the call: Friday 9 October

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1:11One hour it is Friday the 9th of October. I'm Andrew Gagan. Thanks for joining us for the show. Also joining us today, Liquid Chester from Merri other capital. I'm Matt Griffin from Maple Brown. Have a gentleman. Welcome to you both. Now I can't escape asking you about the biggest story in markets this week. Potentially this year you could say in firmness, having abandoned its IPO. Luke, I'd love to get your opinion. What does this tell you about, I guess, risk appetite on the Australian market and more broadly the AI trade? Yeah, look, it probably tells me risk appetite is where it's been for a while. I mean, we haven't seen many IPO's come to market, especially any of these in size. Look, I think in the end it was just too big of a pill to swallow for the market to go from a $15 billion valuation back in March or April. I think it was to more than tripling with the original price range.

2:12I know there were other contracts signed and the potential for more earnings looking out to FY28, FY29. But again, I just think it's tough for public investors to say, well, how we the exit liquidity with that rapid repricing in just three to four months or something like that. But look, it's a bit of a shame to be honest. It's well outside of the market cap range. I'm looking for a micro-small cap investor. I was just watching on with interest like a lot of pundits in true. But I think like a lot of people, I'd just really like to see the IPO market open back up on the ASX and start to get some new stocks onto the index and go the other way, which has been just losing names to M&A and private equity over the last few years. So wait and see, they might come back. They need that sort of equity solution given some funding structures with their private backers. But yeah, my general feeling is I would have liked to see it get up. I just think they may be just try to buy it off a little bit more than they could chew

3:13on that valuation. Matt, what do you think? Was it a case of hyperbole of fundamentals? Oh, look, I do agree with what Luke said. I think I wouldn't read too much into the firm's IPO failure into the AI trade or the IPO market more generally. Certainly, there's a lot of runway and data selling construction for the contractors, for the other players. I think what firm's represents was just a bit of a mismatch of what investors in Australia looking for relative to, I guess, some of the hype around the IPO. Going from a business which is losing money has huge promise throwing up massive profit numbers in two years' time. They haven't really done it before. There's not a huge amount of information out there. I don't think I was the investors willing to make that leap of faith to say we're going to price that in and give you a multiple on that. When you look at the IPO market in Australia, there hasn't been much. But at the small cap end, the ones in the last few months that have IPO had actually done pretty well, FDC construction, skin candy, even koal in a very tough retail environment had a good update in this trading above the IPO price. I think when there's a good business that has a good track record, makes money investors

4:16can see that great trajectory and have certainty around it. I think those IPO's will come to market and still trade quite well. I think with firm as it was just the wrong time, the wrong structure for the market and a bit of volatility globally didn't help either. Well, of course, there are still plenty of opportunities on the local market. That is why we are here, of course, at the call to get across potential opportunities. Ten of them plus our stock of the day. It is electro-optic systems. It has secured its largest ever contract, signing the $700 million Australian deal with the Middle East government. It will build a nationwide defense network design to detect and shoot down hostile drones using AI and advanced sensors that the LX Spectrum generate more than 80% of its revenue in the first two years. We have seen it shares jump to its highest level, up more than 5% in the morning straight off the back of that news. Matt, what do you make of it? It's hard not to be positive on EOS. I mean, it's accompanying the right place at the right time.

5:18Probably the opposite to our firm has been this week. They've got a head start in counter-drones, defense systems globally. That really is a growth area in defense. When you look at all drone attacks happening in the Middle East, Europe, there's a huge demand for that product. So, this contract coming through is validation of that, the magic that supply chain, that head start, EOS has got. It's good as the lead to big earnings upgrades. I mean, we could see earnings estimates for next year, double on the back of this contract, just given the size and the scale of it. What's interesting is the stock opened up 20% this morning, it's actually faded down to be only 5% up now. They did foreshadow this contract at the results a couple of months ago. There was a big bank guarantee put in place. I said there was a big contract coming. So, for anyone paying attention, this probably isn't a huge surprise. And maybe there's some in the market who are just saying, look, buy the room a cell effect, which I think is happening a bit now. My take on EOS, we don't own it. It's one, you know, I'd be looking to potentially add to on weakness. It's a stock which is very volatile. It trades around contract and use flow sentiment in the Middle East and other conflict zones

6:21in the world. Potentially, we're a bit of a short-term peak in those now. So, if you had a sit back and say, I could hold the stock for three to five years, the amount is good. It makes some good money. You'd probably be holding, which would be my recommendation. If you're looking to pick it up, you might find a better entry point. If they go a couple of months without a contract or if there's some signs of stabilization at the Middle East, you may get a better entry point in the stock. So, it's not cheap. I think it'll continue to have good contract momentum. But it does. It is quite volatile. So, potentially, it's a better entry point coming over the next few months. Yep. Okay. Look, how do you view it? And I guess the maths point, if you're off-aid with the stock, you probably knew it's just for the coming. It's hard to get in was earlier. How do you look at it? No, I agree with a lot of that. It's hard to value the business on any real fundamentals today. Given they're winning a lot of these big contracts, a lot of revenue sitting in that backlog. And if you go back to their half-year report, they report on a calendar year. Roughly a break-even business, if you strip out one-off costs and some non-cash items

7:22that hit the P&L. But I think that summed that up really well that the stock sort of trades on catalysts and news, contract wins, things like that. And it's just hard to poke a hole in that sort of momentum right now in the defence space, in particular drones and in particular in the middle east where they seem to have a pretty good foothold backed up by the contract today. It comes up quite frequently on the call, Andrew. It is a pretty popular stock amongst viewers. And obviously with their contract news, their stock of the day every now and then too. I think I've just set a hold every time it comes up with me, just given, as I said before, I struggle to put too hard of a valuation on the business today with the actual numbers. But grant the fact that it's a business that looks like it'll be far bigger in the future, in the near future in particular with the backlog that's building. And it's certainly in the right place at the right time with plenty of news flow from a market point of view. So I'll see you on the fence as well with Matt and say a hold on this one.

8:23Double hold then for our stock of the day, EOS. Let's get into the first five stocks that's chosen by you. We are going to take a look at Bavaria Solutions, clover, high pages, high tech group and SKS technology. So let's begin then with Bavaria. Now the Les bringing us to our attention saying it appreciates the panel's thoughts on its outlook. Les, thanks for the question. It does have developed license, maintain, specialised admin and management software applications, particularly in professional consulting services, wealth management, funding and illustration and the light. Luke, let's begin with you. How do you see it? Look, I mean, skeptical of this one in the past Andrew and hand up. I've got it completely wrong. It's a business that I thought would sort of struggle for organic revenue growth. And while it hasn't, you know, sort of knocked the lights out, they have been able to achieve, you know, high single digit, low double digit growth. But I think sort of what I've got wrong here over the last few years is a few years ago,

9:27new management comes into the business. There was a big cost out. And I sort of had the view that, okay, you've had that cost out, you've had that reset. You've now got a positive earnings base generating cash. But without the organic revenue growth, like where to from here? Well, the answer to that question was they've continued to take significant costs out of the business. Half year on half year, the operating cost base continues to go down. That, you know, modest organic revenue growth ticks along and the jaws of operating leverage just continue to open. I think the skepticism I had a few years ago, maybe I was just a couple of years too early. Because I still do question how far can this cost out go? At some point, you know, costs will have to stabilize and probably go up. Your employees will want pay rises, your suppliers will want, what, what pass through cost increases. So I don't think it can go, can go on forever. But nonetheless, the organic growth on the other side of the equation has sort of made me a little bit more positive than maybe what I was a couple of years ago as well. It doesn't trade very expensive, you know, looking backwards, 22-ish times earnings.

10:27They've called out some growth as I sort of said before, coming down to about 20 times earnings. That's pretty cheap for a capital-like software business, you know, even factoring in SaaS Pocca lips and the crunch of evaluations in the sector. So look, I'll be positive on this program. I've actually liked quite a few of the stocks we've got today. I'll say a buy on Brevura, as I said before, I think the next few years, the cost out, how am I called, the easy part of the work, but it was the more visible thesis of earnings growth, maybe started to be played out, but I quite like the organic revenue growth that they are generating and, you know, the commentary for management at the recent report was that they see that growth continuing for the foreseeable future. So yeah, I got this one wrong. Let's flip it and say bye. Well, Clint, do you look for owning up to that, but of course you can't be right on everything tenure, but, well, better to be cautious than not, I guess. Matt, how do you feel about this stock? What do you think right now? It's a buy for us as well. I mean, I've spoken about it a number of times over the past year. It's been a decent holding in the fund.

11:27Continues to be, we still see upside. I agree with all the points that Luke said. So the revenue growth story is actually starting to come through now. Management has been focused very much on cost out the last couple of years. The revenue stabilized, consensus expectations for revenue growth are only around the 3% mark, which they should be able to get through just repricing and CPI type increases in their contracts alone. There is a lot of project work happening, so that could lead to the upside. And there's potential for them to snag a new logo to a new customer to which could accelerate that. Cost out digital energy done, I think, on the sort of admin side, the overhead side. What I don't think that really touched here is that engineering software type piece. So going through looking how AI could accelerate product release or save some costs there, reoptimising those teams, I think that's probably the next thing I've cost out to come, which isn't really fact in the share price at the moment. 20 times valuation, look, it's not expensive for a business like this. It's not particularly cheap, relatively, some of the software appears. Some of these lower growth software appears, likes of Hanson and Iros, a gen track of trading on low multiples.

12:28But they don't have the growth, which is a key differentiator here. So, the proverb we see, decent growth still coming through, top line and cost, earnings upgrades, good capital management, they pay dividends, they've done a buy back, there's cash in the balance sheet, there's potential for M&A, which could accelerate things, all pretty positive for me, we stay by. Certainly, sounds like lots of green lights for you, so hence it is a double buy for a proverbial solutions. Let's turn our attention now to Clover. Now I'm in cover this one on the call before. Good opportunity to do a new stock then does develop and produce, well, in catch, it's a very specialised bioactive ingredients. Now that's used nutritional oils, infant formula, medical foods and the like. Christine asking the question saying, I bought small passes of each of these stocks for a few years ago as I speculated by, at the time, looked as though they'd promising prospects, however, now languishing, I'm wondering what your expert analysis thinks of the likely success. Oh, that's a big ask. Nonetheless, Matt's going to tackle it. What do you think? It's a funny one because I actually have covered this one on the call before about

13:31six months ago, actually with Luke as well. So I said it was a hold six months ago, the share price of it about flat. So you do occasionally get some of these right, which is good. Yep. I'm going to stick with the hold at the moment. I do actually think it's been a business which has delivered well. Valuations pretty attractive. 11, 12 times PE. The recent result they had earnings which is slightly ahead of the market. There's good organic growth coming through. There's incremental margin leverage coming through. That looks said to continue. They're benefiting from this structural growth in DHA, which is an additive to infant formula. There's mandates in Europe and China which have increased this level. It's good for baby brain development, basically, and they're a supplier of that. So the structural tailwinds there. So pretty positive overall in the business. My hesitancy is we're still seeing birth rates decline globally. So the macro picture of less babies probably is a longer term headwind. I don't think it's going to be a near term issue, but something you have to think about over three to five to ten year time horizon. The other big risk I've gotten this one is an underneath a clarify because I'm not exactly

14:32sure, but fish oil prices which I think are key ingredient in their product have skyrocketed. I know this is recovering new farm because there's a tailwind for new farm. There's been a very low catch and low harvest, low quotas in South American Peru and Chile, which are key fish oil quota areas. The price is absolutely rocket in the past 12 months. So I'm just not sure on clover whether that affects their cost of goods sold, whether that's going to be margin headwind. That's something you need to clarify. So that's the only thing really keeping me from being more positive on the stock at the moment. So you're holding with it? Holding. Yes. So look, do you recall then doing this six months ago? Yeah, yeah, I do. And I didn't go back and check what I said actually. Probably a buy because I'm pretty positive on this stock. I've been for a while. You used to own it, don't anymore just for full disclosure. That summed it up well. It's one of those businesses that sort of produces a little value ad product for their customers and very much leverage to those infant formula manufacturers, mostly the Western guys and

15:35the Asia Pacific, Asia, Belamiser A2s, names like that. And so revenues are a bit cyclical. That's the right word, lumpy. It sort of goes up and down with those customers and how their fortunes are fearing. And obviously when they had issues in China as a major supply destination, that hit clover there for a few years as that chart shows. But they've always had a good niche little product and able to carve out a good economic returns for investors over the more longer term. I think looking at today, I thought the result was pretty good back at the four year. The outlook seems positive. I think that's right. There are certain headwinds you can point to. Fisch oil is definitely one of these. They're major import to their product. They convert raw fish oil into the powder. And that's been a headwind and tailwind for them in the past, depending on what those prices are doing and also how they manage their inventory. But look, I think they can sort of maintain these earnings momentum for the next period

16:35or two and around that 16-ish times. It's sort of below the long term historical we'd expect for this type of business. So I'll say positive, I'll say bye. But it's one you've got to keep an eye on. Certainly not a bottom draw stock. That five-year chart we just flashed up showed why. It's sort of at the mercy of those customers and what their end sales are doing and also trying to manage the cost inflation on their inputs as well. So one you've got to watch, but I think looks okay over the next year or two. Buying a hold then for clover. Turning our attention now to high pages and it is that platform that connects home on us to trade. It operates here both in Australia and New Zealand. Currently it's an engagement of account management strategy. She buy back programs running until May next year. Luke, what do you thoughts? Yeah, I'm sort of said that we've got a list of stocks and as I was running through them, I've just found myself positive on quite a lot of them and high pages is another one.

17:39Tick over 100,000 mark, cat bat 115,000, 33 mil cash in the bank though. As you said that gets in the flexibility for that sort of capital management strategy. We're seeing dividends, we're seeing buybacks. Normalize net profit about 24 times. That looks a touch expensive. But they actually generate much better cash flow than the reported metrics here. So you sort of take the free cash number and it falls to about 12 times. That's obviously starting to get very, very cheap for a software style business. I think the market's probably got concerns about growth and competitions. They're very much tied to, as you said, Andrew, trade is residential construction, renovations, things like that. So headwinds in that market will no doubt hurt high pages. Look, I'd be probably, as I said before, lean more positive though, given the profitability of the business, the balance sheet, the cash flow. And they're by far the biggest cost item in this business is sales and marketing. And I think that's a lever that they can sort of move up and down. And certainly as the business continues to scale and sort of establish itself

18:43as a brand in that segment, certainly scaled down as a percentage of revenue over time. So I'll start with three in a row here. I'll say buy on high pages. I think in particular, the balance sheet and the cash flow for a pretty dominant little software business. I get the headwinds they may face, but I think it's more than offset by the valuation here. All right. You're on a roll. Another buy then for you, Matt, would you agree? And I guess to Luke's point, headwinds there, look does face competition. You got what likes of airtiles, great yes, also potentially the threat of AI disruption. AI is a big one and I'm a bit more negative on this one than Luke. We did actually own this talk a few years ago, but I've got issues with the two-sided marketplace of this one. So you need demand from both customers and trade availability at the same time. A couple of years ago, you had a real shortage of trade-ease, so the job volume just weren't there and there were earnings issues. And that potentially is flipping today. I mean, there's potentially headwinds on the residential demand side, cost of building, low approvals, low house prices, mean potentially there's less demand from customers, so that might impact things.

19:43And if you actually look at the core high pages business, the Australian job numbers have actually down about 20% since a peak a few years ago. So that growth engine has really stopped, where they've got the growth from in recent years has been price rises. So they've been slugging the trade-ease with quite high price rises. It does look like quite an expensive product to trade-ease now, so I just question how much further they can squeeze that price and the up-who average revenue per user metrics. So I think that growth is going to be harder to come by. They have done a few acquisitions, they're getting into new areas like insurance payments, which has driven growth. And credit to them, the earnings growth in the cash flow has been pretty good the last few years, and numbers have looked good. There's cash here, there's a buyback, so I can't be too negative on it. It's a hold for me on that balance between capital management and growth and just some of the headwinds. AI is a big unknown. I mean, what's the ability for metamuse or some of these AI bots to actually say, let's just bypass high-pages entirely, connect direct trade-ease directly, cheap for the trade-ease, easy for consumer. That's potentially an existential risk to this business.

20:44So I'll say a hold, but I'm not leaning more towards the negative side of this one. Okay, watch hold for you, whereas Luke is more positive, he would be buying it. Let's then move on to the next one. And we'll see if Luke has another one here in terms of his way to buy. Anyway, we'll get to it in a moment because high-tech group is the stock, does supply recruitment services for impermanent contract staff to the ICT sector. Now David, I was asking the question saying, I bought this a couple of years ago, because fundamentals look good. You said the 2026 earnings however, were down priced down recently, also they have just bought Australian business of Hudson's out of bankruptcy for what seems like a very low price. He says and could increase their revenue considerably, is this a good opportunity to buy more Matt? What do you think? This one to me looks incredibly binary. So depending on your risk appetite, you could probably, money, you could have your money in the next 12 months. So I'm going to sit on the fence because I have no idea which way it's going to go. The base business has been struggling.

21:45So high-tech traditionally has been a provider of essentially IT labour to government agencies, contractor workforce, they take a clip of the wages. Profit NetFile 26 was down about 35%. You had the government coming back and consultant work, which affected them. They had a structural reset in margins on a few jobs. So that profit in the core business doesn't seem to be coming back anytime soon. And if anything, the headwinds took consulting to government sectors, mean that could get worse. Where it gets interesting is this Hudson acquisition. So this is a huge bit. They've acquired this business out of bankruptcy. It increases the revenue by about three times. So it's a massive step change in scale of the business. They're saying they've bought it on one time's EBITDA, so an incredibly cheap multiple if they can pull it off and get it working. You know, historically through the ASX buying business out of bankruptcy for cheap multiples has been phenomenal for some businesses if they can get it right. So if they're able to keep the clients on board, get the cost out, stabilize that Hudson business. We could look back and go, this has been an incredible acquisition.

22:46The share price has done really well. If they haven't and it's always difficult to tell with people-based businesses, you might lose good people, you might lose clients through this, you might not get the cost out. And just given it is such a big step change in the business, there's going to have to be a huge amount of management oversight. It could go the other way as well. And I think we're too early to call which way that's going to go. It's very binary, it's not one for me, not one for the fund. But if you want to take the risk and you say these guys can pull it off, it could do really well. So it's a hold. Just entirely sitting on the fence on this one. Luke, do you want me to call it? I agree with all of that. That was really good analysis. I'll say bye, but it's a spec bye. And really your backing management here. So I think the key to this is high tech, I agree with what Matt said. And the Wari Ren high tech was their reliance on federal government IT contracting. And for many, many years, the government was talking about winding back their reliance on contractors to the public service. But it was largely rhetoric.

23:47We never really saw it come through in the numbers until a year or so ago. And then we've now seen that impact on the high tech group. And it's probably why they've, you know, for the first time, I can remember anyway, they've sort of looked outside of organic growth to an acquisition. And broad and outside of just the federal government exposure as well, Hudson brings enterprise and some state government exposure broadly across the country. But Matt's spot on here, this is a transformational acquisition. And that's a word that should send people running. I think where I would be a little bit more towards a positive is again, high tech been listed since 2000. I think I read doing some work for the program. 70% owned by the Huzurri brothers. Those guys, you know, know recruiting and consulting inside out. And so I sort of, I think Matt's completely right. It's speculative. You're taking a bet. It's a bit binary. But I think for the right investor, this is liquid too, by the way, Andrew. This is one that's hard to get set in.

24:49I don't mind taking the bet on these Huzurri guys who know what they're doing in the space and certainly have a lot of their own wealth tied behind it. So I don't mind this. It's got to work. But if it does, they pick this up very cheap. It potentially two, three X's is the size of the business. And even now it's trading on, you know, 12-ish times earnings. So you're talking about a very, very cheap stock of you or two out of this works. Speck you live, 100% agree with Matt there. But I guess I'm just feeling positive on a Friday. So I'll say bye. All right. Well, check back in with you in six to 12 months. See how it all pans out for you. All right. Now, look, I figured you're going for five of a kind here because you have actually picked this stock. So it's a gimmick. Now it is SKS technology. It does design, supply and install audio visual, electrical and communications products and services. But as you guessed, it has that exposure to data centers and expansion of it. So they're two data center contracted works rising to $66 million.

25:50I'm seeing alongside the companies brought a digital transformation pipeline. All right. Luke, give us your reasons as to why you would pick this up. Or maybe you already own it. Well, yeah. Well, we do, Andrew. And look, I've actually thrown you a curveball here because I knew I was going to be positive to start the program. This is one we've actually taken profits on in the fund. And put it up as a suggestion more, the general conversation around these contractors and where they are in the valuations and things like that. Look, I think SKS, we owned it or have owned it for many years back late 2021 and have done exceptionally well. It's certainly now really captured the broader markets attention covered by a few brokers, owned by funds, you know, much larger than us. And I think it's been interesting to see the evolution of the business, you know, in the market from a valuation point of view, you know, trading sub-ten times as a very boring commercial electrical contractor to, you know, upwards of 40, 50 times for a data center

26:52exposed, you know, high growth business. I think there's real risks to this business, though, moving forward, particularly at the current valuation. So, you know, again, we have been taking profits and I would have it as a whole for the program but, but, you know, anyone who has been on it for a while like we have, I think it's worthy of taking profits here. And the bit of context to this is, you know, when Dada Sen has exploded a few years ago with these large contracts, there were only a handful of contractors that had the size and the scale and the capability to really embark on them properly. And SKS, right place, right time, but credit to management, they saw this coming, go back and read their AGMs from sort of 2020 and 2021. They were gearing up to target data centers as a new emerging segment for the business. So, they saw this coming very well. They got the drop on competition and sort of established themselves nicely, but competitions there now, like people know data centers are the hot space to be for electrical contracting. We've seen businesses acquire electrical contractors now to flesh out their own capabilities.

27:55And I just think competition in the space margins in the space will start to compress over the next few years. Now, will that be overwhelmed by the sheer size of data center, you know, capex and contracts come through? It could well be, and I could see here with their gum, my face, you know, trimming some stock here at $8, $9 and look back in a year or two and it's doubled again. I just think the next two, three years are harder than the previous two, three years. So, love the business, love the management team, don't love the valuation. So it's one I'm actually been taking profits on. Yeah, you did for me. There you go. But it makes perfect sense now. You've just been through all of that. So Matt, what will you do with it? It's a buy for me. I've still quite positive on these contractors. We don't own SKS, but we do. And something cross electrical, which is effectively that it's a bit more diversified. It's effectively the same exposure they've got massive growth in the data center area. So there's a couple of reasons I prefer that over SKS, but I am positive on both. SKS touched close to $11 about a week ago. It has pulled back management to quite a big sell down. And then you've had these firmness and AI kind of wobbles.

28:56So I think it's a much better entry point down here, down about 20% from the highs. The thing with data centers, people worry about the pipeline and government approvals and what's going to happen. I think the key thing talking to these contractors is the stuff that's in this locked in for the next three years. Data centers that have already been approved, they've gone through the planning, they've got the tick of approval, they're just awaiting construction. So there's a long runway for over the next few years. It's kind of locked in. You don't need to worry about what happens with the next wave of approvals. The contractors on site have a huge advantage. There's a very limited pool of electricians in the country. It's very hard to bring in electrical labour. It's very hard to bring new trades to ramp up new trades quickly. So the contractors who've got the large labour pools will get the work. And in commons he is massive. These guys get jobs on one data haul. They roll onto the next, roll onto the next. Each one's bigger, the incline wants it faster and faster. They're willing to pay a high margins. So I don't see that thematic going away for the next couple of years. I still think we're in a pretty good upgrade cycle. It grew with looks, points on valuation.

29:58It grew with competition longer term and where things are going longer term. I just think for the next couple of years, these stocks are still in the sweet spot. And I'm a buyer of the electrical space. Right, oh then. So some are the first half of the show there. Beginning with the Brewer solutions. It is a double buy for both our experts and seeing continued growth there. Capital lights, they mentioned a mad impact owns it. Clover, it is a hold from Matt's. Just to wear it there, particularly given it's uses fish oil and those prices have really moved higher. But overall in criminal growth he's seen. Luke used to own it. Talking about a lumpy revenue there, he would be buying it at these levels. High pages, it is a buy from Luke. Whereas Matt is more cautious, particularly the threat of that AI disruption. So he would hold it at this point. High tick. Matt is holding it.

31:01Sees a binary outcome. So he's just going to sit on the fence, saying it's too difficult to call. Whereas Luke's taking a punt, he would call it a specky buy at this point. NSGAS technology's Luke does own it. But he's willing to take some profit. He's overall is going to call it a hold though. He's been there for quite some time. Matt though, he sees more potential. He is willing to buy it. All right, let's catch up with our own high conviction fund. That is picked by the investment committee. So going into October the panel sold out of Tukki Hollings and added to which ones. Nah, well you'll have to head to ospys.com.au. Look for that drop down menu. The investment committee defined out which ones and their reasons as to why they made those changes. So keep those requests coming in. Do I need my glasses? No, it's each percent. Yeah, a strike like name. What have I done? First of the dividend. Happy days. A strike go. Never a dull moment. Bring me the next shiny new thing. Live weekdays from 4 p.m. eastern.

32:01Watch on demand. All catch up with the newsletter or podcast. The COB is brought to you by Longview. A new way for investors to access Australian residential property. Visit longview.com.au. Second half of the show we are going to take a look at similar group, Bullardor technology, Bizzouli main group and EML payment. So let's get going with similar. It is in fact Matt's pick. So it is vertically integrated. Civil construction, infrastructure, heavy services group. Particularly we take a look at I guess that infrastructure build out. But it's heavily exposed to at the moment Matt. Why do you pick this one? I'm positive a few good reasons to own this one. It's a founder led business. This is a couple years ago but it was started by Joe Bartola, down in Melbourne about 25 years ago as a small landscaping business and is kind of morphed through organic growth and acquisitions into a broader civil contractor. The founders, Joe plus two others,

33:02still owned about 60 or 65% of the stock. So you've got a heavily aligned and incentivized management team who are very good operators in the space. They've hit all numbers since prospectus. There's been few upgrades, a few good acquisitions. And it's training very cheaper relative to the sector. So about 11 times PE, lower cap X this year. So free cash flow should materially increase their 527. And it's got exposure to a few good growth areas. The data centers on the civil side, not the electrical side. Power and renewables, as it be growth area, transport and defence. So for us we see a good three to five year growth run way for this business trading right at the bottom end of sector multiples. For me there's no reason why this can't be rate to mid teens. So 15 times multiple where a lot of the peers are. I think the market is just waiting on a few contract wins. Some of that earnings momentum has come back in the story. But for us we're pretty positive and we want to be aligned with the management team who have done this before in a own lot of stock. So bye for me. It's a bye. Luke, are you buying what Matt is talking about there?

34:04How do you feel about it? No look, I'll say a bye as well. I think it certainly trades cheaper than peers. The reason I suspect that is if you strip away the acquisitions that have been made, organic growth has been pretty muted here. And I think the market has sort of got its feel of the EPC contractors through your SRGs, McMans, G&G engineering, those sorts of guys. So Cycle has been a little bit left behind but I agree with Matt's point. Building a nice pipeline of work, it's in some nice areas that have some good tailwinds behind them, the renewable energy data centers, an acquisition that exposes them to that southeast Queensland market, the Brisbane Olympics infrastructure as well. So I think those tailwinds look pretty strong and yeah, I think you're just a contract or tool away from some sort of the organic growth coming through that leverage coming through with margins, cash flow improving as the business sort of slows down the investment in property

35:06plant and equipment and things like that as well. I think in general, there's a lot of heat in these engineering procurement construction contractors at the minute, those some of those names I've rattled off before, they're trading it's in pretty elevated multiples. I, you know, cymbals are sort of name where, particularly if you own some of them, I think a rotation into something like a cymo or one of these peers that has been left behind a little bit, doesn't trade at that locked evaluation and still has those same tailwinds. That's something I don't mind at the minute. Some of those other names to me are certainly a little bit frothy, cymo, you know, I don't quite put in that bucket, so I'll say a buy on, on Symmel as well. Okay, double buy then for cymo, which is the way you want to talk about it. We must get them on the show. That's the first question, how do you pronounce it? But it would be great to have them on Osbus. All right, let's turn our attention to Ballador Technology Investments. Mark asking about this one. It is growth capital, venture capital.

36:07Focussing investing in late-stage, particularly I'd see software as a service health tech companies here and in New Zealand. Now, Mark asking the question saying like a view, the NTA is a massive discount of share price at around $1.60 price today at 86 cents pays a really good dividend, it says 5% to 6%, why does the market dislike it so much? Look. Yeah, look, this is the first one I'll be a bit more negative on and it's nothing to do, like good management team. I look at the underlying assets of this business. It's effectively a listed venture capital fund. I look at the assets, they look okay. It's nothing to do with that. I think it's just, it's trying to match two different, or match two different vehicles together. As I said before, you've got an unlisted venture capital fund, so you get this periodic bouts of liquidity as an investment is exited, but otherwise long periods of ill liquidity and re-valueations based on private market transactions that we don't have great visibility to.

37:09You're trying to balance that against a listed vehicle in a market that wants to see consistent growth and consistent operating earnings, which this business can't provide you. All of their earnings, which you can't see, and you've just inverted commas on that, comes from the re-valuation of their portfolio assets, which as I said I said before. Firm as potentially a good example of this disconnect we have between private and public markets right now, where private markets are telling us that everything's rosy, valuations keep going up. But when we're seeing these valuations tested with more liquidity, more scrutiny, and prospectuses and a public list, so public liquid market, a lot of them are struggling to hold up. So, sorry, Mark who wrote in, I wouldn't necessarily look at the NTA of this business. I'm not saying, you know, management's doing anything fraudulent by no means, but I just think the market will always discount the NTA of this business because of the lack of the visibility on the valuation of these assets, and then trying to sort of match that liquidity profile

38:12between the underlying assets and what the market wants to see today. So, look, I'll say a whole Andrew, because if you're the sort of investor who is there, hopefully you know why you own this business. You're getting a decent distribution. It is coming out of reserves and cash, but they have a decent track record of liquidating investments every now and then, so hopefully we get one soon, a big, a nice sale, cash in the door, supports that dividend for a little bit while longer, and supports them being able to continue on their ambitions of reinvesting back into some of these early stage companies. Tough one to sort of get too positive on, so I will just say a whole, though. All right, I actually thought you were going to say a sell, you know what you just said, but okay, you're holding it then, Matt, what would you do with it? I will say a sell. Look, the market's telling you it doesn't agree with the NTA, and I'd probably agree with that as well. When you look at some of these private businesses and private funds, there is a huge disconnect between equity market valuations in the listed space, which is kind of live valuations because of what people are paying today versus what some of these private

39:14values are valuing it at. You just have to have a look at a couple of examples of stocks that bailed or held holes that are public listed, so Sight Minder's one. Sight Minder P to around $8. It's now below $3.00. Strayker, which I think is changing name, is down 80 or 90%. REA, YsTech, car sales, all these tech businesses have halved in multiples over the past year, whereas I don't think the NTA has been revised by nearly as much as that. So I would just say the share price is telling you what the market's telling you on what these businesses are worth today. You are paying quite big fees in this vehicle. There's a 1.7% management fee and a performance fee. The management fee is pegged at pre-tax NTA, so there was an incentive to hold valuations high to keep the management fees flowing in. And I'd say look, if you think there's a turn in sentiment coming towards a software space, towards these high-growth businesses, you're probably better off just owning a basket of some of these listed stocks, which you'll get the re-rate you won't have to pay the fees. So it's a sell for me. Hold on a sell for bailed or technology. Turning now to

40:19Biz Alloy Steel Group, Rayb Chasking about this one, it essentially has a manufacturer of high 10-cyl abrasion resistant plate steel that's used in particularly high strength structural steel there for heavy construction, lifting equipment, transport, trailers and like. Also in armor and protection steel, a balanced ballistic resistance, so used in military applications. To now, Rayb saying it's down from all accounts, it's a good business, a low PE. So Met, why is that and what do you think? It's not about business. I actually met these guys for the first time a couple of months ago. It's a good management team, it is a good business. There's just some headwinds there. So FY26 earnings were fell by quite large amounts. There's this issue with cheap Chinese steel coming into the Australian market. We're seeing that through SIMS, which is another stock we look at, who does middle-be cycle, they just can't compete with Chinese imports coming in. So Biz Alloy's

41:24lodged a anti-dumping claim. History says that might take a while to go through, so that continues to be a headwind. There's issues in the Indonesian business, they can't get import licenses from the government. But on the flip side, there is quite a good growth angle there with their defense business, some of the international growth in China and other regions. So I can see that playing out over the medium term. The issue I have with this business and the reason I'm going to say it's a sell is the FY27 outlook just doesn't feel like it's confidence. They're talking about prioritising investment over short-term profits. So that tells me there's more earnings downside to come. Despite looking notionally quite cheap, it trades again about a PE of 10, 11, 12. There's a lot of businesses in the small industrial space which are traded on similar PEs. And we've been through some of them. Clavis, high pages, similar. Those businesses have growth today. Whereas Biz Alloy is still going backwards, you've got to kind of hang out on the medium term growth story. So despite that, having a pretty good balance sheet, having a pretty good dividend, I'd just buy something on the same valuation with better growth. I'd be happy to let this one

42:25go through and wait to see those growth plans eventually before becoming more positive. Okay. Luke, would you agree with that or not? No, I do. Look, I'd say a hold rather than a sell. I think it is a decent business, but it certainly faces cyclical headwinds and like caprol and sims, these metal guys, seems like every two or three years as issues with Chinese dumping or Chinese cheap products that they have to face. But a few things here, obviously the defence angle is very strong. I also met with these guys. I must have been doing the rounds a few months ago. They're looking to commercialise an interesting little tech segment they've got to around wear technology, you know, sort of monitoring sort of use wear use on heavy machineries and looking to monetise that through OEMs. It's all blue sky and certainly wouldn't hit FY27 earnings, but potentially something there. But look, I think Matt summed that up pretty well at the end, which is it is cheap today, but you can also find cheap and growing. And I think Biz Alloy will grow, you know, just probably looking

43:29a couple of years out. But I think it's a very fair point that you can look at some of the names I've spoken about today, you know, even a very quick sort of market scan can bring up a bunch of these sub 200 mill stocks that have been sort of left aside by the market, trading on cheap valuations, but still giving you a decent outlook for revenue and earnings growth over the next 12 months. So I'll say a hold because the business is a decent one and worthy of sitting in a portfolio if you've already got it. But if you're on the sidelines like me, I don't know in this stock. I'd probably look elsewhere for these sorts of cheap industrial exposure. So a whole NSL for Biz Alloy. Let's turn to, well, essentially, service is mining services, made a group and it's like technical services heavy equipment maintenance provider essentially certainly in the resources sector, heavy repairs there, fixed plant machinery as well. But you're talking about shovels drills, stragglines and the like. And we've got a question, Joe, bring it to our

44:33attention. Joe, thanks for the question. Saying I can't really hold the stock. I reviewed their announcements during the past reporting period. I couldn't see any negatives apart from some new capital expenditure plan for a new five year growth program. He's saying I'm not sure if this is because of the share price going down. I'd love an expert analysis. He's an out of listener. It's thanking us for our work. Joe, great to have you question. Thanks for listening and watching. So look, what do you think? Look, it's really hard to fault this business from an operational point of view. Like Joe went and had a look over the FY26 results and the management commentary and you know, they put out some pretty ambitious plans five years ago with a sort of five year outlook target and hit them quite strongly. 25%ish K-GAR of their earnings over that period. They've successfully expanded over into the US. Not many companies can say they've done that, particularly largely from an organic point of view. They shrugged off any cyclicality that you may sort of usually

45:34expect to see from these primarily mining exposed services businesses. So you know, can't fault the business management at all. And I think it's worthy of a premium to to peers in the sector. But really what sort of held over the stock over the last couple of years as that share price has been largely flat. It's just been I think a valuation reset where probably got ahead of itself a year or two ago trading up in the high 20s. It's now re-rated back to 20ish times on that last result based on the earnings guidance fall into about 18 times. Guidance was probably a little bit lighter than what the market was expecting. They called out I think circa three to four mil of investment in the business with an eye towards the next five years of growth and that primarily coming from that North American business. But I think once the market sort of digests the small short term earnings hits and takes an eye to that meeting longer term and the business earns that compounder like sort of status slash premium that it's got.

46:39I can see this one embarking on another run run higher. So I'll be positive and say buy on this one injury. I think it's in the right space. Fantastic management team. You probably had that correction in time rather than you know, 30, 40 percent fall in the share price. It's just sort of drifted sideways now. Let the earnings compound underneath and the next leg higher probably begins over the next six to twelve months. Matt, you're a spooge. This one's been a classic example of a small cap stock going through the earnings life cycle. It IPOed on P of about nine or ten. Got up to about 25 times at the peak as I had a number of earnings upgrades. People wrote that earnings momentum. And as looks said, the FY26 result was actually a small miss and guidance for 27 was about 10 percent below where the market was. So the earnings of peak didn't turn down. History tells us that on average one down grade will lead to three or four. So you potentially may have more earnings weakness to come. I'm a hold on the stock. I think valuation's got to a level where it's probably fair. This is a label high business. It's not the highest quality business. A good management team. Well run good growth. But you know, paying 17, 18 times to the type of business

47:44still makes me a bit nervous. I do want to see the North American part of the business really start to fire and growth. That's been a bit volatile and a bit lumpy. But really where I think this business going over the next few years, there's still good demand for the services. It's a play on commodity prices, which I think remain high. It's a play on labor shortages, which I think there still will be. So the macro backdrop is still pretty supportive. It's just not quite there for me. I just want to see only a stabilization. I want to see some of the additional growth in the US start to come through a bit quicker. It's a hold. It is by an a hold for Mategrout. Let's round it out then with a look at EML payments. Then it is pre-paid payment solutions provider. Now of course, big changes in terms of what the RBA decision to ban card payments that are surcharging. And the ML operating is a major issue or pre-paid gift in set of cards. So the RBA not just banning consumer facing surcharges also slashing the

48:47domestic and get the change fleet caps as well. So Matt, how does that affect an EML? Yeah, to be honest, I'm not close enough to the business to know exactly how those RBA changes are going to affect it. My understanding of EML is more than kind of gift card space. I make money from when people buy gift cards and don't use them. There's other payment services. I'm not exactly sure if it's a negative hit from the RBA changes. The issue with this business is there was a lot of excitement around the new chairman coming in a couple of years ago. A lot of small cap funds gone aboard. There was big talk about growth, about cost cutting. A lot of that hasn't eventuated and it's been one down great after the next. The market has just lost confidence. So you're now languishing at about a 70 rating more market cap. Still got cash in the balance sheet, but did burn through quite a lot of cash in FY26. They've given FY28 cashway positive targets. So you've got to assume 27 is going to be another negative year for cash. I just don't see the catalyst there for a turnaround. So I'm quite negative on this business. The one thing which makes me slightly positive and puts me on a hold rating rather than a sell is they hold about $2.2 billion

49:50of client cash on their balance sheet and they earn interesting income on that. So this is a direct play on interest rates. Interest rates going up. One percent interest rate increase on $2.2 billion is $22 million, which is massively material in the context of the market cap. So if you have a view that inflation is going to say, high interest rates are going to keep going up globally. This will be a direct beneficiary. That might offset some of the generic business weakness and some of the other issues they've got. That's the ball case. The bear case is it's just hard to see in evidence of a clear turnaround there. New client wins have been slow, hard to implement, cash going out the business. It's pretty uncertain on the surface. So balancing that out it's a hold for me. Yeah. Well certainly the market has been negative on it. You have to look at that share price particularly in the past five years to see how wonderful it has been. Luke, what do you think? Yeah, look, the deep value part of me gets interested in something like this Andrew because I

50:50open up the ASX announcements page to have a look at the business and the last three change of substantial holder notices are three funds all selling this stock. I think Matt's spot on. There's a few people who got in on the prospect of a new chairman, you management team cleaning up this business. There's a decent core asset there if we can restructure, remove the cost base, you know, get the business profitability. There was talk of spinning off segments and realizing value and none of it's played out and I think people are now biting the bullet, selling and that's where opportunities can arise. Of course it's all about timing and trying to get a feel for that business and what's actually there. It is hard. I agree with Matt like they're calling out $50 million in underlying earnings, EBITDA earnings to be fair. But there's huge normalizations in that. There's class actions, there's restructures, all sorts of different stuff. So, you know, if you believe management, that's a big if because of clearly the market doesn't and neither do these

51:53funds who are exiting the position, this business looks exceptionally cheap, you know, a year or two out with this turn around as all those normalizations move out of the business and cash really starts to come through. I think Matt has pegged onto the thing that I jotted down to. If you can hold your nose and look to own a stock like this, I think the one thing you can point to over the short term catalyst is this rise in yields and interest rates as well because it is a massive tailwind for EML. As I said before, they're roughly around that 50 mil in EBITDA and most of that just comes from interest on cash. It's just 100% earnings. It hits the bottom line. So, it's a big swing factor for the business and right now to tailwind for them regardless of everything else going on. So, a lot of moving parts here, I suspect the share price probably goes lower or stays around this for a while because you do have three large holders that appears like are exiting this business. That's a big headwind for the share price. But, you know, if you said to me, if things, you know, fast forward, 12, 24 months, I think this management team can execute on their goals. It starts to look incredibly

52:57cheap and I think you could actually do quite well from here. So, tricky one, I'm going to balance all that up and sit right on the fence. Apologies Andrew and say a hold. No, that all makes sense. But, potentially, it's an opportunity to get in. All right, let's start with the second half of the show then. Beginning with, well, it was Matt's pick in some similar, which have a way you want to say it. So, obviously it's a buy from him. The recently employed two as Founder's Lead, Deep Ownership, their three to five year growth he's seeing there and looking cheap and Luke is buying into that as well. Paladur Technology, it's a hold from Luke. Just to remember that lack of visibility for the business there. Matt pointing out to the question that we brought that the market doesn't agree with that that NTA. So, he would be selling it. Biz Alloy, it is a sell from Matt seeing some headwinds there, particularly cheap Chinese steel. Luke also pointed those sickle with the headwinds here, more likely to hold it, made a group. He's saying it's hard to fault Luke. So, he would buy it in fact, seeing some positives there.

54:00Matt less bullish on it. He would hold it, saying it's gone through it's earnings life cycle. And finally there, EML, which has been under tremendous pressure of course he's been holding it for this long, both seeing, well, it could turn around, but obviously pointing to, particularly as far as weather yields out at the moment. So, it is a double hold. That is the show. Great stuff. All right, Matt, thanks so much for joining us from Maple Brown Abbot. Thanks very much. And Luke, as always, thanks for joining us from Maryweather Capital. Thank you James, enjoy the weekend. You too. And of course, thanks to you for watching. You make the show because you're sending in your requests and your stock, stocks that you want to get some analysis off. So, keep doing that. Thanks for watching. Thanks for listening to The Call from Osby's. Keep your earphones in. Our bonus C-E-Go interview is up next. Dr Andreas Schweyer is the managing director and chief executive of Electrooptic Systems

55:05and Australian Defence and Space Technology Company, developing remote weapons systems, counter drone technology, high energy lasers and space tracking capabilities. Andreas, welcome to the corner office. Yeah, thanks for having me here. So, Andreas, for anyone new to EOS, can you explain how all the different components of the business fit together? So, we have two strategic objectives. And all what we're doing is falling into one of the two categories. One is all what relates to anti-drone business, whether it's effector type of activity like the laser weapon business or canem based air defense, or whether it's the integrated system approach with all the command control software behind, all that falls into this category. And the other one is the so-called space control business, where we also need the laser weapon that means engaging against any object in space, including satellite from ground. And you've built an international career against aerospace for space and defense. You've had senior roles at the European Space Agency

56:07and Airbus. How did you eventually come to be at EOS and what attracted you to the company? Before joined Electrooptic Systems, I have been working in Saudi Arabia to build up Saudi defense industry at that time. I was in charge also to identify any kind of key enabling military technology. And the laser weapon technology was one of the very top of this list. And we reached out to all international potential partners in this domain. And we selected EOS to become our partner in laser weapons, because EOS owns all the IP from A to set and was willing to collaborate and to also start a local production in Saudi. There was a starting point. And later on, it was a coincidence when my term in Saudi came to an end that exactly at this point in time, EOS was looking for a new chief executive. And I took the chance because I knew that the company is a tremendous portfolio of IP and innovation. It just needs to be commercialized. So I thought, that's a good chance to do that. And you became CEO in 2022. And as you say, at that time,

57:09it was facing significant financial and operational challenges. So at that point, what did you believe needed to change and how different is the company today from when you joined? The company was founder, let the founder. He is one of the best laser physicists worldwide. And obviously the focus of the company was very much on R&D. And at that time, they have missed a little bit to commercialize and to reach out to key markets to make money out of all that. They were very much concentrated on generating those kind of IPs. And that was the main reason why the company got in distress. Another one was co-ed during that point in time. Plus one contract named least, which was signed under unfavorable terms and conditions. So all that together, they're creating the kind of perfect storm. So it was not rocket science to get the company back on track. We needed to really go share those contracts and start to commercialize the products which were sitting almost ready on the shelf. Did you have to make any very difficult decisions

58:12during that turnaround? We had to let go many people. That was obviously very, very difficult. About 30% of all staff had to go. We had to exchange the entire management team. And we had to cut off some of the businesses which we are money losing. So we were concentrating on a few product lines which were highly profitable and giving us a promising outlook to the future. So all in all, it was not an easy time here. So I wanted to now and ask you because drone warfare is an area that is rapidly evolving. How do you stay ahead of changes in drone speed or autonomy and swarm capability? And what gives you that competitive advantage against other companies, particularly bigger companies? So we are greatly benefiting from the fact that we have handled off installed and deployed systems in the two major conflict areas. Of the day, one is the grain war and one is the conflict war in the Middle East. We have no grain more than 250 systems in active operation. And in the Middle East,

59:13we have more than 60 fully integrated systems active to protect the lean fast structure. On a daily basis, we are shooting down drones and rocket submissiles. And we get feedback motors on a daily basis on what's ongoing. So we can adopt softer wires on the actual needs. So it's a lot of your research and development than driven by what's actually going on the ground right now? Yes, on the ground and in there. That is indeed happening. So we are getting I think more feedback than anybody else because of this large install base. And we are a highly agile organization. I mean, we have very thin overheads. We have very quick decision-making processes and we allow our engineers to adopt in almost no time without waiting for a large approval to get acceptance by a complicated approval for sites within the company. So that is giving us, I think, a significant leading edge. And you acquired Mars, not the planet earlier this year. What capability did that business add? And why was acquiring data than perhaps developing

1:00:16the technology yourselves? We have been for the last couple of years, probably one of the largest anti-drone effector providers. So effector is a weapon system to shoot down drones with our laser weapons and can't base their defense systems. We are quite dominant in that domain. But we wanted to be able to offer to the client integrated solution, turn key solutions, which require the so-called command control system, which is controlling, commanding and managing and administrating all different types of effectors and sensors with one piece of software. Mars is one of the very few companies worldwide having developed a very specific anti-jone command control system. Their core is their software called NIDAR, which is AI driven. And this is quite unique, this piece. And that's the reason why we have acquired Mars. We are now in the position with all those ingredients together to offer fully integrated systems to the client. And systems which are really designed, developed for the anti-jone warfare. It was not developed for very complicated

1:01:21network centric warfare where you have to control even complicated missile systems such as Patriot. Those systems are an overkill for most of the user demands. And that's the reason why with Mars, we have done exactly the right thing. And what would the successful integration of Mars look like over the next 12 to 18 months? We will, so Mars has already integrated all of our effectors. So we can more instantaneously roll this out, but we can also benefit on the remote weapon system and laser side by integrated by integrating specific algorithms, software algorithms for Mars with AI features in to allow our effectors to also have a more accurate and more reliable tracking and identification of threats once those weapon systems have locked on a target. So and this kind of cross fertilization is still to happen. We've not done the set, but it's on our overplan. And let's turn to your results quickly because you've just reported first half results.

1:02:22What can you tell us about those? We've had the best half year in the company history. We have more or less quadrupled our revenue in the first half from around 44 million, 2025 to 169 million first half of this year. For the first time in history, we have had an positive EBDA of 21 million dollar, which was extra now extra order and are good. And we are most proud of the order book, which we have over the last three years quadrupled to about 849 million actual status. That is quite amazing. And we are by far not at the level what we think we can achieve by end of this year. We expect further growth to happen also in the order intake pipeline. So that is probably the piece which is most was amazing. So that order book, how much of that do you expect to convert into revenue over the next 24 months? So we have to distinguish between the water clients, the mass products are quite quick in turning from or intake backlog into revenue. That's because

1:03:25of the fact that mass is a softer company, softer you can easily copy or multiply. There's no scaling problem coming with it. It's just a problem of procuring quickly radars and other types of sensors and effectors from the market. Overall, I would say in 70 or 80 percent of all mass or intake, we'll convert into revenue within 18, 22, 24 months. So that is extremely quick in turning over. If you talk about a hardware oriented product such as the high energy laser weapon that typically is between 18 and 24 or 30 months. So it takes a little bit longer. Mass is the more agile part because of the nature of the product. And does that existing balance sheet give you enough capacity to deliver the order book or will you need to raise capital again? We don't need capital to increase our protection footprint. We have protection capacity in excess for what we need. In terms of remote weapons systems, we produce weapons systems at WS in Australia where we can produce more than 300 systems

1:04:30per shift and we can also introduce a second shift if needed. And we have the same type of capacity in Huntsville, Alabama, United States. And we're opening our also facility in cooperation with our transversal partner, Gen 5 in the UAE. So there's no need for additional capital investment on the software sacrifice. As I mentioned before, there is no production capacity increased needed because it's just software where we might need some money here and there is to provide game bank guarantees and bonds for large prime level contracts, which we expect to sign in and be leased in the course of the next year. Yes, as we are now and OEM we are competing now against the big companies, companies like Raytheon, Tales, Leonardo for not only systems protecting a single piece of infrastructure but also regional or countrywide anti drone systems. Those are large scale contracts, which require from time to time significant level of bonds and guarantees. For that we might need some more money but not to increase production capacity.

1:05:35So there's a lot of potential milestones for investors to watch out for coming up. What would be the sort of the first ones to come along in the next say six months? We still expect some significant orders to be leased. Those would be the very positive announcement to come and we expect those to start to happen before end of the year already. So all the days order book with 850 is not the end game of this year. Defence stocks sometimes get valued on the size of the opportunity before the profits and the cash flow catch up. What evidence should investors use to judge whether AOS is successfully converting its technology and backlog into a durable business? By watching very carefully our order intake pipeline, hoping it is the order book and how we convert this into revenue. We have now started this journey by having given an update on our guidance. So we expect for this year the revenue being within 3600 to 400 million dollar.

1:06:36You would see that we are very optimistic to increase this further on next year very very significantly because of the order book and the conversion rate. Those are the two parameters to be watched out on the intake and how quickly we can increase the revenue base. It's not very complicated to see that trend happening and we were always under promising and over delivering. That was our motor since the first day, 2022, when we came and joined the company and that that will remain our motor for the future. And we will always surprise the market by good news, better than expected. Andreas I want to ask you some personal questions now so investors can get a bit of a sense of your background. So what's the biggest lesson you've learned? It's the silliance. Never give up. We have had in particular during the time when I started this shop here, we were really facing critical problems. We were almost running out of money at that point in time and we count the coins every evening more or less in order to make sure that we can survive.

1:07:40So the hard time was in the very beginning and we had a couple of negative experiences during that point in time when governments or when other stakeholders didn't want to support us anymore because of the risk profile we came up with and that was very hard. There were quite some disappointment during those days but all that we could convert into optimism very soon and that's history. Nowadays we have no problems raising capital or getting credits. We are in a superb upswing that is behind us but the first few months were really very tough. And what inspires you? It is the tremendous opportunity to shape something very big. Again the company was close to CULP's when I joined and I see the potential to make this a multi billion dollar enterprise in terms of revenue and that is something which is not in the far future that is something which we can achieve all the next three to five years. There is hardly any other defense company with this kind

1:08:41of momentum and cost perspective. The key is really the high level of innovation which we have on the shelf which we can easily convert without investing big money into R&D. And what do you think your team would say about your leadership style? They would say I'm probably extremely agile. I'm extremely market and customer focused. I spend most of my time with clients, with industrial partners to form up networks to open new markets. That is something where I think most of my team can learn a lot and some of them they would say Andreas is a locomotive and we have to take care that the train is not decoupled from the locomotive because it's pushing so much. I love that locomotive. And I get a sense you're also very positive. Would that be correct? Yeah, I'm always optimistic. The glass is always half full, not half empty. That's correct. Yeah, it is a good way to look at life. Finally, Andreas, where would you like AOS to be five years from now? In five years from now, we will have a multi-billion dollar of revenue. I'm quite

1:09:46convinced about that. A huge order book. We will have a more international operational footprint with active production facilities in Europe, more in the Middle East. By the point in time, I expect that our US operation will deliver in large scale to the US Army, to the US client. We are about to capture to get back there the US market. And I believe that we will be the world leading system provider, not only for undidrone systems, but also for laser weapons. And the world leading company outside the United States of America, in what we call space control, space warfare, the ability to engage against space debris and satellites from ground with high energy laser weapons. That is the kind of scenario I see coming in three to five years. Dr. Andreas Schreier, CEO of Electro Optics Systems, thanks so much for joining us at the corner office this morning. Thanks for having me.

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