Here’s why the Electro Optic Systems share price collapsed 26% today


The Electro Optic Systems Holdings Ltd (ASX: EOS) share price came out of a trading halt to nosedive today.

Curiously, this followed the company’s successful institutional placement.

At market close, the defence contractor’s shares finished down 25.97% to a fresh multi-year low of $1.14.

What drove Electro Optic Systems shares lower?

The sinking of Electro Optic Systems shares appeared to be linked to investor concerns about the impending dilution of shares and the company’s latest trading update.

According to its announcement, Electro Optic Systems advised it has received binding commitments from new institutional investors to raise $15 million.

The placement will see around 12.5 million new ordinary shares created at an issue price of $1.20 apiece. This represents a 22.1% discount to Electro Optic Systems’ last closing price on 27 June.

Settlement of the shares is expected to occur on 4 July, with the share issue on or around the following day.

In addition, Electro Optic Systems announced a share purchase plan (SSP) to raise a further $2 million from eligible shareholders. The issue price is listed as the same offered in the placement.

The proceeds from both the placement and SPP will be used for working capital and near-term capital requirements of the business.

Furthermore, Electro Optic Systems revealed that its first-half revenue for FY22 has been impacted “beyond typical seasonal factors”.

The company said as well as delays with two contracts, the federal election in May had further impacted new projects.

While this is outside of management’s control, the company’s earnings before interest and tax (EBIT) is forecast to come in at a loss of roughly $45 million. About $15 million is related to the company’s space division, SpaceLink.

Nonetheless, Electro Optic Systems is predicting FY22 revenue will be equal to or exceed that of FY21.

As at 31 May 2022, the company had a cash balance of $26 million and outstanding debt of $35 million.

Over the past 12 months, Electro Optic Systems shares have continued to plummet by more than 70%.

Year to date, the company’s shares are down around 50%.

Electro Optic Systems commands a market capitalisation of roughly $175 million, with approximately 150.9 million shares on issue.

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