Danger hour for young Australian defense SMEs

By Peter Robert

History in the stock market this year has been a bloodbath in the share price performance of Australia’s small coterie of high-tech manufacturers.

The worst month was June, when the ASX 200 stock index lost 8.9% of its value and the S&P/ASX All Technology Index fell 10.3%.

It’s true that other stock markets have seen similar punishments meted out to tech stocks – the US NASDAQ fell 22.4% in the second quarter, its worst quarterly performance since 2008.

What concerns me today is the small number of Australian owned and operated defense manufacturers.

Governments of both colors have told us for years that growing these companies so they can build a truly sovereign Australian defense capability is a top priority.

But after stocks fell sharply this year, and especially after the stock market bloodbath in June, stars lined up for foreign companies to move in and score a bargain.

In June alone, shipbuilder Austal fell 9%, HF radio maker Codan fell 12%, drone countermeasures maker Droneshield fell 16%, electro-optical systems fell 20%, drone motor maker Orbital Corp fell 22%, composites maker Quickstep 18% and autonomous systems systems developer Strategic Elements fell 18%.

Consider in more detail Perth shipbuilder Austal whose shares have fallen steadily from $4.37 in February 2020 to a low of $1.80 on Friday.

Shares fell even as the company continued to make profits from its shipbuilding contracts for the US Navy, and even as the company opened a $100 million steel shipyard in Mobile, Alabama. The new site was funded by the US Department of Defense to the tune of $50 million.

During this time, it must be said that the payment of dividends fell from a peak of 0.05 cents per share to 0.04 cents.

It was not until July that Austal was rediscovered by investors, after winning a $4.35 billion contract to detail design and build up to 11 offshore patrol boats for the Coast Guard Americans (USCG).

Austal has always been profitable and its promise is obvious to all.

Yet even after a rally this month, a foreign company could snare Austal for just $926 million.

Electro Optic Systems is another crucial Australian high-tech manufacturer, but today it is valued at $133.2 million.

The company’s main business, the manufacture of remote weapon stations, is profitable, an area where it is busy working on RWS contracts for armored vehicles worth up to $450 million.

EOS has lost money over the past two years – the result of heavy investment in the business as it expanded into the space and communications sectors, and Covid disruptions to its supply chains. mainly international supply.

The company is now facing strong demands for capital, which forces it to review its strategy.

But even so, EOS, like Austal, is exactly the kind of business that Australia should not allow to be handed over to foreign owners at a bargain price – leaders in their fields, and owned and run by Australians.

The potential for a series of takeovers of our most promising companies is a familiar story for Australia.

Stock markets go up and down and those with deep pockets just have to wait to acquire local technologies at low prices.

But if we ever want to build a sovereign defense industry, we simply cannot let these companies fall into the hands of foreign predators.

Image: Electro Optic Systems has $450 million in contracts for remote weapon stations

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