are fixed. Substantial revenues, relative to the annual revenues of the past of around 30 million, might generate a profit of 20 million from 2019 onwards. Like a bond, with long term contracts and stable revenues. While this division has a geographical edge.


All together, looking forward, a net profit of 60 million annually seems logical. Not including future contracts, just based on the expected contracts in the coming months. Looking at a P/E ratio of 20, below the current ratio in the defense sector, a market cap of 1,2 billion is visible.


I absolutely don’t want to ramp up the stock. I will wait for the space revenues to kick in and I am expecting a sale of the defense business in due time. Sold at a premium. We don’t need traders entering the Arena. Yet, I am interested in hearing the other side of the story. What am I missing here?


Cheers!