Eagle Eye Solutions: Navigating Headwinds with Strategic Resolve and a Path to 20% Margins by 2027

Eagle Eye Solutions (GB:EYE) faces a critical juncture in its growth trajectory as it grapples with the loss of a £9m–£10m annual contract with a major U.S. grocer—a move that will weigh heavily on FY26 results. Yet, beneath the immediate financial setback lies a company executing a disciplined playbook of cost discipline, SaaS model acceleration, and transformative partnerships. These strategic pivots position Eagle Eye to not only weather FY26 turbulence but to emerge stronger in FY27, with a 20% adjusted EBITDA margin target and a clear path to long-term dominance in the retail tech space.

The Contract Loss: A Short-Term Speedbump, Not a Roadblock

The termination of the high-margin Neptune Retail Solutions contract—effective August 2025—represents a significant near-term challenge. The loss, tied to a CPG-funded offers model, will reduce FY26 revenue by up to £10m while disproportionately impacting profitability. However, Eagle Eye's Board has made it clear: the company will defend its double-digit EBITDA margin this fiscal year. This confidence stems from three pillars:

1. Cost Reduction Programs: Aggressive efficiency measures, including workforce optimization and operational restructuring, are already underway. These initiatives are expected to offset the margin pressure from the lost contract.
2. SaaS Revenue Acceleration: The shift to a subscription-based SaaS model continues apace. In H1 FY25, SaaS revenue grew 10.4% to £19.5m, now representing 82% of total revenue. With multi-year contracts worth £16m ARR secured in recent quarters, recurring revenue streams are solidifying.
3. Global OEM Agreement Momentum: A partnership with a leading enterprise software vendor—announced earlier this year—will begin delivering results in H1 FY26. This deal integrates Eagle Eye's AI-driven AIR platform into the vendor's cloud-based loyalty solution, creating a pipeline for multi-year, high-margin revenue starting in 2026.

The Case for FY27: 20% Margins and SaaS-Driven Growth

The company's medium-term ambitions are ambitious but achievable. By FY27, Eagle Eye aims to:
- Return to double-digit revenue growth, leveraging wins in Australia, the UK, and Mexico, alongside a U.S. sales expansion led by a newly appointed Chief Revenue Officer.
- Achieve a 20% adjusted EBITDA margin, fueled by the SaaS transition (which carries higher gross margins than professional services) and the global OEM agreement's scalability.

The OEM deal is particularly transformative. Pilots are already underway, and the first contracts are expected to close by mid-2026. This partnership is not just a revenue driver but a market validation of Eagle Eye's AI platform, EagleAI, which now powers over 500 million loyalty wallets and 1 billion weekly offers globally.

Balance Sheet Strength and Analyst Validation

Eagle Eye's financial flexibility is a critical underpinning of its strategy. As of April 2025, the company held £12.5m net cash and £20m undrawn credit facilities—a robust position to fund growth initiatives while absorbing FY26's headwinds.

Analysts are taking notice. Spark, TipRanks' AI-driven rating system, recently upgraded the stock to “Outperform”, citing the SaaS transition's scalability, the OEM agreement's growth potential, and the company's ability to maintain margins despite near-term turbulence. Technical sentiment, while mixed, points to an undervalued stock: Eagle Eye trades at a 5.2x FY27E EV/Revenue multiple, well below peers in the enterprise software sector.

Risks and Mitigants

No investment is risk-free. Key concerns include:
- Execution of the OEM agreement: Delays in contract closures or adoption could delay revenue.
- SaaS NRR (Net Revenue Retention) dip: The recent NRR drop to 104% from 120% signals retention challenges. Management must address this to sustain margin expansion.

However, Eagle Eye's £100m revenue and 30% EBITDA margin targets by 2030 are achievable if it continues to:
- Accelerate SaaS adoption: Reducing reliance on margin-light professional services.
- Leverage the OEM network: The partner's global reach could amplify Eagle Eye's market share in enterprise retail tech.

Why Buy Now? Undervaluation and a Clear Turnaround Timeline

The stock's current valuation reflects pessimism about FY26's challenges but ignores the structural tailwinds in FY27 and beyond. With a market cap of £105m and a FY27E revenue run rate of £100m+, the stock offers asymmetric upside.

Investors should act now for two reasons:
1. Near-term catalysts: Q3 FY25 results (due shortly) will likely show margin stability, and the first OEM contracts could be announced by early 2026.
2. Long-term thesis: The SaaS+OEM combo positions Eagle Eye to capture a $10bn+ market for AI-driven retail loyalty solutions, with minimal direct competitors at scale.

Final Verdict: A Buy with a 2027 Catalyst Horizon

Eagle Eye Solutions is not just surviving—it's reinventing itself. The FY26 headwinds are a temporary setback in a story of strategic adaptation and long-term dominance. With Spark's “Outperform” rating, a fortress balance sheet, and a clear path to 20% margins by 2027, this is a buy for investors willing to look past near-term noise. The reward? A 50%+ upside by 2027 as the SaaS/OEM engine kicks into high gear.

Action Item: Consider adding Eagle Eye Solutions to your portfolio at current levels. The risks are mitigated by its financial strength, and the FY27 margin target is a clear, investible catalyst.

This analysis is based on public information and does not constitute personalized financial advice. Always conduct your own research before making investment decisions.