Austal Limited

ASB Details

Carried Good Momentum in FY21: Austal Limited (ASX: ASB) is involved in the designing, manufacturing, and support of high-performance vessels for commercial and defence customers worldwide. The market capitalisation of the company stood at ~$970.80 billion as on 30^th October 2020. The company recently entered an agreement to acquire Australian-based BSE Maritime Solutions Group at a value of $27.5 million, aligned with the company’s strategy to build the key support business. Notably, revenue from its support segment has grown at an annual rate of 28% over the past four years. In another announcement, the company also stated that the USS Mobile (LCS 26) has completed acceptance trials in the Gulf of Mexico. The trials were the last significant milestone before delivery of the ship, scheduled for October 2020.

FY20 Results Highlights: During the year ended 30^th June 2020, revenue increased by 13% to $2.086 billion, as compared to $1.851 billion in FY19. EBIT for the period came in at $130.4 million, up 41% on the previous year. NPAT for FY20 stood at $89 million, up 45% on FY19 NPAT of $61.4 million. The company declared a final dividend of 5 cents per share, bringing total dividend to 8 cents per share. The company possesses a secured order book of $4.3 billion running to FY2024.

Financial Summary (Source: Company Reports)

FY21 Earnings Guidance: ASB carried good operations momentum into FY2021, with the business underpinned by multi-vessel defence programs. The company expects FY21 revenues and EBIT to be ~$1.8 billion and ~$125 million, respectively. The forecasted EBIT is slightly lower than FY20, with an increased margin in the company’s USA operations and a significant improvement in Australasian margin.

Valuation Methodology: P/E Multiple Based Relative Valuation (Illustrative)

P/E Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months 

Stock Recommendation:  The company possesses a decent net cash position of $272 million as on 30^th June 2020. The stock of the company has corrected by 17.87% the last three months. On a technical analysis front, the stock of ASB has a support level of ~$2.47 and a resistance level of ~$3.86. We have valued the stock using a P/E multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers like Electro Optic Systems Holdings Ltd (ASX: EOS), Quickstep Holdings Ltd (ASX: QHL), Monadelphous Group Ltd (ASX: MND), to name few. Considering the current trading levels, carried good momentum, and strong net cash position, we give a “Buy” recommendation on the stock at the current market price of $2.71, up by 0.370% on 30^th October 2020.

ASB Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Quickstep Holdings Limited

QHL Details

Increase in Q1FY21 Sales on PCP: Quickstep Holdings Limited (ASX: QHL) is involved in the manufacturing of advanced carbon fibre composites. The market capitalisation of the company stood at $51.36 million as on 30^th October 2020. During the first quarter of FY21, sales came in at $22.6 million, up 16% on pcp. Operating cash flow for the quarter stood at $1.4 million. COVID-19 had minimal impact on the company’s performance, with its key customer continuing production in-line with plan. Total sales for FY20 came in at $82.3 million, up 12% on FY19. NPAT increased by 44% to $3.9 million. Underlying EBITDA for the period amounted to $8.8 million.

FY20 Financial Summary (Source: Company Reports)

What to Expect: The company expects formal product approval for the MJU-68 flare housing by the US Department of Defense before the end of 2020. C-130J demand has continued to be in line with expectations and discussions with Lockheed Martin on new product initiatives are ongoing. The company is continuing the production of Micro-X Nano lightweight x-ray machine, which is being used in the battle against COVID-19. FY21 revenue is expected to grow in the range of 5% - 10%, excluding new major contract wins. Commercial aerospace production volumes are expected to stabilise in the next 12 months and progressively recover through FY23.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

EV/EBITDA Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters) 

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation:  The stock of the company has corrected by 19.99% in the last three months and is inclined towards its 52-weeks low price, offering investors a decent opportunity for accumulation. On a technical analysis front, the stock of QHL has a support level of ~$0.066 and a resistance level of ~$0.106. We have valued the stock using an EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of low double-digit upside (in percentage terms). For the purpose, we have taken peers like Austal Ltd (ASX: ASB), Electro Optic Systems Holdings Ltd (ASX: EOS), Monadelphous Group Ltd (ASX: MND), to name few. Considering the revenue guidance, continued demand for products, resilience in these critical times, and current trading levels, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.072 as on 30^th October 2020.

QHL Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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