The Commonwealth is set to outlay $1 billion from mid-2022 to establish a Sovereign Guided Weapons and Explosive Ordnance Enterprise, and Electro Optic Systems (ASX:EOS) is primed and ready to take a chunky slice of the pie.

It’s part of the Government’s $270 billion, 10-year investment in Defence and Australia’s defence industry needs to sustain combat operations if global supply chains are disrupted.

And it could be a huge pie. The Government forecasts GWEO spend will exceed $40 billion out to 2040 and the Australian Strategic Policy Institute says it could be closer to the $100 billion mark.

Earlier this month EOS joined forces with Nova Systems to form the Sovereign Missile Alliance (SMA), a 100% Australian-controlled joint venture to target selection as one of the Government’s Sovereign Industry Partners.
 
EOS and other Defence stocks on the ASX


 

Developing a sovereign family of missiles

EOS defence systems CEO Grant Sanderson reckons SMA has advanced R&D capabilities, existing IP, and established technology partnerships to create the next generation of guided weapons – with full sovereign ownership and control.

“The Government needs to increase its stockholding of missiles, it needs to increase its control over the supply chain of those missiles, and the intent of the Sovereign Missile enterprise is to deliver three things,” he said.

“One is an enhanced stockpile of existing missile capabilities, one is to deliver improved management of those stockpiles, leveraging on existing contacts and the third aspiration is to move towards a full sovereign control of future missile design development and requirements.

“The SMA is very focused on third component of that which is the development of a full sovereign family of missiles and extended Australian capabilities which can be used, can be modified, can be developed, maintained and exported without reference to any other international countries.”
 

$20-$30 billion market opportunity over the next decade

Sanderson said there’s a lot of opportunity for SMA in both the initial stages of developing the in-country capabilities – including the science and technology activities, testing evaluation activities and improving the country’s ability to manage existing stocks – as well as leading the science and technology path to designing, building and qualifying future Australian sovereign missile capabilities.

“If you were to look at the whole $100 billion spend between now and 2040, SMA could access to 10-15% of that over the first decade, and that would grow towards 50-60% in the second half of the decade,” he said.

“So, the estimated revenue stream in the first five or six years is probably somewhere between $500,000-$1 billion dollars.

“But in the second part of the decade, 2030-2040, that’s significantly higher; it’s much closer to $20-30 billion.”


 

Prime time to be a defence business in Australia

Droneshield (ASX:DRO) CEO Oleg Vornik said that now is probably the best time since Federation to be a defence business in Australia because it has the 12th largest defence budget in the world.

The company recently secured $3.8 million contract with Australian Department of Defence in Electronic Warfare/Signals Intelligence arena and has sold some of its RfOne long-range drone detection sensors to the Australian Army to assess its future counter-drone requirements.

“If you spoke with Australian Defence even 10 years ago, they would have told you that we’re pretty safe in terms of a risk of a major conflict outbreak in our region,” he said.

“But if you talk to Defence now they’ll tell you that there’s a very real possibility (hopefully not) but they’re preparing for a major armed conflict in the region in the next 10 years.

“And traditionally, Australia relied almost entirely on its defence requirements with products from the US in the UK but the vision is to be as self-sufficient as you can, because if a major conflict breaks out, supply chains get cut.”

“The Australian Government identified half a dozen key priority areas in terms of missiles, ammunition, and what we do kind of broadly focuses within the electronic warfare/signals intelligence and counter drone intelligence.”