Small cap investors may have been flocking to companies benefiting from global warfare and the rise of drone technology but it’s been awhile since they showed much love for armour manufacturer HighCom (ASX: HCL). But with a major overhaul of their leadership and Board, the tide may be turning for the defence products manufacturer which has announced $11.4 million worth of contract wins in the space of two days for their ballistics products.
The first contract, valued at $2.5 million, was secured with an international military customer, while the second, more substantial order worth $8.9 million, was also confirmed from a military client. Both orders are scheduled for delivery in the first half of FY25.
“HighCom continues to engage with a range of US and international customers seeking to acquire large quantities of advanced high-end ballistic products given the current geopolitical environment,” said HighCom Chairman, Ben Harrison.
The Board also includes Australia’s former Minister for Defence, Christopher Pyne who is listed as a non-executive director.
These contracts come as HighCom navigates through a complex period marked by global conflicts and domestic issues in the United States, which have collectively driven demand for body armour and ballistic products. The escalation of conflicts in the Middle East and Ukraine has particularly heightened the need for military-grade protection. Additionally, domestic gun control challenges in the US have further spurred interest in ballistic solutions for law enforcement and civilian markets.
However, despite these lucrative contracts and the heightened demand for its products, HighCom has faced significant financial challenges. Earlier this year, the Company flagged a profit downgrade, revealing anticipated losses of between $13 million to $15 million for the first half of FY24. This announcement was a stark contrast to the HighCom’s FY23 performance, which saw a 54% increase in revenue to $89.4 million and a net profit after tax of $6.1 million.
The profit downgrade, attributed to poor management of contract wins and prolonged inventory holding in the Ballistics Division, prompted a major leadership overhaul with Scott Basham tendering his resignation in February 2024.
HighCom’s Board has initiated a comprehensive review of its operations, focusing on the sales pipeline and order backlog to strategise for an improved performance in the second half of FY24. This review included cost reduction measures and optimisation of the cost base to achieve a positive EBITDA position.
The leadership changes also included closing the company’s facility in Poland to consolidate operations in North America, a move aimed at streamlining operations and maximising efficiency amid challenging market conditions.
The recent contract wins, although significant, will be crucial in determining HighCom’s trajectory as it strives to regain stability and profitability with the $11.4 million in new ballistics contracts being well received by investors.
Within the first hour of morning trade, HCL shares reached a high of $0.22 which represented a 51.7% increase on their previous $0.145 close.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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