Are Electro Optic Systems and Altium Share Prices Good For Growth?

Growth Stock
About Growth Stocks

Growth stocks are the stocks of those company that are assumed to have bright future. These companies are expected to register growth at a rate that is significantly more than the average reported by the market in which it operates. From the investors’ point of view, they are attracted to growth companies as such companies are expected to grow at a faster rate in terms of revenue, cash flows as well as profits.

In this article, we would discuss two stocks that have performed well in the past and their shares have also given decent returns in the year 2019.

Electro Optic Systems Holdings Limited (ASX: EOS)

Electro Optic Systems Holdings Limited (ASX: EOS) is into the business of designing, developing and manufacturing advanced electro optic technology devices and systems for the space as well as defence markets.

Revenue Up 62% in 1H FY2019:

During 1H FY2019 ended 30 June 2019, on a consolidated basis, the company’s revenue from ordinary activities increased by 62% year-on-year to $57.43 million, while net profit after tax registered growth of 40.8% to $7.52 million on the prior corresponding period. Net cash used by the company in its operating activities was $1.28 million. The position of net cash by the end of 1H FY2019 was $36.23 million.

During the six-month period to June 2019, EOS Defence Systems reported a profit before tax of $10.9 million, represented an improvement in EBIT, which was noted at $10.6 million for the period. The improvement in the result was partly attributed to improved efficiency as plant utilisation moved past 60% of full capacity in the Australian plant located at Hume, Australian Capital Territory. For this segment, the improvement was reported in marketing, investment in new products or customisation of the current products. In locations such as the US, Singapore and the UAE, the company also initiated capacity expansions.

 

EOS Space Systems registered a loss of $1.2 million during the six-month period to June 2019, which was in line with the company’s expectations. This segment of the company continued to make strong investments in research & development activities.

Stronger Results Expected in 2H FY2019:

Defence segment: The company expects to register stronger results in 2H FY2019, based on further improvements in capacity utilisation; however, this improvement will be largely offset by significant investments EOS is required to direct towards management, engineering and production resources in order to prepare for the next level of growth.

The company during 2016 to 2019 also implemented a plan for the expansion of the annual RWS production capacity of 600% from $50 million to $300 million, with the plan entailing the establishment of a scalable production in Australia, as a template that could be replicated across the globe.

Electro Optic Systems Holdings is required to start the next level of capacity expansion at least one year before output starts to saturate at $300 million of yearly production. In this phase, capacity would be targeted to grow by 300% during 2020-2024 in order to achieve an annual production capacity of more than $900 million.

Three aspects of the new expansion include New Plants, New Processes and the Supply Chain.

The sector has ample contract backlog to obtain the forecast EBIT growth for 2019, 2020 and 2021. At the same time, the company is looking for more contracts which would support in boosting revenue by 2020 as well as pushing production requirements above the existing capacity.

Space Segment: EOS is expecting to register sufficient profit from the EOS Space Sector in the second half of the year. This segment is currently participating in more than $200 million of potential procurements across the globe. The outlook for the EOS Space Sector is positive and improving.

Electro Optic Systems Holdings is expecting to achieve EBIT of around $20 million for the full year to 31 December 2019, with EBIT of around $28 million for FY19 ending 31 December 2020.

Developments in 2H FY2019:
  • EOS via its Defence Systems division got down-selected by the Commonwealth of Australia. Under the contract, the company would be engaged in the LAND 400 Phase 3 program of the Australian Army.
  • The company on 30 September 2019 announced regarding the establishment of a new business division, EOS Communication Systems, which would be the 3rd distinct business element in EOS, joining EOS Defence Systems as well as EOS Space Systems.
  • On 1 October 2019, EOS announced that it has agreed to acquire EM Solutions Pty Limited (EMS), which is a space communications company based in Brisbane. EMS would be a part of the company’s new business segment – EOS Communication Systems.
Stock Information:

The stock performance of EOS since the start of CY2019 has grown exponentially. The shares have generated an excellent YTD return of 206.50%. The shares on 10 October 2019 opened at a price of $7.670 and were trading at $7.340 (AEST 01:43 PM). EOS has a market capitalisation of $724.62 million with approximately 96.1 million outstanding shares and PE ratio of 39.33x.

Altium Limited (ASX: ALU)

Altium Limited (ASX: ALU) is a leading provider of PCB design software.

EBIT Soars 43.7% in FY2019:

The company in FY2019 ended 30 June 2019 reported strong performance with a 23.1% increase in its revenue to US$172.752 million. Meanwhile, EBIT grew by 43.7% to US$56.879 million, PBT by 45.1% to US$57.612 and PAT by 41.1% to US$52.893 million as compared to its previous corresponding period. The company declared a final dividend of A$0.18 per share.

FY2019 Achievements:
  • The company reported record growth in new Altium Designer seats of 27% and an increase in subscriber base of 13% to 43,600+ subscribers.
  • Each business segment gave revenue growth in double-digit.
  • Revenue growth was reported at a record level for China and the business expanded beyond Shanghai and Shenzhen to Beijing.
  • Altium Designer 19 was released during the period with new capabilities aiming advanced design and complex projects.
  • Beta version of new cloud platform Altium 365 of ALU was also released during the period.
Outlook:

The company is aiming to become a PCB design software market leader. The company expects to achieve revenue of US$200 million by 2020. Additionally, it is is focused and dedicated towards achieving market dominance by 2025 with 100,000 subscribers.

Driving Forces of growth:

  • Proliferation of electronics via the rise of smart connected devices.
  • Increase in the market share by winning business from organisations that use products that are developed by its competitors and also capturing the majority of seats from the new companies entering into the electronic design market.
  • Looking for opportunities in partnerships and M&A to help the company achieve its long-term vision.
Stock Information:

The shares of ALU have generated a decent YTD return of 49.61%. On 10 October 2019 (AEST 02:00 PM), the shares of ALU were trading at a price of $32.165, down by 0.51% from its previous closing price. ALU has a market capitalisation of $4.23 billion with approximately 130.97 million outstanding shares, annual dividend yield of 1.05% and PE ratio of 55.89x.

Electro Optic Systems Holdings Limited and Altium Limited have delivered strong results in their recently reported financial reports. Additionally, the companies are focused and committed towards achieving their long-term objectives. One can expect that the shares of these companies in the upcoming period would deliver a better return.   


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